Metro Commercial Mgmt. Servs., Inc. v. Istendal – Shareholder Expectations Do Not Trump Terms of Agreement

Metro Commercial Mgmt. Servs., Inc. v. Istendal – Shareholder Expectations Do Not Trump Terms of Agreement

Cedar Grove, New Jersey – November 27, 2018

By: James DiGiulio, Esq.*

The Superior Court of New Jersey – Appellate Division recently issued a precedential opinion that should come to the attention of members of all New Jersey closely-held corporations. The case, Metro Commercial Management Services, Inc. v. Istendal (A-0275-17T4), tackled the issue of whether an at-will employee, who also is a shareholder of the company, has a reasonable expectation of continued employment.

The facts of Metro Commercial are straightforward. The defendant was an employee of the company who became a minority shareholder pursuant to a shareholder agreement. The shareholder agreement stipulated that shareholders were at-will employees and could be terminated at any time, for any reason. After thirteen years as a shareholder employee, the company terminated the defendant. As part of the ensuing litigation, the defendant asserted that she was an oppressed minority shareholder based on her reasonable expectation of continued employment—regardless of whether she was an at-will employee.

In considering the defendant’s claim, the court noted that no case, statute, or rule in New Jersey addressed whether status as an at-will employee is relevant to whether an employee has a reasonable expectation of continued employment. The court also noted that minority oppression may occur in such a setting because acquisition of a minority share in a closely-held company often comes with assurances of continued employment.

The court ultimately concluded, however, that shareholder-employee expectations must yield to the terms of written agreements. In particular, in Metro Commercial, the shareholder agreement contained an express stipulation that the shareholders were at-will employees and, moreover, could be terminated at any time for any reason. The court therefore concluded that the defendant was not an oppressed shareholder due to her termination since the shareholder agreement made clear that she had no reasonable expectation of continued employment.

This case is significant for two reasons.  First, it will be the precedential case under New Jersey law that courts look to when addressing the reasonable expectations of employment of at-will employees in closely-held companies. Second, as a result the case’s precedential value, closely-held companies should be sure to set out material employment terms in the company’s operative documents or otherwise consider employment contracts for shareholder members. In the future, because of Metro Commercial, courts are likely to look at such documents and give them weight over employee expectations.

*James DiGiulio, Esq., General Counsel and Partner at O’Toole Scrivo, represents corporations and individuals in high stakes matters in federal and state court, focusing on complex commercial, health care, and corporate governance.  Before joining the Firm, Jim was Chief Counsel to Governor Chris Christie of New Jersey, where he was responsible for leading the Governor’s legislative initiatives, supervising gubernatorial appointments, and managing all of New Jersey’s authorities.  Jim can be reached at jdigiulio@oslaw.com or 973.239.5700.

This article is for informational purposes only and not for the purpose of providing legal advice.

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