The California Supreme Court has essentially ruled that when arbitrators make decisions, they have leeway to make it up as they go along. In a case decided in January, the court upheld an arbitrator’s decision which applied a legal defense not allowed under California law because it felt the plaintiff failed to show harm done by the error. In Richey v. Autonation, Inc., the court reviewed an arbitrator’s award and decided that although the arbitrator may have committed a mistake in using the defendants’ proffered “honest belief” defense, which is not available under California law, the plaintiff was still afforded his legal rights. The court stated that because the arbitrator decided the plaintiff’s employment was terminated for violating a policy prohibiting outside employment while on medical leave, the plaintiff was not harmed by the arbitrator’s misplaced use of the “honest belief” defense.

Plaintiff Avery Richey started work for defendant Power Toyota Cerritos in 2004. When he was hired, he signed a mandatory arbitration agreement and was given an employment manual which stated he couldn’t hold another job if he was out on a medical leave.Around October 2007, Richey started laying the groundwork to start a restaurant, which was to open in February 2008. His supervisors allegedly took notice of his declining performance and attendance and met with Richey to talk about it. The next month, Richey hurt his back at home, his physician declared him medically unable to work, and he received a medical leave under the California Family Rights Act (CFRA), which was later extended by defendant.Richey’s supervisor sent him a letter in April 2008 reminding him of the company’s policy that employees couldn’t have outside employment during a medical leave. The defendant later sent an employee to plaintiff’s restaurant and who testified he saw plaintiff sweep, bend and use a hammer. Richey’s employment was terminated prior to the end of his medical leave. He sued, claiming violations of the California Fair Employment and Housing Act and the CFRA. The court ruled the case had to go to arbitration.The arbitrator rejected all of the plaintiff’s claims in a 19-page order. The arbitrator wrote, “case law . . . allows (the defendant) to terminate (the plaintiff) if it has an ‘honest’ belief that he is abusing his medical leave and/or is not telling the company the truth about his outside employment.” Richey sought to overturn the decision because of the use of the “honest belief” defense.

His motion was denied, however the appellate court reversed that ruling. Power Toyota appealed that decision to the Supreme Court and won.The court focused on whether the arbitrator acted “in excess of his powers,” providing grounds for reversal of his decision under the California Arbitration Act. The court decided that, even if the arbitrator made a mistake in adopting the “honest belief” defense, Richey failed to show the error was prejudicial because the arbitrator found Richey was fired because he violated the defendant’s policy of outside employment during a medical leave, not because he was on leave. The state Supreme Court decision follows a number of court decisions against employees and for employers in cases involving arbitration decisions. Arbitrators have much discretion when issuing their rulings, including giving weight to defenses that have no basis in state law.