In this video, you will get answers to these questions:

  • Can a business owner be fired?
  • Do they have a right to employment?
  • Is it legal to fire a business owner?
  • What is a reasonable expectation of employment?
  • How can your employment be terminated?

Video Transcript

Can a business owner be fired? Do they have a right to employment? That’s the question I’m answering today. I’m Aaron Hall, an attorney in Minneapolis, Minnesota. Let’s jump into this. So imagine you have business owners in a company. One of them is perhaps the president, or maybe two of them out of the three are in control and the third one gets fired. Is that permissible? In other words, is it legal to fire a business owner?

A lot of people would say, “No, of course, you can’t. They own the business. How can you fire them?” A lot of people would say, “Hey, look, you can fire a business owner. They still own their shares, but you can fire them as an employee.” Well, what does the law say?

As a general rule, in Minnesota and most states, business owners in small companies, so closely held businesses, not publicly traded stocks, not IBM, Apple, McDonald’s, stuff like that, but small businesses as a general rule, business owners in small businesses have a right to employment unless there’s an agreement that says otherwise. Here’s what it’s called, a reasonable expectation of employment. That’s the legal language. And the rule is that a business owner who is working in a business, maybe bought into that business or bought it with some other owners, that business owner is probably getting a significant amount of the return on investment from ownership in the business in the form of a salary or wages.

So if you’re one of three business owners and you’re working in a business, that’s probably a significant portion of your income, and if you get fired, the general rule is that you had a reasonable expectation of employment. So it is wrong for you to get fired unless of course there’s something contrary to that in writing or an agreement among the owners.

So when I’m starting a business for business owners, and there are multiple owners, I sit and have a conversation with them about, can a business owner be fired? Do you as a business owner have a right to employment? And we put that specifically in the documents, so there’s no misunderstanding later, there’s less opportunity for frustration or frustrated expectations. So either the business owners know they can get fired and here’s how that goes, or they can’t get fired unless they’ve done something wrong, something pretty significantly bad.

Now, let’s talk through that scenario a little bit, because obviously if they can be fired, we know how that works. They may be at-will employees and get fired for any reason. Maybe the board of directors votes on it or the other business owners can fire them. But let’s assume, like in most businesses, the business owners cannot be fired.

Well, what if they can’t do their job? What if, for example, they were required to fly an airplane and now due to an injury, they no longer can fly an airplane? Or what if they used to serve, the business owner previously served as president of the company and the top salesperson for the company, but now that president is 93 years old, and just simply can’t go out and meet with clients and can’t lead the company like the business owner used to? Does that business owner have a right to remain president until he or she dies?

Well, the answer is no. You have to make a reasonable effort as a company to keep that person in employment at the highest payable job that they can reasonably do. So for example, if they have lost consciousness and they’re laying unconscious in a hospital for six months and then they wake up and because of a stroke, they can’t move most of their body, that person’s not going to be able to do most jobs. It’s pretty obvious that they are not going to be able to do jobs, and so their employment can be terminated for a proper reason.

So, that’s what that reasonable expectation of employment talks about. They have a reasonable expectation of employment as long as they can do their job. Now, courts have said, “Look, you can’t just fire somebody because you say they’re doing a bad job. You have to try to work with them, get them some training, some coaching, or maybe help them learn a different job that is a better fit.” So in a scenario where business owners aren’t able to do their job, the business has a duty to try to find another job for them in the business.

So there you have it. Can business owners fire other business owners? General rule is no, they can’t because there’s a reasonable expectation of employment assumed in business owner law in Minnesota and in most States. For more information on this, you’re welcome to see the links in the description below. They point to aaronhall.com which is my website, and you can subscribe to this channel if you want to get more videos like this of an educational nature.

Speaking of education, please see the disclaimer below. I do these general educational videos to help you highlight issues and spot them to discuss them with your attorney, but they’re not a replacement for hiring an attorney, an attorney who takes the time to understand your circumstances and give you advice based on the laws in your jurisdiction. Thank you for joining me today. Again, I’m Aaron Hall, an attorney in Minneapolis, Minnesota representing business owners.