Employee Shareholders in Closely Held Corporations


In Minnesota for the majority of employees, your relationship with your employer is at-will employment, meaning that employment may end at any time for any lawful reason. However, if you are an employee of a closely held corporation and a shareholder of that corporation, the rules change. Terminating employment of an employee shareholder can create frustration for both the employer and shareholder employee.

Minnesota Statute § 302A.751 States

A court may grant any equitable relief it deems just and reasonable in the circumstances or may dissolve a corporation or liquidate its assets and business in any action by a shareholder when it is established that; the directors or those in control of the corporation have acted in a manner unfairly prejudicial toward one or more shareholders in their capacities as officers or employees of a closely held corporation.

This statue allows district courts discretion when determining remedies for a wrongly treated employee shareholder. One of those remedies requested by employee shareholders is the expectation of lifetime employment. Minnesota courts have held that expectation is reasonable.

Case Law: Pedro v. Pedro

In the case of Pedro v. Pedro, 463 N.W.2d 285 (Minn. Ct. App. 1990), one brother, Alfred Pedro, who had an equal share of a family business, discovered a discrepancy in the business’ accounting records. The other two owners of the company fired Alfred Pedro. Alfred Pedro then sued because of his termination arguing that because he was an employee shareholder, he had a reasonable expectation of lifetime employment. The Minnesota Court of Appeals agreed with Alfred Pedro’s argument and stated for the first time that an employee shareholder has a reasonable expectation of continuing employment. The court outlined that an employee shareholder has two distinct interests in the company.

First, that the owner or shareholder has an interest in the value of the shares and second, as an employee, they have expectations of a job, salary, significant place in management and continuing security for that person’s family. In a subsequent case, the Minnesota Court of Appeals has stated, “typical corporation shareholders commonly have an expectation of continuing employment with the corporation.” Gunderson v. Alliance of Computer Professionals Inc., 628 N.W.2d, 173 (Minn. App. 2001). But, there have been instances where a court has held that an employee shareholder’s expectation of lifetime employment is actually unreasonable. An expectation of lifetime employment can be unreasonable if a shareholder signs an agreement permitting termination of employment for any reason and obligating shareholders to sell their shares upon termination of employment. In that situation the court has held that it is not likely there is a reasonable expectation of lifetime or continuing employment.

Secondly, any reasonable expectations must be communicated to the employer. If the employee shareholder has a subjective expectation of lifetime employment and never discusses that expectation with the employer, courts can hold that the employee-held subjective expectation was unreasonable. Lastly, employee shareholders who are involved in various forms of misconduct, such as embezzling money, misuse of company property, and somehow otherwise disrupting the company’s operations, then there is evidence that there is not an expectation of continued employment.

A way to avoid any conflict between the employee shareholder and the company regarding expectations of employment is to discuss expectations with all employee shareholders at the beginning of the employment relationship and to also check in with the employee shareholders throughout employment to ensure that both the employee and the employer are on the same page. And, if the employee shareholder and the company have an open line of communication, it is far more likely that any conflicts regarding expectations can be avoided.

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