My Business Partner Didn’t Fire Me But Cut My Salary in Half. What Are My Rights?

It is clear under New Jersey law that, under the right circumstances, a minority shareholder who is terminated as an employee may have a claim for minority shareholder oppression. However, majority business owners may be aware of this, as they may have been advised by corporate counsel that a termination could result in a lawsuit in which the minority owner seeks to be bought out.  So, what often happens instead? Rather than terminate the minority owner’s employment, the majority simply reduces the minority owner’s salary significantly. The majority in charge seeks to punish the minority, while avoiding an oppression lawsuit alleging termination. Now what?

As with most business divorce cases, the particular facts are everything. Was the salary reduction part of a company-side reduction? Did the majority owners reduce their own salaries, as well? Were there well-documented performance issues that can be justified and proven? Often, the true answer to all of these questions is a resounding “no.” But it is easy to imagine business owners fabricating “performance issues,” and then blaming the lack of documentation on the generalized “loose record-keeping” of a small company. In fact, small companies do this all the time.

Majority owners who are trying to penalize, or send a message to, a minority owner often will attempt to cut salary to the point where it causes the minority to want to leave the company – i.e., sell (at a discounted value, if the majority gets its way). Of course, they may not want to cut salary so much that what they are doing will appear obvious to a court. But this fine line is not always so easy to walk.

What your business partner may forget is that their actions are not coming out of left field. Such a move often will follow action taken by the minority shareholder, usually after they complain about something the majority is doing. When an email complaining about the majority shareholders taking salaries that are way too high is followed by the complaining minority shareholder having their salary cut by 25%, it often is not difficult for a court to piece together exactly what happened.

But it is not always this easy. Making a shareholder oppression claim is sometimes like putting together a puzzle. An experienced shareholder dispute attorney can help you determine your rights, and how best to enforce them. If you need any assistance on this matter, or any Business Divorce needs, please do not hesitate to reach out to me at dcroberts@norris-law.com.