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What should we do? We may need to terminate one of our founding partners

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in Employment Law,Human Resources

Q. My company, a North Carolina corporation, has only four employees, all of whom are equal shareholders. We don’t have employment contracts. May three of us decide to terminate the employment of the other, a 25% shareholder?

Yes, but with care. Ownership in a North Carolina company does not automatically alter North Carolina’s employment-at-will law. However, careful attention will have to be paid to the circumstances surrounding the formation of the company and the documents that were drafted when you started up.

For small, closely held corporations such as yours, North Carolina courts, interpreting the North Carolina Business Corporation Act, look to the reasonable expectations of the shareholders at the formation of the corporation. Such reasonable expectations might include continued employment, or at a minimum employment that may only be terminated for cause.

Also, corporate documents, such as the bylaws, may govern how, when and by whom a shareholder employee can be terminated. Conferring with counsel is highly recommended in these delicate matters.

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