In previous blog posts, I stated that the termination of a shareholder’s employment may trigger the protections afforded to minority shareholders under the New Jersey Oppression Statute. N.J.S.A. 14A:12-7(c).  That is because New Jersey, like most states, applies the “reasonable expectations” standard. Brenner v. Berkowitz, 634 A.2d 1019, 1029 (NJ 1993).  
 
The Appellate Division in an unpublished decision reaffirmed that the termination of a shareholder’s employment without cause constituted minority oppression.  Krzastek v. Global Resources Industrial & Power, Inc., 2008 N.J. Super. Unpub. LEXIS 1360 (App. Div. 2008).  In Krzastek, the majority shareholder terminated the employment of a seven percent (7%) shareholder because the majority “did not like the jobs plaintiff [the minority shareholder] had been ‘chasing.’”  The Appellate Division affirmed the trial Court’s reasoning “that [the] termination of a shareholder’s status as an employee was one of the common means of oppression in a close corporation and found that…[the majority]… had acted oppressively and unfairly to plaintiff in his capacity as a shareholder and an officer.”  The trial court in Krzastek not only ordered that the majority purchase the minority’s shares for “fair value,” but it also awarded counsel fees pursuant to N.J.S.A. 14A:12-7(10). 
 
Although the minority shareholders often have a reasonable exception of continued employment, it does not mean that the majority can never terminate the minority’s employment. As I’ve stated in previous blog posts, there are no hard and fast rules as to what constitutes oppression. In a case where the minority claims that the termination of their employment constituted unlawful oppression, the Court will need to determine whether or not the termination was justified.  
 
The lesson of Krzastek is that majority shareholder should be careful when terminating the minority’s employment. They can subject themselves to the remedies afforded under the minority oppression statute (including counsel fees and costs).  The Court may also award back and front pay if it determines that the termination was unjustified.  If the majority shareholder is considering terminating the minority shareholder’s employment, they should document the reasons for the termination. I also recommend that they provide adequate warning that the termination will be forthcoming if the minority shareholder does not change the reasons why the majority is considering terminating their employment. 
 
Scott Unger is a Shareholder in Stark & Stark’s Lawrenceville, New Jersey office concentrating in Shareholder & Partner Dispute Litigation. For questions, or additional information, please contact Mr. Unger.