Okay, this sounds a bit harsh... so I'll explain more.

As others have stated, employment in California really is at-will. For example, I know someone who has been fired for getting too drunk at a company party!

So yeah, companies in California can fire you for any reason, or no reason at all. In this case I see the negative effects of keeping the person employed (such as the loss of potential employees and damage to the company reputation) outweighing their value as an employee.