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Shareholder Dispute Litigation and Employee Loyalty

I have previously written on this site about who gets “custody” of the company’s customers in a business divorce.  Related to this topic, can employee loyalty become an issue in shareholder divorce litigation?

Many times, it is clear who will remain with the company in the event of shareholder dispute litigation.  For example, if a 10% shareholder who has never worked for the company sues for oppression, the suit is not likely to confuse the employees, as it will be viewed as an internal, ownership matter.  In the overwhelming majority of such cases, the minority owner will be suing for a buyout, and the employees will not be impacted at all, if they even learn of the litigation.

However, there are many cases where the minority shareholder works for the company, is an integral part of management, and is suing not to be bought out, but to force the majority owner to sell to the minority owner.  In such an instance, the employees may become fully aware of what is going on, and may face a dilemma as to whom they remain loyal.  The employees may feel that, if they pick the wrong side, consequences may follow once the litigation is over.  Because of this risk, most employees try to remain neutral.  However, when caught in the middle of the fight – given conflicting orders from the opposing camps, for example – the employee is forced to decide to whom he should listen.

No one wants to be put in such a position.  In more than one case, a client has seen good employees tire of being put in the middle of the litigation only to respond by polishing up the resume and finding employment elsewhere.It is easy to tell the parties that they should avoid such a situation, and not put their employees in the middle.  However, when the other side simply will not “play nice,” you have to be smart with your response.  As much as clients do not like “losing” even a single, small battle with his bitter rival, sometimes such victories come at the cost of losing valuable employees.  Taking the high road to avoid conflict, at least until the litigation can be resolved, may make you look better not only in the eyes of your own employees, but also in the eyes of the judge.

The point is, when involved in shareholder dispute litigation, your attorney is more than your litigation strategist and “mouthpiece.”  A veteran of bitter shareholder battles should be able to help you and your company take the steps necessary to ensure that, when the litigation is over, your key employees remain, so there is still a company worth owning.