Ingle v. Glamore Motor Sales, Inc.

New York Court of Appeals · 1989 · Corporations

CorporationsClose corporationsEmployment at willShareholder agreementsFiduciary dutyclose corporationminority shareholderat-will employment

Facts

Ingle was hired by Glamore Motor Sales in 1964 without any express agreement fixing the duration or conditions of his employment. In later written shareholders' agreements, Ingle acquired a minority stock interest and agreed that if he ceased to be an employee of the corporation for any reason, Glamore could repurchase all of his shares. In 1983, the board removed Ingle from his corporate posts and terminated his employment, effective May 31, and Glamore then exercised the repurchase option and paid Ingle $96,000 for his 40 shares. Ingle did not claim the shares were undervalued, but argued that as a minority shareholder in a close corporation he could not be discharged at will and that the termination and repurchase breached fiduciary and contractual duties.

Issue

Whether a minority shareholder in a closely held corporation who is also an at-will employee gains protection from discharge, or from enforcement of a stock-repurchase-on-termination provision, by virtue of shareholder status, fiduciary principles, or an implied covenant of good faith. Also, whether such claims may be recast as breach of fiduciary duty or tortious interference despite the at-will employment rule.

Rule

Absent a contract for a definite term of employment or some other legally recognized limitation on the employer's right to discharge, an employee serves at will and may be terminated for any reason. A minority shareholder in a close corporation does not, by shareholder status alone, acquire partner-like protection against at-will discharge, and courts will not use fiduciary-duty, implied-good-faith, or tort theories to evade an express repurchase-on-termination agreement tied to that lawful discharge.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Buffalo, Nora Patel bought a 20% interest in Lakeview Tool Works, a closely held corporation where she had already worked for years as operations manager. A shareholders' agreement stated that if Nora ceased to be an employee "for any reason," the corporation could repurchase all of her shares at a stated formula price. She had no oral or written agreement fixing the duration of her employment, and the board later fired her and exercised the repurchase option.

If Nora sues, arguing that her status as a minority shareholder in a close corporation entitled her to be fired only for cause, what is the strongest response?

Explanation. Absent a contract for a definite term or another legally recognized limit on discharge, employment remains at will. The majority opinion rejects the argument that a minority shareholder in a close corporation automatically gains partner-like protection against termination. It also treats the repurchase of stock as a contractual consequence of lawful termination where the agreement permits repurchase if employment ceases for any reason. (Derived from Ingle v. Glamore Motor Sales, Inc. (1989).)