As a Minority Shareholder, Can I Quit and Still Sue for a Business Divorce?
I have written in the past that a shareholder/employee being terminated may very well constitute shareholder oppression entitling you to claim status as an oppressed minority shareholder and that you may be able to force a buyout of your shares. However, what happens when the majority shareholders know this, so they refuse to outright terminate you, but instead undertake a mission to make your life so miserable at work that you want to quit?
The theory behind termination amounting to shareholder oppression (or member oppression, in a New Jersey LLC) is based on the “frustration” of the shareholder’s “reasonable expectations.” What this means is, does the employee reasonably expect that ownership and employment will go hand-in-hand? A one-third founder of the company who has always worked there probably started the company, in part, to provide herself with a job. However, an employee who worked at a company for twenty years without being an owner, and then is awarded a handful of shares, would have a harder time claiming that he always expected that ownership and employment were linked. Assuming you are one who could claim termination as an employee does constitute oppression, it is harder to make this claim if you are not fired but quit. So, what do you do if the company is trying to force you to quit but won’t fire you?
There is a concept in employment law called “constructive termination.” When an employer makes life so difficult that it is obvious they are trying to get you to quit, courts see through the façade and deem one to have been “constructively terminated.” The same concept can be applied in an oppression case. But there is more to the analysis when one is an owner.
As a minority owner, you also have the right to be kept informed about certain company finances, which is something the majority often ignores. Also, courts will look not just at how you are being treated, but how differently you are now being treated. In other words, if they have always treated you like garbage – and you never complained – the argument that you are now being oppressed is somewhat more difficult to make. But if you suddenly are being excluded from management and decisions that you used to be involved in, you can perhaps demonstrate that you are being “frozen out” and treated unfairly, compared to how you used to be treated. Depending upon the circumstances and how badly they are treating you, the situation could certainly amount to shareholder oppression, and could even justify you quitting while still having a claim.
Being Forced to Quit
Please be sure to consult with an attorney who actually handles these cases extensively before deciding whether you have “had enough” and believe you are being forced to quit. If you are truly being treated unfairly, then an experienced business divorce attorney can tell you how best to advance a potential shareholder oppression claim.