Volume 1999    Issue 2

Shareholder Oppression v. Employment at Will in the Close Corporation: The Investment Model Solution

Douglas K. Moll^*

When the employment of a close corporation shareholder is terminated, the possibility of legal redress depends upon two seemingly inconsistent doctrines. The shareholder oppression doctrine of corporate law protects the "reasonable expectations" of a close corporation shareholder, including the expectation of continued employment. The at-will doctrine of employment law, on the other hand, provides virtually no legal protection for the loss of a job. While the shareholder oppression doctrine often grants relief to a discharged close corporation worker, the employment at will doctrine rarely allows recovery. In this article, Professor Douglas Moll explains how courts have applied these doctrines inconsistently and have failed to explain why the employer's traditional discretion to terminate employment for any reason should be constrained in a close corporation setting. Professor Moll responds to these judicial shortcomings by introducing and developing the "investment" model of oppression. Under the investment model, the fair value of the shareholder-employee's investment is legally protected. The fair value of that investment, Professor Moll argues, often includes employment in a close corporation. To the extent that a job and its benefits are part of the shareholder's investment, he concludes, they may be protected by the shareholder oppression doctrine without running afoul of the at-will rule. Professor Moll's proposed model reconciles the results of inconsistent court opinions and sheds light on the oppression doctrine. Moreover, the investment model provides a coherent framework for courts evaluating close corporation employment discharges and for shareholders seeking to make informed business decisions.

* Associate Professor of Law, University of Houston Law Center. B.S. 1991, University of Virginia; J.D. 1994, Harvard Law School. The author wishes to thank Adam Goldberg, Sandra Guerra, Ryan Maierson, Stefanie Moll, Michael Muskat, Tom Oldham, Robert Ragazzo, Irene Rosenberg, and Robert B. Thompson for their insightful comments. The author also wishes to thank Rhonda Vickers for her able research assistance.