“Good Cause” for Employee Misconduct: What California Employers Must Do

Introduction

When terminating an employee for misconduct under an implied employment contract, California law requires more than just suspicion or preference. “Good cause” to discharge must follow a fair and honest process that addresses both your business interests and the rights of your employee.

What Does “Good Cause” Mean for Misconduct?

“Good cause” in this context means you acted with honest and fair reasons, regulated by good faith, that are not trivial, arbitrary, or capricious, unrelated to business needs or goals, or pretextual (Serri v. Santa Clara University, 226 Cal.App.4th 830, 872–73). Courts are looking for a reasoned conclusion, supported by substantial evidence gathered through an adequate investigation that includes notice of the claimed misconduct and a chance for the employee to respond.

What Is Required for an Appropriate Investigation?

Your investigation must:

• Be reasonable under the circumstances,

• Give the employee notice of the claimed misconduct,

• Provide the employee a meaningful chance to answer before the final decision,

• Be fair—listen to both sides and allow the employee to correct or contradict prejudicial statements

(Cotran v. Rollins Hudig Hall International, Inc., 17 Cal.4th 93, 107; Serri, 226 Cal.App.4th at 872–73).

The core question is not whether the employee actually engaged in misconduct, but whether your factual basis for termination arose honestly from an appropriate, non-pretextual process (Cotran, 17 Cal.4th at 107).

Reasoned Belief, Not Absolute Proof

You do not have to prove actual misconduct occurred. What matters is that your honest, good faith belief was based on substantial evidence through a fair inquiry (Serri, 226 Cal.App.4th at 873).

Employee’s Burden and Employer’s Duties

If an employee successfully raises a prima facie case of wrongful termination, you must provide your reasoning for termination. The employee then has the opportunity to argue your reasons are pretextual or not contractually sufficient, but ultimately bears the burden of proof (Pugh v. See’s Candies, Inc., 116 Cal.App.3d 311, 329–30).

Key Steps for Employers

• Give clear, documented notice of the alleged misconduct.

• Conduct an objective investigation and gather all relevant facts.

• Allow the employee to respond before making any decision.

• Keep detailed records to show you acted fairly, consistently, and in good faith.

Bottom Line

A fair, honest, and reasonable investigation and decision-making process is your best protection against legal claims when firing for misconduct under an implied contract. Focus on documentation, consistency, clear communication, and hearing both sides before acting.

Citations:

Cotran v. Rollins Hudig Hall International, Inc., 17 Cal.4th 93, 107; Serri v. Santa Clara University, 226 Cal.App.4th 830, 872–73; Pugh v. See’s Candies, Inc., 116 Cal.App.3d 311, 329–30; CACI No. 2405.