"If it's not one thing, it's another," the character Roseanne Roseanna Danna used to say on Saturday Night Live.

That pretty much sums up the dilemma the California Supreme Court has set in motion with its most recent employment law opinion, Cotran v. Rollins Hudig Hall International Inc., 98 C.D.O.S. 58.

The issue in Cotran, which was decided Jan. 5, was what "good cause" showing an employer must make under an implied employment contract to justify terminating an employee for misconduct: Must an employer show that the misconduct actually happened, or only that he or she reasonably concluded that it did?

Nine years ago, one state Court of Appeal, in Wilkerson v. Wells Fargo Bank, 212 Cal. App. 3d 1217 (1989), answered that an employer had to prove that the misconduct occurred. Last year, the Cotran Court of Appeal answered that the employer need only have believed in good faith that it occurred. The time had come for the law to evolve.

Cotran's facts were ideal for resolving the issue. Ralph Cotran, a senior executive for Rollins, an insurance firm, was accused of sexually harassing two women on the job. The women gave statements (and later, sworn affidavits) to Rollins, who in turn gave them to Cotran, whom Rollins interviewed along with 21 other employees who had worked with him. After concluding that the accusations were credible (particularly because Cotran had no explanation for them and because other employees reported similar harassing conduct), Rollins fired Cotran.

GOOD CAUSE?

One issue in Cotran's ensuing wrongful termination suit was whether Rollins had good cause to terminate his employment under his alleged implied contract. At trial, Cotran offered evidence that he had had consensual sexual relationships with both women and that they had a motive for fabricating their accusations. After it was instructed that Rollins had to show that the misconduct actually occurred (rather than merely reasonably believing that it did), the jury found Cotran had not engaged in sexual harassment and awarded him $1.78 million. Reversing, the Court of Appeal found that Rollins had good cause to terminate based on its investigation and its reasonable belief that the harassment had occurred.

Writing for a 6-1 majority, Justice Janice Rogers Brown analyzed what "good cause" inquiry the jury must make under an implied contract in a misconduct-based termination case. Agreeing with the majority of other states (and disapproving Wilkerson), the Supreme Court held that an employer need only conclude "fairly, honestly, and in good faith" that the misconduct occurred - i.e., that it had a reasonable belief based on "substantial evidence" gathered after an "adequate investigation."

This focus on the employer's reasonable belief represents a pragmatic approach. As the court emphasized, to give juries the power to re-examine de novo the factual basis for the employer's decision to impose discipline - a decision "typically gathered under the exigencies of the workaday world and without benefit of the slow-moving machinery of a contested trial" - would turn the workplace into an "adjudicatory arena" and thwart "effective decision making." It would also turn juries into "preeminent fact-finding boards" even though jurors are "relatively remote" from the "everyday reality of the workplace" and "unattuned to the practical aspects of employee suitability" and may not appreciate the "organizational judgments" required of employers who confront allegations of employee misconduct. These points, Justice Brown concluded, warrant a rule that examines the employer's decision under an "objective standard" of reasonableness based on the "circumstances known to the employer at the time it was made."

What is more intriguing is Cotran's holding that the employer's belief is reasonable only if it is based on "substantial evidence gathered through an adequate investigation that includes notice of the claimed misconduct and a chance for the employee to respond." Before Cotran, the rights to notice and an opportunity to be heard were not presumed in non-civil service implied employment contracts; rather, employees obtained those rights, if at all, through collective bargaining or negotiation. This holding, however, raises myriad questions:

What are the parameters of the new due process right? Cotran declined to specify the parameters of this new due process right, noting "it is better . . . to adhere to the common law's incremental, case-by-case jurisprudence, adjusting the standard as its sufficiency is tested in practice." The court pointed to two relevant decisions: a 1911 House of Lords decision that emphasizes the need for a decision maker to listen to both sides, obtain adequate information, and give the parties a fair opportunity to correct and contradict prejudicial information; and a 1974 decision by Justice Matthew Tobriner holding that "fair procedure" does not require a full-blown trial, but only a "fair opportunity" to present one's views. But these broad pronouncements shed little light on what will certainly be a fertile area of litigation in years to come.

Is pretrial disposition of termination claims still possible after Cotran? Justice Brown held that all the elements of the governing "good cause" standard - the substantiality of the evidence gathered, the adequacy of the employer's investigation, and the reasonableness of the due process given the employee - "are triable to the jury." Does this provocative statement mean that these issues cannot be decided on summary judgment or in some other dispositive proceeding? Does it also mean that if an employer conducts an adequate investigation and gives the employee due process, yet uncovers only slight evidence of misconduct, it nonetheless faces a jury trial? If this is what Cotran means, the court may have simply traded one jury issue (whether the employee in fact committed misconduct) for another (whether the employer gathered sufficient evidence in a fair manner to form a reasonable belief in the misconduct), without offering a chance at early resolution of these types of cases.

It is unlikely that Justice Brown intended her statement to produce that result. After all, Cotran's clear message is that employers should be given latitude to exercise reasonable judgments about employee misconduct, following an adequate investigation and after giving the employee fair procedure, without facing jury second-guessing. The reasonableness of that judgment, the sufficiency of the evidence gathered, and the adequacy of the investigation are ultimately questions of law. Presumably, as in other areas of the law where similar issues are involved, there are objective standards that will permit the pretrial disposition of misconduct-based employment cases. To conclude otherwise would mean that as many or even more misconduct cases will go to trial - an ironic result given Cotran's broad policy pronouncements.

JURY TRIAL FOR ALL DUE PROCESS LAPSES?

What is the role of misconduct evidence in future cases? Another question that Cotran raises is the role that evidence of misconduct will play in future cases. For example, suppose an employer imposes discipline without giving the employee notice and an opportunity to be heard - but in litigation offers undisputed evidence that the misconduct occurred. Will the employee be entitled to proceed to trial (or to judgment) on the ground that the employer violated the employee's procedural rights even though reasonable minds could not differ over whether the employee in fact engaged in the misconduct? Or will courts excuse the employer's failings as irrelevant because those failings were not a substantial factor that led to the discipline imposed? This last conclusion seems right, but in the civil service context, when an employer has imposed discipline without adequate due process, the employee is often entitled to relief on that ground alone, even though the same discipline would have been warranted had sufficient process been afforded.

A related issue is how courts should treat evidence of misconduct. Presumably, under Cotran, if the issue is the reasonableness of the employer's belief, then hearsay statements made to the employer's investigator or personnel representatives are admissible to prove that the employer did or did not harbor that belief. But if Cotran does not eliminate an employer's right to try a wrongful termination case on the ground that the misconduct termination in fact occurred, such hearsay statements presumably will be offered for their truth, and may be admissible only if a hearsay exception applies. How these evidentiary issues will play out in future cases thus remains to be seen.

Will Cotran apply outside the misconduct context? Finally, Cotran raises the question of whether courts will apply its due process holding in other kinds of employment cases, such as performance-based demotions or terminations. Will an employee now be able to challenge such actions on the grounds that an employer did not conduct an adequate investigation, uncover substantial evidence or give the employee adequate notice or an opportunity to respond?

This issue arises because of the analysis that Cotran used. Although Cotran was a misconduct case, its "governing good cause standard" was based on Pugh v. See's Candies Inc., 116 Cal. App. 3d 311, 330 (1981), a case involving a performance-based wrongful termination. Indeed, it was Pugh that early on underscored the need to give employers "wide latitude" in making business judgments, but the "latitude" Pugh was referring to was in judging employee performance, not misconduct.

Cotran teaches that courts should give employers similar latitude, with certain caveats, in resolving allegations of employee misconduct. Having borrowed from the performance context to define good cause in the misconduct context, will courts now borrow from the misconduct context and use the due process model in performance cases? This is not mere theoretical ruminating, since in the few short weeks since Cotran, we have heard of at least one employee who, relying on Cotran, is making this precise argument.

In short, Cotran is - as we might have expected - an important step in the common law's evolution of controlling employment law principles. But it raises a host of provocative issues that will keep litigants and lower courts busy for the next several years.