November 27, 2018
The Labor and Employment Law Group at Mandelbaum Barrett, PC prides itself on being able to handle difficult employment litigation cases that also involve commercial disputes. These days, more and more cases straddle employment and other areas of the law. One such case, Metro Commercial Management Services, Inc. v. Istendal, was just decided by the New Jersey Appellate Division on November 19, 2018.
In Metro Commercial an at-will employee brought a minority shareholder oppression claim pursuant to N.J.S.A. 14A:12-7(1)(c), which provides that an action may be brought:
[where] the directors or those in control have acted fraudulently or illegally, mismanaged the corporation or abused their authority as officers or directors or have acted oppressively or unfairly toward one or more minority shareholders in their capacities as shareholders, directors, officers, or employees.
Oppression in the context of an oppressed minority shareholder action, however, does not require illegality or fraud by majority shareholders. Brenner v. Berkowitz, 134 N.J. 488, 506 (1993); “Oppression has been defined as frustrating a shareholder’s reasonable expectations.” Id. Often in these cases, the minority shareholder, as in Metro Commercial, is also a terminated employee and argues that the majority interfered with his reasonable expectation of continued employment by firing him, causing him lost wages and other benefits.
The Appellate Division in Metro Commercial indicated that termination of a minority shareholder’s employment may constitute oppression because a person who acquires a minority share in a closely-held corporation often does so “but for the assurance of employment in the business in a managerial position,” citing Muellenberg v. Bikon Corp., 143 N.J. 168, 181 (1996). Such a person has a reasonable expectation that they will enjoy “the security of long-term employment and the prospect of financial return in the form of salary,” and will have “a voice in the operation and management of the business and the formulation of its plans for future development.” Id. Where these expectations are frustrated by majority shareholders, a court may find that oppression occurred.
In Metro Commercial, the Appellate Division noted that there was no case law in New Jersey that addresses whether an at-will employee’s status is relevant when analyzing whether an employee has a reasonable expectation of continued employment. In Metro Commercial, the Appellate Court affirmed the trial Judge’s finding that the former employee and minority shareholder could not have a reasonable expectation of continued employment where the shareholder agreement provided that “[e]ach [s]hareholder acknowledges that he is an ‘employee-at-will’ and this can be terminated by the corporation at any time for any reason …” The Appellate Division’s decision is not surprising. However, one wonders how the Appellate Court would have ruled had the minority shareholder been an at-will employee without any form of written agreement. It appears likely that the holding would have been different because the Appellate Division, commenting on the case law from other jurisdictions relied upon by the minority shareholder, stated that in those other matters “there were no written employment agreements …” The Metro Commercial case, thus leaves the door open for minority shareholders to bring wrongful termination claims under the Minority Oppression statute in circumstances where they are employed at-will without any form of written agreement.
The take-away from the Metro Commercial decision is that corporations awarding minority shareholder interests to employees should do so only if there is a provision in the shareholders’ agreement or separate employment agreement making it clear that the corporation may terminate the minority shareholder’s employment with or without cause. It would also be helpful to include a provision confirming that, as an at-will employee, the minority shareholder has no reasonable expectation of continued employment.