Summary of Delaware HB 89: The "Employee Protection From Wrongful Termination Act." By Sheldon N Sandler Effect.

HB 89 would end employment at will in Delaware for employers with five or more employees. It replaces it with a just cause standard and mandatory arbitration for resolution of disputes, with an alternative for employers to elect a very generous severance payment scheme of one month for every year of employment for all terminations except for "willful misconduct." Coverage. Employers with 5 or more employees for each working day in 20 or more calendar weeks in the 2-year period preceding the temlination are subject to the Act. Employee is broadly defmed to include anyone who works for hire, including supervisors and managers, but expressly excludes independent contractors. Limit on employer ability to terminate. Employers may not terminate employees who have been employed by the same employer for one year or more and worked at least 520 hours during the 26 weeks preceding temlination, except for "good cause." "Termination" means dismissal, layoff, or resignation/retirement induced by action or inaction on the part of the employer, i.e. coerced resignation or retirement. "Good cause" means: (I) "a reasonable basis related to an individual employee," considering relevant factors and circumstances such as duties, responsibilities, conduct, and performance; or (2) the exercise of business judgment in setting economic or institutional goals. In short, "good cause" includes misconduct and/or perfom1ance issues as well as layoffs or downsizing supported by legitimate business reasons. The Act does not prohibit employers from terminating at the expiration of an employment agreement for a specified duration, undertaldng, project, or assigrm1ent. (If the employee stays on after expiration of the agreement, however, the Act applies until a new agreement is entered into). Common law claims displaced. The Act purports to extinguish all conm1on-law claims oftem1inated employees based on the termination or acts taken or statements made that are necessary to initiate or effect the termination. Delaware does not recognize the tort of wrongful discharge, as such, though it does recognize the conm1on law implied covenant of good faith and fair dealing, so tins provision has at least a modicum of value to Delaware employers. It wold also bar some defamation, detrimental reliance or fraud claims. The Act obviously does notlling to



extinguish rights or claims that arise pursuant to a statute (e.g. Title VII, ADEA, ADA, FLSA Delaware discrimination laws, Delaware Wage Payment and Protection Act) or collective bargaining agreement. Employer I Employee Agreements. Employer and employee can agree, in writing that the employee's right to continued employment is conditioned upon Ius/her meeting specified business-related standards of performance. Employer and employee can mutually waive the good cause requirement if the employer agrees that, upon termination for any reason other than "willful misconduct," the employer will provide severance equal to one month for each year of service (not to exceed 30 months' pay) at the employee's rate of pay at termination. Written reason for termination. The Act requires employers to provide a written list of reasons, as well as a copy of the Act or a summary approved by the Delaware Dept. of Labor ("DDOL"), to every terminated employee within 10 days of termination, regardless of whether the employee requests it. Under current Delaware law, there is no requirement that reasons for termination must be provided. Procedure.
Complaint and Answer

Employees who believe they have been laid off or tenninated without good cause, or claim that their employer has breached a severance agreement described above, must file a complaint and demand for arbitration with the DDOL within 180 days. The time for filing is tolled while the employee pursues internal remedies and until the employee receives written notice from the employer that the internal process has been completed. Resort to an internal process is not a precondition to filing a complaint with the DDOL, however.

An employer may also file a complaint and demand for arbitration with the DDOL to determine whether there is good cause for termination of a specific employee. At least 15 days before filing such a complaint, the employer must notify the employee, in writing, of its intention to file and the reasons it will claim it has good cause. The party initiating the action must pay a filing fee of no more than the Superior Court filing fee of $17 5, w!Iich can be waived by the DDOL upon a showing of indigence.
Witllin 21 days after the complaint, the respondent (whether employee or employer) must file an answer and mail a copy to the other party.



Arbitration The Act directs the Board to adopt rules to regulate arbitration, including procedural rules and rules regarding the selection and appointment of arbitrators. The arbitrator is vested with discretion to order all forms of discovery. The Act contemplates representation for employer or employee in arbitration. The Act provides that an employee complainant has the burden of proving that !lis/her termination was without good cause or that the employer breached a severance agreement described above. The employer, however, is required to present its case first, regardless of whether it is complainant or respondent (unless the employee alleges he/she was forced to quit or retire). If the employee establishes that the termination was "motivated in part by impernlissible grounds," the employer may avoid liability by proving, by a preponderance of the evidence, that it would have terminated the employee even in the absence of the impermissible grounds. Remedies The arbitrator must issue a decision within 30 days of the close of the hearing, unless the parties agree otherwise. If the arbitrator finds that the employer has ternlinated the employee without good cause, he/she may order reinstatement or front pay (i.e. a "lumpsunl severance payment" equal to no more than 30 months' pay together with lost fringe benefits for the period), award back pay with interest, and reasonable attorney's fees and costs. For violation of a severance agreement, the arbitrator may enforce the agreement, with interest, and/or order reasonable attorney's fees and costs. The Act expressly provides that the arbitrator has no authority to award dan1ages for nonecononlic loss (pain and suffering, emotional distress), for any common law claim such as fraud or defamation, or punitive damages. If the arbitrator dismisses an employer's complaint seeking a good cause determination, he/she may award the employee reasonable fees and costs. The arbitrator may award reasonable attorney's fees and costs to an employer if it finds that the employee's complaint was frivolous. The Act directs the arbitrator to reduce the award by any amount recovered by the employee in another forum for the same conduct of the employer. Appeal Either party to the arbitration may seek review of the arbitrator's award in Superior Court. An application for review must be filed within 30 days after the award. The Court may vacate or modify the award only if it finds that the award was procured by improper means, the arbitrator was obviously partial or engaged in misconduct, the arbitrator

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exceeded his/her authority, the arbitrator committed a prejudicial error of Jaw, or another ground exists under the Delaware Uniform Arbitration Act. In other words, the Court will not second-guess the facts as found by the arbitrator. The Court may award reasonable fees and costs to a prevailing employee. It may award reasonable fees and costs to a prevailing employer, only if the employee filed the application and only if the Court determines the employee's application was frivolous. Retaliation. The Act contains a retaliation provision, which creates a cause of action for retaliating against an employee who goes to the DDOL or participates in any proceedings under the Act. A retaliation claim under the Act is a separate civil action, brought in court, not before the DDOL. The retaliation provision authorizes damages, punitive damages, and fees. Potential Effects. • The ultimate effect, of course, is that employment at will is eliminated and employers will be forced to defend more terminations and lay-offs in circumstances where the employee would not previously have been able to state a claim, because s/he was not a member of a protected class, did not engage in protected conduct, etc. Although employers can avoid coverage of the Act by contracting with employees for severance, the severance provisions are extremely generous to the employee. Although an employer who entered into one of these agreements would not need to pay severance to an employee terminated for "willful misconduct," a term that is not defined, it likely would need to pay the employee with even the most serious performance and/or attendance issues. This result is likely to be unpalatable to most employers. Because only employers with 5 or more employees are covered, the Jaw creates an incentive for very small employers to stay very small. Because only employees who have worked for more than one year are protected, the law creates an incentive for employers to terminate employees approaching their one-year mmiversary, if there are even slight concerns about performance. There is also an incentive to use very part time employees, since an employee must have worked 520 hours during the last 26 weeks to be covered by the Act. The provision allowing employers to file a complaint to receive a good cause determination likely would not be used very often. Because not every employee is going to contest Ins/her termination, it would be less expensive for employers to simply terminate and defend a complaint if need be.

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The Act's definition of "good cause" appears similar to the common law definition, applied when employers and employees have expressly contracted for good-cause-only termination, such as through a union contract. Specifically, both require that the employer have a "reasonable basis"-sometimes described in the common law as "reasonable grounds"-which, in the case of misconduct, requires that the employer undertake an investigation of the facts. The common law definition of"good cause" also focuses on the employer's good faith, or at least lack of bad faith. The Act expressly requires that an employer conducting a termination for business reasons (i.e. lay-off) act in good faith. Presumably, good faith would be a prerequisite to a termination for misconduct and poor performance as well. At a time when Delaware is losing employers weekly and is seeking to entice others to open facilities in Delaware, the elimination of the longstanding legal relationship of at-will employment sends precisely the wrong message. Although the Model Act, on which the Delaware law is based, was promulgated in 1991, no state has adopted it. Delaware would stand with Montana as the only states to require "cause" for any employment termination.



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