Although the vast majority of the private sector workers in California are at-will employees and can be terminated for any reason, no reason, or arbitrary reason, as long as it's not an illegal reason, a number of employees have a contract with their employer which limits the employer's rights to terminate and require showing of "cause" or "good cause" for termination. Thus, practically all union members can be only terminated for "just cause" as their collective bargaining agreement provides. In addition, some employment contracts provide that the employee will be employed for a specified term and cannot be terminated except for cause. Usually "cause" means gross and/or intentional misconduct, such as fraud, theft, willful violation of company policy, competition or disclosing confidential information to competitors, etc.
The law on the meaning of "good cause" termination is ambivalent. On one hand it provides significant protection to employees whose employment is governed by this term. On the other hand, it gives a significant leverage to the employer. It is important to understand that the employer does not need to prove that the misconduct giving ground to contract termination actually took place. It only needs to show that in discharging the employee, it was acting for a purpose relating to its business needs or goals, rather than for a wrongful motive or reasons. Cotrans v. Rollins Hudig Hall Int'l (1998). The courts generally defer to the employer's good faith exercise of its managerial discretion, although that discretion is not unlimited.
Under the leading on the issue Cotrans case standard, three factual determinations are relevant to the question of employer's liability in good cause discharge claims:
(1) whether the employer acted in good faith in deciding to terminate the employee;
(2) whether the decision followed an adequate investigation; and
(3) whether the employer had reasonable grounds for believing the charges against the employee were true.
"Adequate investigation" means that at a minimum, the employer should listen to both sides. That is - give the employee a fair opportunity to preset his position and to correct or contradict relevant statements or information. It is also important that any investigation taking place is conducted by neutral, unbiased personnel members who have no interest in the outcome of that investigation. Interviewing a large number of co-workers and other witnesses of the alleged misconduct will also make the investigation more valuable and complete, protecting the employer from liability and assuring that the results of the investigation are more reliable.
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