The Minnesota Court of Appeals issued a decision in the case of Roberts v. HydraMetrics, LLC, No. A18-0390, (Minn. Ct. App. 2019) that addressed a shareholder’s claim that he had an expectation of lifetime employment with the Minnesota company for which he worked. The decision both clarifies and criticizes a well-known 1992 Court of Appeals decision that was originally considered to have provided a basis for a terminated shareholder/employee of a company to assert equitable claims for lost wages based on an expectation of lifetime employment.
Pedro’s Holding as to a Reasonable Expectation of Lifetime Employment
In the earlier case, Pedro v. Pedro, 489 N.W.2d 798, 802-803 (Minn. Ct. App. 1992) (sometimes referred to as “Pedro II” because of an earlier decision in the same case), the Minnesota Court of Appeals had affirmed a trial court judge’s award of “future damages for lost wages” based on the court’s “equitable powers” and a finding that the plaintiff had a reasonable expectation of lifetime employment.
The Pedro II case involved three brothers, all with the last name Pedro, who each owned a one-third interest in a family business, The Pedro Companies, a Minnesota corporation which manufactured and sold luggage and leather products. After working for the company for 45 years, Alfred Pedro was summarily fired by his two brothers. At trial, Alfred was awarded almost $2 million in compensation for his stock ownership, lost wages, his brothers’ breach of fiduciary duty, and attorney fees. Alfred did not have a written employment contract. Since it was decided, Pedro II has been often cited by minority shareholders who have been terminated from their employment as a basis to seek damages for lost wages in addition to payment of a fair value of their stock ownership in the face of shareholder oppression. Some litigants characterized this claim as a breach of contract for lifetime employment.
Gunderson’s Finding that Minority Shareholder’s Expectations Must be Reasonable
In a subsequent decision, Gunderson v. All. of Comput. Prof’ls, Inc., 628 N.W.2d 173 (Minn. Ct. App. 2001), the appellate court clarified that the doctrine of wrongful termination and the doctrine of employment-based shareholder oppression are distinct theories of relief. Id. at 190. Any employee could sue for wrongful termination as either a contract or tort claim, but only shareholder-employees can assert an equitable claim, and only if the minority shareholder’s expectation of continuing employment was “reasonable.” Id. The Gunderson court and other courts since then have made it clear that an agreement stating that the shareholder is employed “at-will” will usually defeat a claim that an expectation of continuing employment was “reasonable”, relying in part on Minn. Stat. Section 302A.751, Subd. 3A which states that “written agreements . . . are presumed to reflect the parties’ reasonable expectations. . .”
In Roberts, the court pointed out that Gunderson arguably conflicts with Pedro II in that the Pedro II court confusingly referenced a “contract of lifetime employment” as part of the basis for its decision. The court in Roberts stated that “Pedro [II] may have been analyzed incorrectly.” In a footnote, the Roberts court cited to a law review comment, also cited in Gunderson, that “the Pedro I court extended the law too far in its efforts to compensate a sympathetic plaintiff.”
The Roberts Case and Focus on “At Will” Employment Status
The Roberts case was brought by the founder of HydraMetrics, LLC, Paul Roberts (“Mr. Roberts”), who brought in two other individuals so that each of them had a one-third interest in the company. One of the new individuals invested $300,000 and required Mr. Roberts and the other member to sign a non-compete agreement and a member control agreement. Mr. Roberts was employed by the company as CEO until his termination in January of 2016. After his termination, he sued the company for non-payment of a bonus, shareholder oppression, and wrongful termination based both on a breach of contract and as an equitable claim. He also sued the other owners for breach of fiduciary duty and other related claims.
The Company moved for summary judgment. The district court dismissed Mr. Roberts’ claim for wrongful termination based both the contract theory and the equitable theory because his non-compete agreement stated he was an at-will employee.
Outcome Based on Company’s Right to Terminate Employment
The Court of Appeals affirmed the dismissal of Mr. Roberts claims. It noted that the lower court correctly applied the framework of Gunderson. (Both Gunderson and Pedro involved Minnesota corporations formed under Minn. Stat. Chapter 302A. The Roberts case, which involved a limited liability company, was premised on the Minnesota Revised Uniform Limited Liability Company Act (MRULLCA), codified at Minn. Stat. Chapter 322C.) The Court in Roberts agreed that none of the facts asserted by Mr. Roberts, who founded the company and worked there for 12 years, sometimes without a salary, could overcome the presumption created by the non-compete document he signed stating that the company had “the right to terminate [his] employment at any time, for any reason, with or without reason.”
Implications for Cases Alleging a Shareholder has an Expectation of Lifetime Employment
The Roberts decision confirms that there is a clear distinction between a claim for wrongful termination and an equitable claim for wages lost as a result of an owner-employee being fired and strongly suggests that plaintiffs in minority shareholder cases should look to the analysis in Gunderson, not Pedro II when attempting to advance these claims. It resoundingly confirms that a written agreement stating that an owner-employee is employed “at-will” will virtually always defeat such a claim. It also shows how case law in this area derived from disputes involving corporations is applicable to LLCs which are more common now than they were in 1992 when Pedro I was decided. Finally, Roberts shows that the Court of Appeals holds some skepticism for Pedro claims altogether which may be seen as an invitation for the Minnesota Supreme Court to weigh in on this area of the law. Pedro claims are always challenging and Roberts has made them even more so.
About the Author:
Minnesota shareholder oppression and shareholder rights attorney James C. MacGillis advises clients on shareholder expectations of lifetime employment, shareholder oppression, wrongful termination of employment, at-will employment, shareholder disputes and closely-held corporate disputes. Jim may be reached at 612.455.0503 or firstname.lastname@example.org. Trepanier MacGillis Battina P.A. is a Minnesota shareholder oppression law firm located in Minneapolis, Minnesota.