Employees who are shareholders of a private corporation, family business or limited liability company (“LLC”) may not be subject to the employment-at-will rule in Massachusetts. This means that the majority owner or owners cannot simply fire a minority owner-employee at their whim.
The first step is to figure out if the minority stockholder or other minority owner has an expectation of continued employment. Obviously, among the first things to look for is whether there is any type of employment contract, offer letter or the like. The shareholder agreement or stockholder agreement should also be closely examined. If it is well-drafted, it should clearly express the owners' intentions of whether there is some right or expectancy for continued employment (yet another reason to have a well-drafted agreement).
After looking at the written documents, things get murkier. Did the business partners all quit their jobs and start employment with the company when it was formed? That fact would suggest an expectation of employment. By contrast, if the stock or LLC Membership was inherited, an expectation of continued employment is less likely to be found. Every situation is different.
We must then look at why the majority owner(s) want to fire the minority owner. Is there a business purpose for the firing? Have the majority owners considered other less-harmful options to termination? Are all the owners being treated equally? Has the minority owner committed some fireable offense? These issues must be considered with the understanding that the shareholders and members normally owe one-another a fiduciary duty of the utmost good faith and fair dealing. The majority owners should not fire the minority owner simply to advance their own financial interests.
Sometimes majority owners fail to do their due diligence. Shareholder suits can be costly and impose significant liability. See Fay v. Faytex, No. 0983CV01117, Plymouth Superior Court, ($1.4 Agreement for Judgment in favor of terminated shareholder).
If you are a majority owner and you are considering terminating a minority owner, or if you are a minority owner and you have been terminated, are about to be terminated, or are otherwise being frozen out of a corporation or LLC, you should obtain legal advice sooner rather than later.
This post contains only general information and not legal advice. These issues are complex and tricky and this post cannot substitute for legal advice as it applies to your situation.
By Adam P. Whitney 617.338.7000