“Good Cause” for Termination: The Standard for California Employers

Introduction

For California business owners who promise to terminate employees only for “good cause,” the legal requirements go beyond personal judgment. Courts have laid out clear criteria for what qualifies as “good cause”—and what does not—when considering claims for breach of employment contract under an unspecified term.

What Is “Good Cause”?

“Good cause” exists when you make the decision to discharge an employee in good faith, for a fair and honest reason (Serri v. Santa Clara Univ., 226 Cal.App.4th 830, 872 (Cal. Ct. App. 2014)). The law allows substantial discretion in managing your workforce, especially with employees in sensitive or managerial positions (Pugh v. See’s Candies, Inc., 116 Cal.App.3d 311, 330 (Cal. Ct. App. 1981), disapproved on other grounds in Guz v. Bechtel Nat’l, Inc., 24 Cal.4th 317, 350–51 (Cal. 2000)). However, your discretion is not unlimited.

You lack good cause if the reason for termination is trivial, arbitrary, inconsistent with usual practice, unrelated to clear business needs or goals, or conceals your true motivation (Walker v. Blue Cross of California, 4 Cal.App.4th 985, 994 (Cal. Ct. App. 1992); Serri, 226 Cal.App.4th at 872).

Balancing Interests

The standard requires balancing the employer’s interest in operating efficiently and profitably with the employee’s interest in keeping their job. Exercise care not to interfere with legitimate employment interests through arbitrary or unreasonable action (Walker, 4 Cal.App.4th at 994).

What Is Required for a Fair Process?

If you terminate for misconduct, you should:

• Act in good faith in your decision.

• Conduct an appropriate investigation for the situation.

• Have reasonable grounds for believing the employee engaged in misconduct.

(Jameson v. Pac. Gas & Elec. Co., 16 Cal.App.5th 901, 910–11 (Cal. Ct. App. 2017); Cotran v. Rollins Hudig Hall Int’l, Inc., 17 Cal.4th 93, 107 (Cal. 1998).)

Importantly, courts focus on your honest belief in the stated reasons—not the absolute truth or falsehood of the underlying facts (Jameson, 16 Cal.App.5th at 911).

Sensitive and Managerial Positions

Employers are given broader latitude in personnel decisions regarding managerial or confidential employees (Pugh, 116 Cal.App.3d at 330), but those decisions must still be in good faith and based on fair and honest reasons.

Burden of Proof

If challenged, the terminated employee has the burden to prove the lack of “good cause.” The employer must explain the reason(s), which the employee may attack as pretext or insufficient under law, but ultimately the employee must prove the termination was wrongful (Pugh, 116 Cal.App.3d at 329–30).

Practical Tips for California Employers

• Document all reasons for termination and ensure they are fair and tied to business needs.

• Apply policies and practices consistently.

• When firing for misconduct, always investigate and record your process and findings.

• Do not rely on arbitrary or inconsistent reasons—these will not satisfy the “good cause” standard.

Citations:
Lab. Code § 2922; Serri v. Santa Clara Univ., 226 Cal.App.4th 830, 872 (Cal. Ct. App. 2014); Walker v. Blue Cross of Cal., 4 Cal.App.4th 985, 994 (Cal. Ct. App. 1992); Cotran v. Rollins Hudig Hall Int’l, Inc., 17 Cal.4th 93, 107 (Cal. 1998); Jameson v. Pac. Gas & Elec. Co., 16 Cal.App.5th 901, 910–11 (Cal. Ct. App. 2017); Pugh v. See’s Candies, Inc., 116 Cal.App.3d 311, 329–30 (Cal. Ct. App. 1981); CACI No. 2404.