The California Court of Appeals has held that in a wrongful termination case, California law, not Delaware law, applies. Lidow v. Superior Court (International Rectifier Corp.) (5/23/12) — Cal.App.4th —-
International Rectifier Corp. (IR) is incorporated in Delaware, but based in El Segundo, CA. Its former CEO was Alexander Lidow, whose father had founded IR. Lidow was also on the company’s Board of Directors.
In 2007, after financial irregularities came to light at IR’s Japan subsidiary, IR began an investigation using outside investigators. During the investigation, Lidow complained that the outside investigators were using intimidation and lies to get IR’s Japanese employees to give them information. Lidow also complained that the outside investigators were not informing the Japanese employees that they had the right to retain their own counsel before talking to the outside investigators.
Lidow was subsequently accused of being a participant in the financial irregularities, placed on administrative leave, and then told he would be fired if he did not resign. After negotiating a separation agreement between him and IR, and then stepped down as CEO and a member of the Board of Directors. Since the separation agreement did not include a release of claims, Lidow then sued IR for wrongful termination. IR filed a motion for summary judgment arguing that under the “Internal Affairs Doctrine,” Delaware, and not California law, governed.
A Los Angeles Superior Court granted IR’s motion for summary judgment. Lidow filed a petition for writ of mandate with the California Court of Appeals, asking for the Superior Court’s decision to be reversed.
The “Internal Affairs Doctrine” provides that the “internal affairs” of a corporation will be governed by the corporate statutes and case law of the state in which the corporation is incorporated, to prevent a corporation from being faced with conflicting demands. However, if another state has a more significant relationship to the parties and the transaction in question, the law of the state in which the corporation is incorporated does not apply.
The Court of Appeals held that since the case involved allegations of removal for retaliation and possible unethical activities, the case delved into areas of public policy. That in the area of public policy, California has long recognized that terminations that violate public policy “serve the vital interest of the state by imposing liability on employers who retaliate against their employees for speaking out against criminal or harmful conduct.”
The California Court of Appeals granted Lidow’s writ of mandate, referring the case back to the lower court.
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