By: Socheata Cheng
I. Introduction
Burnout manifests itself in different ways across the career spectrum. Oftentimes, the degree of burnout depends on the where someone sits in the organization chart of the corporation.[1] The question that has yet to be answered is whether burnout in the workplace is simply a business management issue or a board of directors’ fiduciary duty matter. In other words, is the board of directors liable for breaching their fiduciary duty when burnout leads to a compliance or safety failure thereby causing the corporation to break labor laws or other statutory regulations?
II. The Duty of Oversight and “Red Flags”
As the Delaware Supreme Court has firmly established in its decision in Stone v. Ritter, to successfully plead a claim for a breach of an officer’s duty of oversight, the directors must “(a) []utterly failed to implement any reporting or information system or controls; or (b) having implemented such a system or controls, consciously failed to monitor or oversee its operation thus disabling themselves from being informed of risks or problems requiring their attention.”[2] In a later decision, the oversight duties of directors have been expanded to corporate officers.[3] The requirements of the claims for a breach of fiduciary duty of oversight have been categorized as prong-one and prong-two Caremark claims.[4] Regarding prong-one, a plaintiff’s claims must sufficiently allege that there was a lack of “requisite information system and controls” within the workplace.[5] With respect to prong-two, the plaintiff must plead with particularity that the officers or directors were aware of the “corporate misconduct–the proverbial red flag–yet act in bad faith by consciously disregarding its duty to address that misconduct.”[6]
III. Application to Overwork and Burnout – In re McDonald’s Corp. Stockholder Derivative Litigation
Following the landmark decision in 2023, In re McDonald’s Corp. Stockholder Deriv. Litig., the Delaware Court of Chancery extended the Caremark framework and addressed an important workforce safety as corporate governance compliance risks regarding sexual harassment allegations.[7]
Unlike in In re McDonald’s Corp. Stockholder Deriv. Litig., where the allegations stemmed from sexual harassment incidents in the workplace, the question arises as to whether the stockholder plaintiffs may be able to hold the officers and board of directors liable for a breach of the duty of oversight in the context of overworking or burning out. Specifically, because of the failure to implement burnout preventative programs or control causing the corporation to be detrimentally declined in value due to productivity, i.e., affecting stockholders’ capital investment or breaking labor laws.[8] In another instance, where even after having implemented such system in place, the directors consciously failed to monitor or oversee its implementation within the working environment, does this rise to the level of a breach of fiduciary of oversight?[9] It may be so, if the board of directors failed to follow correct labor practices and later seek their misconduct by relying on the motto or the company’s practice.[10]
One of the essential values of corporation obligation lies within its compliance with labor and employment law.[11] In addition to the primary fiduciary duties where board of directors are to “act prudently, loyally, and in good faith to maximize the value of the corporation” for the long-term benefits of stockholders’ equity and capital investment in the corporation, the directors must also comply with other duties arise from the fiduciary principle.[12] Such a principle indicates that if employees perform the work that directly correlates and affects the value of the corporation, then fiduciary duties require the board of directors to foster and care for the corporation’s workers.[13]
Currently, the Delaware courts’ decisions have not provided an answer to this question. However, the evolving legal framework regarding the fiduciary duty of oversight rooted in In re Caremark Int’l Deriv. Litig., provides a solid foundation under which systematic overwork and burnout could amount to identifiable risks in corporate governance.[14] If burnout is merely due to high stress and a combination of other factors, the corporation may be able to place it under the control of human resources department. In contrary, where work conditions implicate the violations of labor and employment law, create undeniably workplace safety failures, or represents ‘red flags’ that the directors deliberately overlook, the Delaware courts may hold the directors liable for a breach of fiduciary duty of oversight.[15] The Delaware Court of Chancery explained that “directors are charged with plenary authority over the business and affairs of the corporations,” and therefore “the board has oversight duties regarding the corporation as a whole.”[16] Additionally, it is widely known that ignorance cannot serve as a defense for corporate governance.[17]
For example, if an internal employment survey or data report was conducted indicating overworked employees or burnout involving a violation of labor laws and that data was utterly ignored or the directors failed to address such issue, a plaintiff may have a viable claim against the directors for a breach of fiduciary duty of oversight.[18] In a different context yet similar principle to the first prong of the Caremark claims, in Marchand v, Barnhill, the Delaware Supreme Court held that the board of directors breached its duty of oversight by failing to implement any system monitoring food safety.[19] Like food safety in Marchand, In re Boeing Co. Deriv. Litig., the board of directors breached its duty of oversight by failing to establish an internal safety reporting system and monitor airplane safety.[20] The Delaware Court of Chancery held that the plaintiffs in In re Boeing Co. Deriv. Litig. have sufficiently pled their first prong claim. [21] Although it has not been legally recognized as corporate governance risks, these decisions serve a legal framework for a breach of duty of oversight if the plaintiffs sufficiently pled a claim beyond the operation inefficiency matter constituting a violation of labor laws or other statutory regulations.
IV. Conclusion
Overwork and burnout are recognized risks under the business and management of corporations which would likely survive the business judgment rule if the claims focus on business productivity and the company’s internal management. However, where overwork or burnout presents legal violations involving labor or employment law, or the failure to maintain safety working conditions, the claims move into the realm of compliance risk, where Caremark liability is firmly established.
About the Author
Socheata Cheng is a third-year regular division student at Widener University Delaware Law School. She serves as a Staff Editor for the Volume 51 of the Delaware Journal of Corporate Law. In addition to serving as the President of the Asian Law Student Association and Student Ambassador in the Admissions Office, Socheata is a member of the Moot Court Honor Society and Transactional Law Honor Society. She previously served as a Judicial Extern at the Superior Court of Delaware and currently serving as a Judicial Extern at the Court of Chancery of Delaware. After graduating and taking the Delaware bar, Socheata will be serving as a Judicial Law Clerk for the Chief Judge at the Court of Common Pleas of Delaware.
[1] Daisy Auger-Dominguez, Burnout Looks Different Across the Orgs Chart. Watch for These Signs., HBR (April 3, 2026), https://hbr.org/2026/04/burnout-looks-different-across-the-org-chart-watch-for-these-signs.
[2] Stone ex rel. AmSouth Bancorporation v. Ritter, 911 A.2d 362 (Del. 2006) (citing In re Caremark Int’l. Deriv. Litig., 698 A.2d 959 (Del. Ch. 1996)).
[3] See In re McDonald’s Corp. Stockholder Deriv. Litig., 291 A.3d 652, 680 (Del. Ch. 2023).
[4] Id. at 676 (The prong-two claim derives from Graham v. Allis-Chalmers Mfg. Co., 188 A.2d 125 (Del. 1963)).
[5] In re McDonald’s Corp. Deriv. Litig., 291 A.3d at 676.
[6] Id. at 677; see Del. Ch. R. 23.1(a).
[7] See generally In re McDonald’s Corp. Deriv. Litig., 291 A.3d at 677.
[8] Prong-one of the Caremark claims.
[9] Prong-two of the Caremark claims.
[10] Nowhere to Run or Hide: Directors Can Be Held Personally Liable for Employee Dismissals, Eversheds Sutherland (Feb. 1, 2023), https://www.eversheds-sutherland.com/en/ireland/insights/nowhere-to-run-or-hide-directors-can-be-held-personally-liable-for-employee-dismissals.
[11] Id. at 680.
[12] Id.
[13] Id.
[14] See generally In re Caremark Int’l. Deriv. Litig., 698 A.2d 959 (Del. Ch. 1996).
[15] See generally In re McDonald’s Corp. Stockholder Deriv. Litig., 291 A.3d 652 (Del. Ch. 2023).
[16] Id. at 369; see Del. Code tit. 8, § 141(a).
[17] Common Liability Risks For Directors and Officers, Endow Law (Mar. 4, 2025), https://endowlaw.com/f/common-liability-risks-for-directors-and-officers.
[18] Aneil Kovvali & Jonathan S. Masur, Labor, Leisure, And Law, 103 N.C. L. Rev. 1671, 1691 (2025) (“For example, a Gallup report from 2018 “found that 23& of employees reported feeling burned out at work very often or always, while an additional 44% reported feeling burned out sometimes. That means about two-thirds of full-time workers experience burnout on the job.”).
[19] See generally Marchand v. Barnhill, 212 A.3d 805 (2019).
[20] In re Boeing Co. Deriv. Litig., 2021 WL 4059934, at *27 (Del. Ch. Sept. 7, 2021).
[21] Id. at *26.
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