In Lidow v. Superior Court (International Rectified), the Court addressed the issue of whether, under a conflict of laws principle known as the internal affairs doctrine, California law or foreign law applies to a claim brought by an officer of a foreign corporation for wrongful termination in violation of California public policy.  The Court held that under the circumstances, where a foreign corporation has terminated a corporate officer in retaliation for that person’s complaints of possible harmful or unethical activity, California law applies.

The internal affairs doctrine is a conflict of laws principle which recognizes that only one State should have the authority to regulate a corporation’s internal affairs — matters peculiar to the relationships among or between the corporation and its current officers, directors, and shareholders because otherwise a corporation could be faced with conflicting demands. States normally look to the State of a business’ incorporation for the law that provides the relevant corporate governance general standard of care. There is, however, a vital limitation to the internal affairs doctrine: The local law of the State of incorporation will be applied . . . except where, with respect to the particular issue, some other State has a more significant relationship . . . to the parties and the transaction.

In applying this rule, the Court noted that the California Supreme Court has long recognized that claims for wrongful termination in violation of public policy serve vital interests insofar as they impose liability on employers who coerce their employees to engage in criminal or other harmful conduct, or employers who retaliate against their employees for speaking out against such conduct. As such, it held that firing an officer in retaliation for his complaints about possible illegal or harmful activity and breaches of ethical conduct goes beyond internal governance and touches upon broader public interest concerns that California has a vital interest in protecting.  As such, under the circumstances, the Court held that the internal affairs doctrine was inapplicable and California law governed the claim.

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