A shareholders’ agreement lays down the most important rules between the owners of a company, including which rules are to apply when one of the owners wishes to sell his shares. In minor companies, the owners often participate in the day-to-day operations, for instance as executive officers or ordinary employees. In the latter situation, a number of problems may arise as an employee may be covered by a number of rules of protection which cannot be departed from by agreement.
MINORITY OWNER AND EMPLOYED SALESMAN
The case concerned a business owned by four persons. The parties had concluded a shareholders’ agreement which contained a non-solicitation clause applicable for two years after withdrawal from the group of owners of the company or termination of the employment. One of the owners was at the same time employed as salesman with the company, but was offered co-ownership as he was considered a key person.
At one point, disagreement arose between the owners, and one owner, who owned 10 % of the company and was employed as salesman, chose to terminate his employment. After his resignation, he started a competing business and contacted several former customers.
The remaining owners claimed that this was contrary to the non-solicitation clause in the shareholders’ agreement and brought legal action against the salesman claiming payment of a penalty equivalent to five times his last annual salary.
THE COURT: THE SALESMAN HAD STATUS AS A SALARIED EMPLOYEE
Initially, the court noted that the salesman’s contract of employment referred to the Salaried Employees Act, and that the tasks performed by him were characteristic for a salesman which also applied to other terms such as e.g. bonus.
Based on the evidence produced, the court took into account that the salesman was not part of the management and did not have actual influence on the daily operations as he did not have any staff responsibilities or participated in management meetings. The court referred to the salesman’s modest ownership interest which did not entitle him to exercise sole decisive influence on important transactions in the company.
The court therefore found that the salesman held a position - both prior to and during his ownership of the company - and that the Salaried Employees Act therefore applied. The non-solicitation clause did not fulfil section 18 a of the Salaried Employees Act applicable at that time, and it was therefore considered invalid. Accordingly, the court ruled in favour of the employee as regards the payment of a penalty.
A SPECIFIC ASSESSMENT
The judgment is in line with previous case law and shows that it is always necessary to make a specific assessment when determining whether an employed minority owner is also an employee. For instance, whether the co-owner has actual influence on the daily operations, the size of the ownership interest and the characteristics of the relation in terms of content.
The judgment also shows that the decisive factor determining whether an employed co-owner may be subject to obligations in the shareholders’ agreement which are not in accordance with employment law is whether the employee is in fact subject to the obligation as a co-owner - or whether the employment is still the fundamental element of the relation. In the latter situation, an employee’s co-ownership of a business will not automatically result in mandatory employment law rules being departed from.