Honest Mistaken Belief: A Critical Defense for California Business Owners
Introduction
California business owners are sometimes accused of breaching the implied covenant of good faith and fair dealing when making employment decisions. One of the strongest defenses is showing your decision was based on an honest, even if ultimately mistaken, belief that you had a legitimate business reason—as long as you acted fairly and without bad faith (Wilkerson v. Wells Fargo Bank, 212 Cal.App.3d 1217, 1231 (Cal. Ct. App. 1989), disapproved on other grounds by Cotran v. Rollins Hudig Hall Int’l, Inc., 17 Cal.4th 93, 96 (Cal. 1998)).
How “Honest Belief” Protects You
California courts hold that you are not liable for breach simply because you made a decision based on a misunderstanding of the facts, as long as your decision was founded on an honest, reasonable belief and would have served a legitimate business purpose had your understanding been correct (Wilkerson, 212 Cal.App.3d at 1231). The law looks at sincerity and motive, not just accuracy (Seubert v. McKesson Corp., 223 Cal.App.3d 1514, 1521 (Cal. Ct. App. 1990), overruled on other grounds by Dore v. Arnold Worldwide, Inc., 39 Cal.4th 384, 389 (Cal. 2006)).
What Courts and Juries Consider
In practice, juries receive instructions that an honest, though mistaken, belief does not violate the implied covenant, provided the employer acts for a legitimate business reason (Luck v. S. Pac. Transp. Co., 218 Cal.App.3d 1, 26 (Cal. Ct. App. 1990)). Courts and juries are especially interested in your motives and whether your process was fair—whether you genuinely acted on business needs or sought to deny employees benefits in bad faith (Comunale v. Traders & Gen. Ins. Co., 50 Cal.2d 654, 658 (Cal. 1958)).
Best Practices to Support an Honest Belief Defense
Do Your Homework: Gather all the necessary facts, talk to relevant people, and make sure your belief is well-founded before acting.
Keep Good Records: Document every fact, reason, and step behind your decision, confirming you relied on what seemed credible at the time.
Be Transparent with Employees: Communicate clearly about why decisions are made, reinforcing your honesty and fairness.
Be Consistent: Apply discipline and policies evenly to all, avoiding allegations of targeting or pretext.
Correct Mistakes Promptly: If you discover an error, address it as soon as possible—showing ongoing commitment to fairness.
Seek Legal Guidance for Tough Calls: For complex situations, consult an employment attorney (e.g. myself) to ensure compliance and effective documentation.
Key Takeaway for Business Owners
California law shields employers who act in good faith for justifiable business reasons—even when mistakes are made. Sincere motives, detailed records, and transparency are your best defenses against claims of violating the implied covenant of good faith and fair dealing.
Citations:
Wilkerson v. Wells Fargo Bank, 212 Cal.App.3d 1217, 1231 (Cal. Ct. App. 1989), disapproved on other grounds by Cotran v. Rollins Hudig Hall Int’l, Inc., 17 Cal.4th 93, 96 (Cal. 1998); Luck v. S. Pac. Transp. Co., 218 Cal.App.3d 1, 26 (Cal. Ct. App. 1990); Seubert v. McKesson Corp., 223 Cal.App.3d 1514, 1521 (Cal. Ct. App. 1990), overruled on other grounds by Dore v. Arnold Worldwide, Inc., 39 Cal.4th 384, 389 (Cal. 2006); Comunale v. Traders & Gen. Ins. Co., 50 Cal.2d 654, 658 (Cal. 1958); CACI No. 2424.
