CURRENT MONTH (November 2018)

Corporate Law

New Jersey Court Holds that an At-Will Employee Shareholder May Not Bring a Minority Shareholder Oppression Action

By Lawrence A. Goldman, Gibbons P.C.

In Metro Commercial Management Services, Inc. v. Van Istendal, the Superior Court of New Jersey, Appellate Division held on November 19, 2018, that an at-will employee, who was also a shareholder, could not have a reasonable expectation of continued employment and dismissed her counterclaim asserting minority shareholder oppression. The defendant corporate employee had become a shareholder of the plaintiff corporation and signed a shareholders agreement acknowledging her status as an at-will employee, that she could be terminated at any time, and that upon termination of employment she would be deemed to have made an offer to sell her stock in accordance with a contractual process. Thirteen years following the entry into the agreement the employee was terminated. The corporation sued to compel the sale of the employee’s stock and she counterclaimed seeking reinstatement and alleging shareholder oppression on a number of grounds. The applicable section of the New Jersey Business Corporation Act, N.J.S.A 14A:12-7(1)(c), provides that a shareholder oppression action may be brought when “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 . . .” The Court referred to precedent stating that oppression requires frustration of a shareholder’s reasonable expectations, and that a minority shareholder’s expectations must be balanced against the control persons’ ability to exercise their judgment to run a business efficiently.  The Court noted that termination of a closely-held corporation minority shareholder’s employment may constitute oppression, because such a person acquires shares for the purpose of assurance of employment in a managerial position. In the current case, however, the Court found that the language of the shareholders agreement by which the defendant acknowledged her at-will employment status which could be terminated at any time negated any expectation that she could have of continued employment.

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