Employee vs. Shareholder Rights Related to Termination

Nov 02, 2023
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Employee vs. Shareholder Rights Related to Termination

When it comes to private businesses, also known as closely held businesses, it’s common for roles to intermix, with many employees also being shareholders. A distinguishing factor of closely held businesses is that their shares aren’t publicly traded.

For executive employees who double as shareholders in these businesses, understanding your rights in both capacities, especially concerning termination, can be complex. Generally, the employee-employer relationship is “at-will,” meaning either side can legally end the relationship for any legitimate reason. However, executive employment often involves employment contracts or shareholder agreements, which can complicate matters.

Shareholder Rights Are Not Employment Rights

As an initial matter, it is crucial to understand that shareholder rights are not necessarily employment rights. While an employee may also be a shareholder, the rights for both are going to be different from one another.

Shareholder rights, especially those of minority shareholders, are limited. They are typically guided by a shareholder agreement, relevant state and federal laws, and company guidelines.

Shareholders rights typically include:

  • Having voting power in terms of a company’s board of directors and other major decisions
  • The right to access and inspect relevant company books and records that tie to a shareholder’s interest
  • The right to dividends
  • The right to participate in meetings and to receive ample notice of meetings

Comparatively, an employee’s rights typically include:

  • The right to not be harassed or discriminated against because of a number of protected characteristics including race, religion, sex, national origin, age, etc.…
  • Accommodations based on medical conditions or religious beliefs
  • The right to receive equal pay

Being a shareholder and employee does not necessarily mean you are exempt from termination on either front, as long as the termination is legal.

It is essential to keep in mind that shareholders do have additional rights to employees called fiduciary duty. This means that shareholders owe each other and the company a duty of care.

This duty of care means that shareholders are expected to act in good faith and with fairness in any decision making and not to self-deal. Violation of that fiduciary duty can occur, such as when contracts and agreements are breached or when other shareholders purposefully set restrictions on minority shareholders.

If you believe that you have been terminated in violation of an employment or shareholder agreement, reach out to the Ohio executive employment attorneys at The Friedmann Firm. We can look over your situation to help determine if you have a case.

Employee vs. Shareholder Rights on Termination

While there’s a distinction between shareholder and employee rights, their intersection concerning termination has similarities.

A shareholder, an employee, or an employee-shareholder can be terminated as long as the reason is lawful and there is no other employment or shareholder agreement in place. In states like Ohio where “at-will employment” governs, the law allows for either the employee or employer to terminate employment for any legitimate, nondiscriminatory reason.

If there is no agreement in place, an employee-shareholder is just like any other employee. They can be terminated from employment or from shareholding for legal reasons.

However, if there is an employment agreement or shareholder agreement in place, the “at-will” relationship may be altered. The agreement that is in place will guide the termination process, as your employer will need to follow the agreed upon terms.

Termination at the executive level can be complex, especially when you may be both employee and shareholder. Ensuring that your employment agreement and shareholder contract have all of the necessary elements is important.

Be sure to consult with an employment attorney before signing any new contracts – especially if you are seeking to negotiate additional terms.

Do You Have More Questions? Consult with an Ohio Executive Employment Attorney

Executive employees typically take on a lot of responsibilities in the general administration of a business, meaning that they will be compensated accordingly. Executive compensation often includes the opportunity to hold or purchase shares within the company that you work for, making you a shareholder in some capacity.

As discussed above, employee and shareholder rights in relation to termination can be complicated. If you have further questions about employee vs. shareholder rights on termination, don’t hesitate to contact The Friedmann Firm. We specialize in employment law, and we work with clients throughout Ohio to ensure executive-level employees rights are upheld – whether you are in the contract negotiation phase or facing termination.

To schedule a free and confidential consultation with one of our Ohio executive employment attorneys, contact us online or over phone at 614-610-9755