Good Cause Termination: The Cotran Investigation Standard
When an employee can be fired only for good cause, a California jury doesn’t decide whether the employee actually committed the misconduct. It decides whether the employer, acting in good faith after an appropriate investigation, had reasonable grounds to believe the employee did. That rule comes from the California Supreme Court’s 1998 decision in Cotran. It shifts the fight from what happened to how the employer found out, so the investigation file often decides whether a breach of contract claim survives.
When does the good cause standard apply?
Only when employment isn’t at will. Labor Code section 2922 states the default: “An employment, having no specified term, may be terminated at the will of either party on notice to the other.” Most California employees are at will.
But an employee can claim an express or implied promise to fire only for good cause, built from offer letters, handbook language, long service, promotions, or a manager’s assurances. When that claim gets to a jury, the Cotran standard governs what “good cause” means. A clear at-will acknowledgment signed by the employee is still the first line of defense, and it often ends the contract claim before the investigation is ever examined.
What did Cotran decide?
That the jury judges the employer’s decision, not the underlying facts. In Cotran v. Rollins Hudig Hall International, Inc. (1998) 17 Cal.4th 93, a manager was fired after two coworkers accused him of sexual harassment, and a jury later found he hadn’t harassed them. The Supreme Court held the jury had been asked the wrong question.
On retrial, the court said, “the question critical to defendants’ liability is not whether plaintiff in fact sexually harassed other employees, but whether at the time the decision to terminate his employment was made, defendants, acting in good faith and following an investigation that was appropriate under the circumstances, had reasonable grounds for believing plaintiff had done so.”
That’s a major protection for employers. Workplace misconduct often happens without witnesses, and an employer can’t run a criminal trial. Cotran accepts that a fair, reasonable investigation can support a firing even if a jury later doubts the accusation.
What counts as good cause?
A reasoned decision, fairly reached. The Cotran court defined good cause as “fair and honest reasons, regulated by good faith on the part of the employer, that are not trivial, arbitrary or capricious, unrelated to business needs or goals, or pretextual.” It summed up the standard as “A reasoned conclusion, in short, supported by substantial evidence gathered through an adequate investigation that includes notice of the claimed misconduct and a chance for the employee to respond.”
The court declined to spell out the required steps. It noted that fair procedure “does not compel formal proceedings with all the embellishments of a court trial.” So there’s no fixed checklist. There are, however, recurring weaknesses that plaintiffs’ lawyers look for.
| Cotran element | What the jury looks for | Common weakness |
|---|---|---|
| Good faith | An honest belief, not a pretext | A decision made before the investigation began |
| Adequate investigation | Witnesses interviewed, documents reviewed | Key witnesses never contacted |
| Notice of the charge | The employee was told what was alleged | Vague or shifting accusations |
| Chance to respond | The employee’s side was heard and weighed | An interview held after the decision was final |
| Substantial evidence | Reasonable grounds for the conclusion | A conclusion resting on one uncorroborated account |
Does Cotran help with discrimination or retaliation claims?
Partly. Cotran sets the standard for a breach of implied contract claim. A FEHA discrimination or retaliation claim asks a different question: whether a protected characteristic or protected activity was a substantial motivating reason for the decision. Still, a careful, documented investigation is strong evidence that the employer’s reason was honest rather than pretextual, and that evidence matters in both kinds of case.
The flip side is also true. A sloppy investigation can look like pretext. If the investigator ignored the employee’s witnesses or the decision-maker had already announced the outcome, the employee’s lawyer will argue the stated reason was cover for something else. How to run the investigation itself is covered in the firm’s post on harassment investigations by California employers.
What should an employer do before firing for misconduct?
Build the record that Cotran rewards, before the decision is final.
- Preserve the complaint, interview notes, emails, texts, video, and any badge or system logs, and keep them under a litigation hold once a claim is threatened.
- Check the employee’s offer letter, handbook acknowledgments, and any written agreement for at-will or good cause language, and note any EPLI notice requirements.
- Identify every witness either side has named, and interview them, including the ones the accused employee suggests.
- Pull the policy the employee allegedly violated and the discipline other employees received for similar conduct.
- Talk to employment counsel before the termination meeting, especially when the employee has complained about discrimination, harassment, or pay.
Termination decisions that may be challenged in court are a regular part of employer defense work in California.
Good cause termination questions employers ask
Does the employee have to be interviewed?
In practice, yes. Cotran described an adequate investigation as one that includes notice of the claimed misconduct and a chance for the employee to respond. Firing someone without hearing their side is one of the easiest ways to lose the benefit of the standard. The interview should come before the decision, and the notes should show what the employee said and how it was weighed.
Does the employer need an outside investigator?
Not always. Cotran requires an investigation that’s appropriate under the circumstances, not a particular kind of investigator. An experienced HR professional can handle many matters. Outside investigators make more sense when senior executives are accused, when HR is involved in the dispute, or when the allegations are likely to lead to litigation. Using an attorney as investigator can raise privilege questions later.
What if new evidence turns up after the firing?
Cotran looks at what the employer reasonably believed when it made the decision. Evidence discovered later doesn’t make an unreasonable decision reasonable, though it may affect damages in some cases. Evidence that clears the employee doesn’t automatically make a reasonable decision wrongful either. That’s why the investigation file should be complete and dated at the time of termination.
If a former employee says they could only be fired for good cause
If your company has been sued by a former employee who claims an implied promise of job security, the at-will paperwork and the investigation file usually decide how strong the claim is. Rosenberger + Kawabata represents employers defending employment lawsuits and claims through its business litigation practice, including claims involving wrongful termination and breach of implied contract. Contact Rosenberger + Kawabata online for a confidential consultation, or call (310) 894-6921.
Sources
The governing case is Cotran v. Rollins Hudig Hall International, Inc. (1998) 17 Cal.4th 93. The at-will presumption is in Labor Code section 2922.
This post is general information about California and federal employment law as of November 7, 2026. It is not legal advice, and reading it does not create an attorney-client relationship. Employment statutes, regulations, and court decisions change often, and the outcome of any claim depends on its facts. Past results do not guarantee future outcomes.