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Employment Disputes In Small Oregon Businesses: When the Shareholder is an Employee

On Behalf of | Feb 18, 2011 | Uncategorized

Oftentimes, shareholders in small Oregon corporations or LLCs are also employees. The compensation structure for an owner employee can be blurry. Where does ownership end and employment begin? When does a shareholder dispute become and employment law dispute? Unfortunately for our Oregon small business clients, even an experienced Portland employment dispute lawyer can’t give them complete clarity.

Oregon courts have recognized what every good Oregon business lawyer has known for years. In many closely held corporations, one of the main benefits of ownership is the employment with the business you own. For most small business owners, their investment is not passive. The business is their baby; they spend years developing it, working it and working for it.

In a two-owner scenario, if one owner/employee is not particularly good at the job, dealing with removing the employee consistent with that employee’s ownership rights can be tricky business.

Consider the situation where Owner A is the company’s chief executive officer and Owner B is the head of sales. Sales have been lagging for months, and previously recurring customers are refusing to deal with Owner B. There is no question that for the good of the company (sometimes for the survival of the company), Owner B can no longer be head of sales. Technically, the CEO has every right to demote, suspend, remove or outright fire the head of sales for any reason or no reason at all.

Unfortunately, it isn’t that simple when the head of sales is also a co-owner. Many co-owners have claimed that a firing under those circumstances constitutes shareholder oppression in violation of Oregon law. Some of those claims have been successful and some not, but all of them have been expensive pieces of litigation for the company. These claims can then circle back on themselves when a creative employment law attorney argues that under the circumstances, shareholder oppression is actually a wrongful termination in violation of public policy. Then, Owner A is facing a shareholder oppression claim and a wrongful termination employment claim.

Owner A in the above scenario is well served to contact an experienced Portland employment dispute lawyer, particularly one who has handled shareholder disputes and business dissolution disputes, before taking any action. Proper documentation, mediation attempts and a thoughtful termination process can be the key to ultimately avoiding liability for doing something that was in the best interest of the company in the first place.