Ruling Boosts Firms’ Power to Fire Employees

An employer may fire a worker for good cause after conducting a reasonable investigation, even if the allegations that triggered the firing are later found to be untrue, the California Supreme Court has ruled in a decision that is expected to have broad impact on the state’s employment law.

The 6-1 decision, handed down Monday, gives employers greater authority to fire workers accused of sexual harassment or other misconduct. A jury hearing a wrongful termination lawsuit may consider only whether an employer had an objective reason to believe accusations against an employee, then conducted a reasonable investigation, not whether the accusations were true, the court said.

Representatives of employers hailed the decision, but employee advocates sharply criticized it. Both sides predicted that the ruling would affect the rash of lawsuits filed in recent years by employees who sued firms for wrongful termination after they were accused of sexual harassment.

“This is really a bleak day for California employees,” said William C. Quackenbush, an attorney for the California Employment Lawyers Assn., which filed a court brief in support of the executive whose case the high court considered. “This means that employees are going to be able to be terminated for something that they did not do.”

The Supreme Court overturned a trial court’s award of $1.78 million to Robert Cotran, who sued Rollins Rudig Hall, the Los Angeles affiliate of Aon Risk Services Inc., an insurance brokerage services firm.

Cotran contended that he was wrongfully fired in 1993, after two women he supervised accused him of sexual harassment.

During the company’s three-week investigation, the women signed affidavits saying that Cotran, a senior vice president from 1988 to 1993, compulsively masturbated and exposed himself to them, made obscene phone calls to their homes and pressed them to have sex. The firm interviewed 21 people, and confronted Cotran with the allegations before firing him.

Cotran denied all the allegations. In court, Cotran maintained that the two women had engaged in consensual sex with him, an assertion that he never made during the firm’s investigation.

A Superior Court jury in Glendale rejected the allegations against Cotran. Rollins Hudig Hall was ordered to pay Cotran the damages, but an appellate court later reversed that verdict. The Supreme Court ruling upholds the appellate court and orders a new trial.

Writing for the majority, Justice Janice R. Brown said that “if an employer is required to have in hand a signed confession or an eyewitness account of the alleged misconduct before it can act, the workplace will be transformed into an adjudicatory arena and effective decision making will be thwarted.” Four justices joined the opinion. Justice Stanley Mosk concurred in a separate opinion.

Justice Joyce L. Kennard dissented, arguing that the employer should have to prove misconduct before firing an employee whose contract allows dismissal only for good cause.

“False accusations may destroy the employee’s reputation and social standing as well as his or her ability to earn a living,” Kennard wrote.

But Margaret Parker, the attorney for the firm that Cotran sued, said employers still have to persuade a jury that they conducted a reasonable investigation into allegations.

“This decision means that an employer is allowed to act on a reasonable and good-faith belief, that the employer can terminate someone based on honest cause . . . following an investigation that was appropriate under the circumstances,” Parker said.

Parker said the decision will protect employers who are obligated by state and federal laws to guard their work force against sexual harassment and other misconduct.

Paul Grossman, an attorney for the California Employment Law Council, which represents 60 of the state’s largest firms, hailed the decision as important for employers.

“I think it will now be much harder for discharged harassers to come against employers,” Grossman said. “California is viewed, with some justice, as the most pro-employee state in the union. This just cuts it back a little bit,” he said.

But Quackenbush said he fears that the ruling will make employers less cautious about firing workers.

“This is the most negative opinion regarding employee rights that the court has come out with in years,” Quackenbush said. “It is going to allow employers to believe that they have more freedom in terminating employees. They are being given free rein to terminate.”

In October, a divided Supreme Court let stand a lower court ruling that allowed companies to lay off older workers and keep younger employees to save money. Quackenbush said he believes that Monday’s ruling is more significant, if only because this time the justices chose to make law.

Monday’s ruling applies primarily to workers in management who were given the express or implied promise that they would be fired only for good cause. It does not apply to the majority of nonunion workers who can be fired at will.

But Quackenbush pointed out that the ruling goes beyond cases brought by alleged sexual harassers who sue for wrongful termination, and will apply to anyone terminated for just cause.

“Employers are certainly going to be capable of going through routine kinds of investigation, rounding up the evidence they need to support their decision if they are of the mind-set to terminate,” he said.

Shand Stephens, Aon’s lead attorney in the case, disagreed. The ruling, he said, merely makes it easier for employers to conduct business. It was “a tremendous victory for employers in California, and I hope, across the United States,” allowing them, he said, “to make rational and reasonable determinations about employment situations.”

Stephens said the decision may cut back the number of lawsuits brought by dismissed employees and “make the plaintiffs’ attorneys think those lawsuits through much more carefully.”

But Richard Knickerbocker, who represented Cotran in the trial court, predicted that the court’s ruling would not reduce the number of wrongful termination lawsuits.

Juries still must decide whether an employer acted reasonably in firing an employee, he said, and appellate courts will then be asked to decide whether juries acted reasonably in making their decisions.

“This doesn’t stop the litigation, it just makes the litigation more complex,” Knickerbocker said. “It creates more litigation and compounds the problem.”