Beyond At-Will: Fiduciary Rights of Shareholder-Employees
At-will employment is a bedrock concept – an employee can be discharged without proof of cause. The principle exists at all employment levels, from rookie to veteran, from entry-level clerical to senior executive. The common exception is when at-will employment is altered by a contract with just cause employment provisions, such as a collective bargaining agreement or an executive compensation agreement. But employers also need to be aware of the limitations that result from the fiduciary obligations between partners or shareholder-employees.
Under the common law of many states, including Minnesota, partners or shareholders of a closely-held corporation owe each other a duty of good faith and fair dealing. Minnesota courts have held that partners or shareholders of a closely-held corporation may not contract to change their relationship to each another in a manner that will “destroy its fiduciary character.” Appletree Square I Limited Partnership v. Investmark, Inc., 494 N.W.2d 889, 893 (Minn. Ct. App. 1993). In a closely-held corporation, shareholder-employees may have a reasonable expectation of continued employment and termination only for cause. This legal concept is different from basic employment law wrongful termination – it is the more arcane concept of employment-based shareholder oppression. It captures the idea of protecting a shareholder’s investment and reasonable expectation in ongoing employment in a closely-held corporation. It is a complex doctrine with its own exceptions, but one clearly recognized by the courts. See, e.g., Gunderson v. Alliance Computer Professionals, 628 N.W.2d 173, 192 (Minn. Ct. App. 2001).
Takeaway: When dealing with a shareholder-employee, the concept of at-will employment and its basic contractual exceptions may not be sufficient to fully appreciate all legal rights involved in a termination. Employment-based shareholder oppression is a living legal principle that, while found deep in the pages of the common law, can control the outcomes and resolutions of important employment termination matters. Good legal counsel will be an important guide to this employment concept that goes beyond the at-will doctrine.