By Michael Sosnick
Delaware courts recognize that corporate directors have a duty of good faith, which includes an obligation to avoid knowingly violating the law, even if doing so could increase profits. In re Caremark International Inc. Derivative Litigation and Stone v. Ritter extended liability to situations in which directors fail to oversee apparent legal risks.
The National Labor Relations Board (NLRB) has repeatedly found unfair labor practices (ULPs) against major corporations such as Amazon and Starbucks during employee unionization efforts, but because of gaps in the enforcement potential of federal labor law, these ULPs largely continue unchecked. This Note argues that a corporation’s directors violate their duty of good faith when the NLRB continually finds ULPs against it. Under the Caremark framework, a history of ULP determinations, ULP settlements, walkouts, or strikes would be red flags that the directors then consciously fail to monitor. While recovery may be insignificant, Caremark claims, brought by plaintiff-shareholders who want corporations to comply with their obligations towards unions, may deter future ULPs and spark organizational change supportive of workers’ rights.
Part I documents the prevalence of anti-union ULPs, outlines the duty of good faith in Delaware corporate law, and briefly explains Caremark claims. Part II describes a Caremark claim for repeated ULPs. Part III highlights the benefits of institutional shareholders bringing such claims and offers policy proposals that would increase the power of shareholders to hold corporations accountable for illegal acts.