Centrella v. Avantor, Inc., C.A. No. 2022-0876-NAC (Del. Ch. July 1, 2024)
It is common for Delaware corporations to provide advancement rights to their officers and directors. In this post-trial decision from the Court of Chancery, a parent’s bylaws had granted mandatory advancement to employees of subsidiaries who were sued by reason of their employment. After the plaintiff left his employment, the parent entity brought suit against him for violations of restrictive covenants and misusing confidential information. The former employee then filed this advancement action against the parent.
The defendant denied that the plaintiff was entitled to advancement, arguing that the plaintiff was the defendant’s own employee, rather than an employee of its subsidiary. To determine who employed the plaintiff, the Court surveyed the available precedent and ultimately employed the Newton test—a test typically employed in workers compensation cases under Delaware law — which considers four questions: (1) who hired the employee; (2) who had the power to discharge their employment; (3) who paid their wages; and most importantly, (4) who controlled the employee’s activities while they were working. In determining that the plaintiff was employed by the subsidiary, the Court reasoned that the subsidiary had “dominated” the plaintiff’s hiring process, appeared as his employer on paystubs and tax returns, and that the plaintiff directly reported to employees of the subsidiary. Thus, under the Newton test, the Court found that the plaintiff was an employee of the subsidiary and, as a result, was entitled to advancement.
