Business Judgment and At-Will Employment in California
Introduction
California law presumes employment to be “at will.” This means employers have wide latitude to make hiring, discipline, and termination decisions—even ones that may seem unfair, mistaken, or based on subjective judgment. However, legal limitations remain: no business decision can be motivated by discrimination or retaliation. Business owners should understand that courts are not tasked with reviewing every workplace decision—only whether a prohibited motive caused the adverse action. (Lab. Code, § 2922)
What Does “Business Judgment” Mean?
Business judgment refers to the legal principle that employers are allowed to make employment decisions—good or bad, wise or unwise—so long as those decisions are not animated by unlawful reasons. California courts have stressed that not every poor or unpopular choice is illegal; only those based on a discriminatory or retaliatory motive create liability. As one court noted, “The employer may fire an employee for a good reason, a bad reason, a reason based on erroneous facts, or for no reason at all, so long as it is not for a discriminatory reason.” (Veronese v. Lucasfilm Ltd. (2012) 212 Cal.App.4th 1, 21)
Employers are free to set their own performance standards and business goals, even if outsiders find them unreasonable, provided those standards are applied consistently and fairly. It is not enough for an employee to show that a decision was mistaken or harsh; the law asks whether it was a pretext for discrimination. (Guz v. Bechtel National, Inc. (2000) 24 Cal.4th 317, 358)
What Business Judgment Cannot Protect
While courts are deferential to business decisions, there is no protection for actions based on unlawful motives. Discharging or disciplining an employee because of their race, gender, age, disability, pregnancy, or for reporting workplace wrongdoing, crosses the line. Likewise, selective enforcement of policies that disproportionately affect those in protected categories can expose the business to legal risk. Employers cannot defend an adverse action simply by asserting they were exercising business judgment if there is credible evidence of bias or retaliation. (Diego v. City of Los Angeles (2017) 15 Cal.App.5th 338, 355)
Practical Recommendations for Employers
Employers aiming to avoid legal pitfalls should:
Consistently enforce policies and standards across all employees.
Keep clear records of business reasons for any disciplinary or termination decision.
Train managers to recognize and avoid improper motives when making personnel decisions.
Review and update workplace policies for fairness and legal compliance.
Seek legal counsel (e.g., myself) when facing terminations or discipline following complaints, leave requests, or issues involving protected groups.
Being proactive reduces risk and demonstrates good faith in business operations. (Cheal v. El Camino Hospital (2014) 223 Cal.App.4th 736, 742–743)
Conclusion
At-will employment and business judgment give California employers significant flexibility in managing personnel. However, that flexibility ends where discrimination or retaliation begins. By making decisions based on documented business reasons and enforcing rules fairly, business owners can protect their company and foster a workplace culture of compliance and respect.
Citations:
Lab. Code, § 2922; Veronese v. Lucasfilm Ltd. (2012) 212 Cal.App.4th 1, 21; Guz v. Bechtel National, Inc. (2000) 24 Cal.4th 317, 358; Diego v. City of Los Angeles (2017) 15 Cal.App.5th 338, 355; Cheal v. El Camino Hospital (2014) 223 Cal.App.4th 736, 742–743.
