## Facts

- Ralph Cotran, a senior executive at an insurance brokerage firm, alleged an implied-in-fact agreement that he would not be terminated except for good cause.
- The employer terminated Cotran after several female employees accused him of serious sexual misconduct, including indecent exposure and obscene phone calls.
- The employer’s compliance manager investigated by interviewing numerous witnesses, confirming certain contacts (including calls to employees’ homes), obtaining sworn statements, and concluding it was more likely than not Cotran committed the alleged misconduct.
- Cotran denied the allegations and sued for breach of the implied good-cause employment agreement, asserting there was no good cause because the misconduct did not occur.

## Issues

1. In an implied good-cause employment case involving disputed misconduct, must the jury determine whether the misconduct actually occurred, or whether the employer reasonably and in good faith believed it occurred after an appropriate investigation?

## Decision

- The California Supreme Court held that the jury does not decide whether the alleged misconduct occurred as historical fact.
- The proper inquiry is whether the employer, acting in good faith and after an appropriate investigation, had reasonable grounds to believe the employee committed misconduct sufficient to constitute good cause for termination.
- The Court affirmed the Court of Appeal’s reversal of the employee’s verdict and remanded for a new trial because the jury had been instructed to decide actual occurrence of misconduct.

## Legal Principles

- In implied-in-fact good-cause employment cases, “good cause” is evaluated from the employer’s standpoint at the time of discharge, based on information reasonably available then.
- Good cause exists if the employer’s decision rests on a fair and honest reason, regulated by good faith, and supported by reasonable grounds.
- The fact-finder examines whether the employer reached its conclusion fairly, honestly, and in good faith, including whether it conducted an appropriate investigation.
- An employer is not required to prove, in later litigation, that the alleged misconduct in fact occurred; however, the employer’s stated reason may not be trivial, arbitrary, or pretextual.

## Conclusion

The Court required, in implied good-cause discharge cases based on disputed misconduct, that the jury assess the fairness of the employer’s decision-making process—good-faith belief, reasonable grounds, and an appropriate investigation—rather than retrying whether the misconduct actually happened.


Cotran v. Rollins Hudig Hall Int'l, Inc., 17 Cal. 4th 93 (Cal. 1998)