Since this is not a work-related injury, and since you have fewer than 50 employees (and are therefore not covered by either the Family and Medical Leave Act or the California Family Rights Act), your course of action will be dictated by (a) whether you have a company policy or prior practice of providing extended leaves; and (b) whether the injury the employee suffered amounts to a disability under either California or federal law. Assuming you do not have a company policy or practice which provides for indefinite leaves for employees (most employers do not have such a policy for obvious reasons), your only remaining obstacle is the disability issue. California's definition of disability is much broader than the fed's, and arguably includes injuries and other non-permanent conditions. Your obligation as an employer subject to California's ADA is to reasonably accommodate the injury unless and until doing so creates an "undue hardship" for your company. Various courts have held that granting an employee leave to deal with a disability is one form of "reasonable accommodation." Unfortunately, these decisions do not provide any bright line test to determine at what point an extended leave becomes "unreasonable" for the company to accommodate. My advice to you would be to accommodate the need for leave so long as you can reasonably do so. If it has gotten now to the point where you can no longer accommodate the need for leave, and can point to specific hardship that the employee's absence has caused, then I would cautiously advise you that you could terminate the employee. Ideally, you've already sent the employee letters or emails or other communications confirming that the company will accommodate the prior leaves, but not indefinitely. If the employee is on leave currently pursuant to a doctor's note with a specific return date, then I would advise sending the employee a letter indicating that the company expects him/her to return on that date, and that if he/she does not return on that date, that the company will evaluate its ability to continue to accommodate the need for leave. If you honestly cannot accommodate the leave any longer and are at your wit's end, then the right course of action would be to advise the employee that you can no longer accommodate the leave and terminate the employment. To minimize your exposure, you could offer a severance package in exchange for a release.
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The most important law that applies to your situation if FEHA (California Fair Employment and Housing Act) which requires the employers to engage in "interactive process" to provide reasonable accommodation to an employee which has actual or perceived disability unless that would be an undue hardship on business operations. The burden to prove undue hardship is on the employer, and I wouldn't suggest taking a risk and counting that you will be able to prove it after you dismiss and employee. In your case, the question is whether you know when the employee comes back and whether there is a definite expiration date to his disability leave. You can certainly hire a temporary replacement and then reinstatement the employee to the same or similar position upon his return.
On the more practical level, it might be worth contacting an employee and see if he wants to be laid off in exchange for some kind of severance package. This will allow you to effectively replace him, make the transition for that absent employee easier and have your peace of mind that you will not be sued as the employee will sign the release in exchange for severance.
San Francisco & Sacramento Employment Lawyer