de hb 89 and impact to employment at will

8/6/2019 De HB 89 and Impact to Employment at Will

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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 moreemployees. It replaces it with a just cause standard and mandatory arbitration forresolution of disputes, with an alternative for employers to elect a very generousseverance payment scheme of one month for every year of employment for allterminations except for "willful misconduct."Coverage.Employers with 5 or more employees for each working day in 20 or more calendar weeksin the 2-year period preceding the temlination are subject to the Act. Employee isbroadly defmed to include anyone who works for hire, including supervisors andmanagers, but expressly excludes independent contractors.Limit on employer ability to terminate.Employers may not terminate employees who have been employed by the same employerfor one year or more and worked at least 520 hours during the 26 weeks precedingtemlination, except for "good cause." "Termination" means dismissal, layoff, orresignation/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 toan individual employee," considering relevant factors and circumstances such as duties,responsibilities, conduct, and performance; or (2) the exercise of business judgment insetting economic or institutional goals. In short, "good cause" includes misconductand/or perfom1ance issues as well as layoffs or downsizing supported by legitimatebusiness reasons.The Act does not prohibit employers from terminating at the expiration of anemployment agreement for a specified duration, undertaldng, project, or assigrm1ent. (Ifthe employee stays on after expiration of the agreement, however, the Act applies until anew agreement is entered into).Common law claims displaced.The Act purports to extinguish all conm1on-law claims oftem1inated employees based onthe termination or acts taken or statements made that are necessary to initiate or effect thetermination. Delaware does not recognize the tort of wrongful discharge, as such, thoughit does recognize the conm1on law implied covenant ofgood faith and fair dealing, so tinsprovision has at least a modicum of value to Delaware employers. It wold also bar somedefamation, detrimental reliance or fraud claims. The Act obviously does notlling to

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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) orcollective bargaining agreement.Employer I Employee Agreements.Employer and employee can agree, in writing that the employee's right to continuedemployment is conditioned upon Ius/her meeting specified business-related standards ofperformance.Employer and employee can mutually waive the good cause requirement if the employeragrees that, upon termination for any reason other than "willful misconduct," theemployer will provide severance equal to one month for each year of service (not toexceed 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 theAct or a summary approved by the Delaware Dept. of Labor ("DDOL"), to everyterminated employee within 10 days of termination, regardless ofwhether the employeerequests it. Under current Delaware law, there is no requirement that reasons fortermination must be provided.Procedure.

Complaint andAnswerEmployees who believe they have been laid off or tenninated without good cause, orclaim that their employer has breached a severance agreement described above, must filea complaint and demand for arbitration with the DDOL within 180 days. The time forfiling is tolled while the employee pursues internal remedies and until the employeereceives 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 todetermine whether there is good cause for termination of a specific employee. At least 15days 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 initiatingthe action must pay a filing fee ofno 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) mustfile an answer and mail a copy to the other party.

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ArbitrationThe Act directs the Board to adopt rules to regulate arbitration, including procedural rulesand rules regarding the selection and appointment of arbitrators. The arbitrator is vestedwith discretion to order all forms of discovery. The Act contemplates representation foremployer or employee in arbitration.The Act provides that an employee complainant has the burden of proving that !lis/hertermination was without good cause or that the employer breached a severance agreementdescribed above. The employer, however, is required to present its case first, regardlessofwhether it is complainant or respondent (unless the employee alleges he/she wasforced to quit or retire). If the employee establishes that the termination was "motivatedin part by impernlissible grounds," the employer may avoid liability by proving, by apreponderance of the evidence, that it would have terminated the employee even in theabsence of the impermissible grounds.

RemediesThe arbitrator must issue a decision within 3 0 days of the close of the hearing, unless theparties agree otherwise. If the arbitrator finds that the employer has ternlinated theemployee without good cause, he/she may order reinstatement or front pay (i.e. a "lump-sunl severance payment" equal to no more than 30 months' pay together with lost fringebenefits for the period), award back pay with interest, and reasonable attorney's fees andcosts. 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 expresslyprovides that the arbitrator has no authority to award dan1ages for nonecononlic loss (painand suffering, emotional distress), for any common law claim such as fraud ordefamation, 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 findsthat the employee's complaint was frivolous.The Act directs the arbitrator to reduce the award by any amount recovered by theemployee in another forum for the same conduct of the employer.

AppealEither party to the arbitration may seek review of the arbitrator's award in Superior Court.An application for review must be filed within 3 0 days after the award. The Court mayvacate or modify the award only if it finds that the award was procured by impropermeans, 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 anotherground exists under the Delaware Uniform Arbitration Act. In other words, the Courtwill not second-guess the facts as found by the arbitrator. The Court may awardreasonable fees and costs to a prevailing employee. It may award reasonable fees andcosts to a prevailing employer, only if the employee filed the application and only if theCourt determines the employee's application was frivolous.Retaliation.The Act contains a retaliation provision, which creates a cause of action for retaliatingagainst an employee who goes to the DDOL or participates in any proceedings under theAct. A retaliation claim under the Act is a separate civil action, brought in court, notbefore the DDOL. The retaliation provision authorizes damages, punitive damages, andfees.Potential Effects.

The ultimate effect, of course, is that employment at will is eliminated andemployers will be forced to defend more terminations and lay-offs incircumstances where the employee would not previously have been able to state aclaim, because s/he was not a member of a protected class, did not engage inprotected conduct, etc. Although employers can avoid coverage of the Act by contracting with employeesfor 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 thatis not defined, it likely would need to pay the employee with even the mostserious performance and/or attendance issues. This result is likely to beunpalatable to most employers. Because only employers with 5 or more employees are covered, the Jaw creates anincentive 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 approachingtheir one-year mmiversary, if there are even slight concerns about performance.There is also an incentive to use very part time employees, since an employeemust 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 causedetermination likely would not be used very often. Because not every employeeis going to contest Ins/her termination, it would be less expensive for employers tosimply terminate and defend a complaint if need be.

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The Act 's definition of "good cause" appears similar to the common lawdefinition, applied when employers and employees have expressly contracted forgood-cause-only termination, such as through a union contract. Specifically, bothrequire that the employer have a "reasonable basis"-sometimes described in thecommon law as "reasonable grounds"-which, in the case ofmisconduct, requiresthat the employer undertake an investigation of the facts. The common lawdefinition of"good cause" also focuses on the employer's good faith, or at leastlack ofbad faith. The Act expressly requires that an employer conducting atermination for business reasons (i.e. lay-off) act in good faith. Presumably, goodfaith would be a prerequisite to a termination for misconduct and poorperformance as well.

At a time when Delaware is losing employers weekly and is seeking to enticeothers to open facilities in Delaware, the elimination of the longstanding legalrelationship of at-will employment sends precisely the wrong message. Althoughthe Model Act, on which the Delaware law is based, was promulgated in 1991, nostate has adopted it. Delaware would stand with Montana as the only states torequire "cause" for any employment termination.

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de hb 89 and impact to employment at will

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