The termination of a shareholder’s employment may constitute oppression under N.J.S.A. 14A:12-7(b)(1)(c). That is because a person who holds a share in a closely held corporation often does so “for the assurance of employment in a closely-held corporation in the business.” Muellenberg v. Bilkon Corp., 143 N.J. 168, 180-181 (1996). That is because, a shareholder may have a “reasonable expectation” of continued employment. See, Brenner v. Berkowitz, 134 N.J. 488, 508 (1993).
When representing the minority, it is important to develop why the employee/shareholder had a reasonable expectation of continued employment. Of course, when representing the corporation or majority, counsel should present evidence that the employee/shareholder did not have a reasonable expectation of continued employment.
A finding that the employee/shareholder has a reasonable expectation of continued employment alone does not mean that the firing alone constitutes oppression. Recently, the Appellate Division, in an unpublished decision found that the termination of shareholder for violating the company’s prohibitions against sexual harassment and the New Jersey Law Against Discrimination did not constitute oppression. Hammer v. Hair Sys., 2017 N.J. Super. Unpubl. LEXIS 1411 (App. Div. 2017).
In that case, the majority shareholders received complaints that Mr. Hammer had inappropriately touched and made sexual comments to them. The company, in an effort to address those problems, conducted a sexual harassment training in which Mr. Hammer attended. Moreover, at the inception of his employment, Mr. Hammer along with every other employee was presented with an employment handbook which set forth prohibitions against workplace discrimination, including but not limited to sexual harassment. The company also retained outside counsel, who performed a comprehensive investigation of the claims of sexual harassment. That investigator concluded that the employee allegations of sexual harassment were credible. As a result of that investigation, a decision was made to terminate Mr. Hammer’s employment. The Court found that because there was a legitimate reason to terminate Mr. Hammer’s employment, it could not be the basis for sustaining his minority oppression claim.
So, the answer to the question whether or not the termination of a shareholder’s employment can be oppression is: yes, as long as there is a reasonable expectation of continued employment and the termination was unwarranted.
When representing the alleged oppressed who claims that their termination constitutes oppression, it’s important to build the case that the termination was unwarranted. On the other hand, when representing the majority or the corporation, counsel should develop and present evidence why the termination was warranted. For cause termination is not oppression. Termination without cause may constitute shareholder oppression.