Entrepreneurs starting up a new company (“Company”) frequently want to reward a new, key employee (“Key Employee”)with restricted common stock or, indeed, outright grants of common stock. Taking these actions during the startup of a Company can minimize the possible, adverse income tax obligations, since the fair market value of the common stock is relatively low at the startup of business operations. Entrepreneurs also frequently want to appoint such persons to officer positions and even to the board of directors. But beware! If a time comes when the entrepreneur desires to terminate such Key Employee, the entrepreneur could be running into a mine field. Judges in Minnesota have frequently held that where a partnership kind of relationship exists between an entrepreneur and his or her Key Employee, the Key Employee is entitled to an expectation of continued employment with the Company which is controlled by the entrepreneur.
To avoid this result, the following two clauses should be inserted into the employment agreement and, if separate, the restricted stock agreement:
(1) An express statement that the relationship between the Company is an “at will” employment relationship, and that the Employment Agreement can be
terminated by either the Key Employee or by the Company, at any time, and with or without “cause;” and
(2) An express statement by the Key Employee that he/she does not have an expectation of continued employment with the Company.
By including these two simple statements, it is likely that an attorney representing a terminated Key Employee would not even file a complaint against the Company based on a claim of a breach of the employment contract.