In many companies, it’s not uncommon for the roles of shareholders and employees to be intermingled. But being a shareholder does not necessarily offer job security. Absent an agreement specifying continued employment, an employee who is also an investor in the company can be fired at-will just like any other employee. However, the rights of a shareholder are separate from those of an employee — when an employee-shareholder is terminated from employment, their shareholder rights typically remain intact.

What Employment Protections Does an Employee-Shareholder Have?

Just because an employee is also a shareholder does not mean that they do not have the same employment protections as other employees. Although Ohio follows the at-will employment doctrine, which means that an employee can be fired for any reason, the reason for termination must not be unlawful.

Under Ohio law, terminating an employee-shareholder based on their membership in a protected class constitutes illegal discrimination — and may give rise to a wrongful termination lawsuit. Employers are also prohibited from terminating an employee-shareholder in violation of public policy. Critically, an employee may not be fired for whistleblowing, refusing to participate in illegal activity, or exercising their legal rights.

Can an Employee-Shareholder File a Lawsuit for Breach of Employment Contract?

Often, an employee-shareholder and an employer will enter into an employment contract with their employer. This contract outlines the employee’s rights, establishes guidelines for employment, and sets forth the expectations of both parties. While an employee-shareholder may also have shareholder rights, the employment contract is separate from any shareholder agreement.

Significantly, an employee-shareholder may be able to file a lawsuit if they were terminated in breach of an employment contract. For instance, the employer may have failed to comply with terms that specified an employee could only be fired for cause. Or the contract may have specified certain notice requirements for termination that the employer disregarded. In such cases, the employer may be held liable for damages arising from the breach of contract.

What are Shareholder Rights After Termination?

In situations where an employee is also the shareholder of a company, their termination does not impact their rights as a shareholder. Importantly, shareholder rights are distinct from employee rights. An employee may continue to act in their shareholder capacity after termination as an employee unless a shareholder agreement specifies otherwise.

The following shareholder rights may remain in place after termination:

• The right to continue owning shares — Termination as an employee does not impact a shareholder’s right to continue owning their shares in the company.
• Voting rights — A shareholder is permitted to continue voting in shareholder meetings and participate in the election of board members and other significant decisions.
• Entitlement to dividends — After termination, a shareholder retains the right to receive dividends.
• Access to company records — A shareholder has the right to request and receive access to financial statements and other company records.
• The right to sue the company — If a shareholder believes their rights were violated, they can file a lawsuit against the company.

Termination can play a significant role in a shareholder oppression claim. In the event the termination is part of a pattern of conduct that is meant to exclude a shareholder from participating in the business — or is designed to squeeze out minority shareholders — it may be deemed oppressive. In addition, if the termination occurs after the employee-shareholder files a lawsuit or threatens legal action, they may have a case for oppression. A shareholder who prevails in their claim for oppression may be entitled to a wide range of relief, including a buyout of their shares.

How Do Shareholder Agreements Impact Shareholder Rights Upon Termination?

One of the key issues when a shareholder is terminated is whether a shareholder agreement is in place. Typically, a shareholder agreement would address the impact of departure and how shareholder rights are affected. Some agreements may specify that upon termination, an employee is required to sell their shares. The agreement may also include a provision that outlines the process for valuing shares when the shareholder parts ways with the company. But unless such a provision exists, a shareholder may retain their shares in the company.

Contact an Experienced Ohio Employment Attorney

If you are an employee-shareholder who was terminated from your employment, it’s crucial to understand your rights. Located in Westlake and providing reliable representation to clients throughout Ohio, the employment law attorneys of Lalak LLC advocate for the rights of employees who have been unfairly treated by their employers in violation of the law. Contact Lalak LLC today to schedule a free, confidential, no-obligation consultation and learn how we can assist you.