West Case Update

Shareholder-Key Employee in Closely Held Company Has Expectations Created by Tie of Employment to Stock Shares

Description A founding employee and major shareholder in a company was fired after several years of working for the company. The appeals court held that, due to the link between his status as shareholder and employee, he had an expectation about his value to the company that goes beyond that of being an at-will employee who may be forced out without consideration of his interests.

Topic Business Organizations

Key Words Closely Held Company; Shareholders Expectation; Stock Value

C A S E S U M M A R Y

Facts Gunderson was a shareholder, officer, director and employee of ACP, a computer company in which he played a key role from the start in 1994. In 1998, after a rift with the president, Gunderson was asked to leave. He was offered $175,000 for his stock in the company; he contended the value was $1,133,000. Gunderson sued ACP for breach of employment contract and unfair prejudicial conduct with respect to the value of the stock and his interest in the company. The trial court dismissed the suit. Gunderson appealed.

Decision Reversed as to unfair prejudicial conduct about the value of the stock. Since Gunderson was an at-will employee, he has no suit for breach of employment contract. However, here there was a written agreement among the principals in the company that expressed their reasonable expectations for their roles in the company. Shareholders in a closely held corporation commonly expect that ownership in the corporation entitles them to employment. Actions by other shareholders that frustrate a shareholder's reasonable expectation of continuing employment constitute unfairly prejudicial conduct. The trial court will review the issue of Gunderson's reasonable expectation and the issue of fair-value buyout of his stock.

Citation Gunderson v. Alliance of Computer Professionals, Inc., - N.W.2d - (2001 WL 536981, Ct. App., Minn., 2001)

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Shareholder-Key Employee in Closely Held Company Has Expectations Created by Tie of Employment to Stock Shares
Description	A founding employee and major shareholder in a company was fired after several years of working for the company. The appeals court held that, due to the link between his status as shareholder and employee, he had an expectation about his value to the company that goes beyond that of being an at-will employee who may be forced out without consideration of his interests.
Topic	Business Organizations
Key Words	Closely Held Company; Shareholders Expectation; Stock Value
C A S E S U M M A R Y
Facts	Gunderson was a shareholder, officer, director and employee of ACP, a computer company in which he played a key role from the start in 1994. In 1998, after a rift with the president, Gunderson was asked to leave. He was offered $175,000 for his stock in the company; he contended the value was $1,133,000. Gunderson sued ACP for breach of employment contract and unfair prejudicial conduct with respect to the value of the stock and his interest in the company. The trial court dismissed the suit. Gunderson appealed.
Decision	Reversed as to unfair prejudicial conduct about the value of the stock. Since Gunderson was an at-will employee, he has no suit for breach of employment contract. However, here there was a written agreement among the principals in the company that expressed their reasonable expectations for their roles in the company. Shareholders in a closely held corporation commonly expect that ownership in the corporation entitles them to employment. Actions by other shareholders that frustrate a shareholder's reasonable expectation of continuing employment constitute unfairly prejudicial conduct. The trial court will review the issue of Gunderson's reasonable expectation and the issue of fair-value buyout of his stock.
Citation	Gunderson v. Alliance of Computer Professionals, Inc., - N.W.2d - (2001 WL 536981, Ct. App., Minn., 2001)