California Supreme Court: “Honest Belief” Defense Still Unsettled

Jan 29 2015 - FMLA/CFRA, Workplace Policies - Gail Cecchettini Whaley

Today, the California Supreme Court upheld an arbitrator’s ruling in favor of an employer in a California Family Rights Act (CFRA) case. However, the Court avoided the main question that many wanted answered:

Is an employer’s honest belief that an employee is violating company policy a defense to an employee’s claim that the employer violated CFRA by terminating the employee — even if that belief is mistaken?

The case involved an employee who went on CFRA leave from his job at an auto dealer. The company learned that, while on leave, the employee was working at a restaurant he owned. The company fired the employee for engaging in outside employment while on approved medical leave.

The employee claimed that his right to reinstatement after CFRA leave was violated. The matter went to arbitration, and the arbitrator found for the employer. The arbitrator relied on the federal honest belief defense which applies when an employer terminates an employee based on an honest belief that the employee is violating company policy – even if that belief is mistaken.

The court of appeal vacated the award in favor of the employer because it believed that it was error to adopt the honest belief equitable defense. The appellate court also found that the company had not developed sufficient facts to justify the termination.

The Supreme Court reversed the court of appeal, finding that the arbitrator did not make an error because there was clear evidence that the employee was fired because he violated the company’s policy against outside work while on approved leave. There was “overwhelming evidence” to support that finding and, also, that the employee knew of the company policy against outside employment while on leave.

According to the Court: “Even if [the company’s] employment manual could have more clearly stated the rule about outside employment, the award indicates plaintiff blatantly ignored his superiors’ clear instructions not to work at the restaurant while on CFRA leave. To ignore this fact and to hold that [the company] could not have fired plaintiff under any circumstances for violating company policy while on leave would ignore the rule that plaintiff had no greater right to reinstatement or to other benefits and conditions of employment than if [he] had been continuously employed during the statutory leave period.” [Citations omitted.]

Unfortunately, the Supreme Court declined to decide whether the honest belief defense applies in California employment law.

“Whether the honest belief defense applies when an employer terminates an employee based on a reasonable belief that the employee is violating company policy while on CFRA or FMLA leave is an unsettled question of law. We need not resolve that question in finding that the arbitrator here made no legal error … .”

For more information on CFRA, visit the HR Library’s Family and Medical Leave section. Consult with counsel before terminating an employee on approved medical leave.

Gail Cecchettini Whaley, CalChamber Employment Law Counsel/Content

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