Court of Appeal Rules That California Law Applies to Delaware Corporation's CEO's Wrongful Termination Claim

[author: Robert Escalante]

On May 23, 2012, the California Court of Appeal addressed a question of first impression: Does California law govern a corporate officer’s claim against an out-of-state corporation for constructive wrongful termination in violation of public policy? The appellate court answered in the affirmative, thus limiting the application of the so-called “internal affairs doctrine.” Lidow v. Superior Court, 2012 WL 1861372 (Cal. Ct. App. 2012).

In Lidow, the trial court ruled that Delaware law barred a CEO’s constructive wrongful termination claim and granted summary adjudication in favor of the employer, International Rectifier Corporation (“IRC”). The plaintiff’s claim was based on allegations that IRC constructively terminated his employment in retaliation for his complaints of illegal conduct. Delaware law recognizes such a claim but under more limited circumstances than does the law of California. 

 

In granting plaintiff’s petition for a writ of mandate, the appellate court reversed the trial court’s dismissal of the constructive wrongful termination claim, despite acknowledging Delaware’s interest in having its own laws govern the relationships between its corporations and their officers. Nonetheless, the appellate court found these interests did not trump the “vital” concern of California in protecting corporate officers in California from being constructively wrongfully terminated in violation of public policy. The court thus directed the trial court to vacate its order granting summary adjudication. 

The Court’s ruling should occasion a review of corporate policies and assumptions of non-California corporations that another state’s law will govern their disputes with their corporate officers.