Fired but Still a Shareholder: Can an Ontario Company Refuse a Buyout?

Many owners of private Ontario companies are also employees. When the job ends, the shares often do not. You may be left holding a stake in a business that no longer employs you, with no dividends, no say, and no one willing to buy you out.

This article explains how Ontario courts have approached that situation, what the oppression remedy asks, how your job claim differs from your shareholder claim, and whether the company can hold you to a non-compete. It is general information, not advice on your situation.

What the Court of Appeal decided in Murray v. Pier 21

In Murray v. Pier 21 Asset Management Inc., 2021 ONCA 424, the Court of Appeal for Ontario upheld a finding that refusing to redeem a terminated shareholder's shares was oppressive. It also upheld an award of equitable damages based on a trial valuation that landed between the figures of two experts, $20.8 million and $52.8 million.

The gap between the two experts' numbers shows how far apart valuations can be, and how much a court's own assessment can matter. The decision does not mean every refusal to buy back shares is oppressive. Whether a refusal crosses that line depends on the facts of the particular company and the people involved.

How the oppression remedy works

The oppression remedy for corporations governed by Ontario's Business Corporations Act is found in OBCA s. 248. The Supreme Court of Canada's BCE test asks two things.

• Did you have a reasonable expectation, and was it breached?
• Was the conduct oppressive, unfairly prejudicial, or did it unfairly disregard your interests?

Whether you had a reasonable expectation, and whether it was breached, depends on the facts of your situation. Documents such as emails, minutes and the shareholders' agreement tend to matter, so it is worth gathering them early and having a lawyer review them.

Valuation and the shareholders' agreement

If a court orders a buyout, the price is a central fight. Bimman v. Neiman, 2017 ONCA 264, is an Ontario Court of Appeal decision dealing with the valuation date and the use of a later sale price when valuing shares. In other words, the date chosen and what happened to the company afterward can affect the number.

Buy-sell clauses and valuation formulas usually come from the shareholders' agreement rather than from the statute. Read that agreement closely before assuming you have, or lack, a right to be bought out, and ask a lawyer how any other mechanics in it apply to you.

Your job claim is separate from your shareholder claim

Losing the job and being stuck as a shareholder are two different problems with different rules. The Employment Standards Act (ESA) deals with notice and pay for the job. Notice applies to an employee employed at least three months, and the employer may give written notice, termination pay, or a combination. No ESA notice or termination pay is owed in some cases, including wilful misconduct, disobedience or wilful neglect of duty that is not trivial and not condoned, refusing reasonable alternative employment, fixed-term hires (subject to limits), temporary lay-off, strike or lockout, or employment made impossible by an unforeseen event such as fire or flood.

Termination pay is due on the later of seven days after termination or the next regular pay date. Be aware that you cannot both sue for wrongful dismissal and file an ESA claim for the same termination, so the choice of route matters. A lawyer can help you sort out which path fits, and how it interacts with any share dispute.

Can the company hold you to a non-compete?

Since October 25, 2021, the ESA prohibits employers from entering non-compete agreements with employees, before, during or after employment. Agreements made before that date are not prohibited by the ESA, and non-solicit and non-disclosure agreements fall outside the ban.

There is an exception for executives. Non-competes with an executive are not prohibited, and the term covers offices such as CEO, president, CFO and COO, and any other chief executive position. If you held one of those offices, the ban may not help you.

If you signed a prohibited non-compete, or faced reprisal for refusing one, you can file an ESA claim with the Ministry of Labour, and disputes about enforceability can still go to court. Whether a restriction in a shareholders' agreement is treated as an employment term or a commercial one depends on the facts, so have the document reviewed.

What to do next

• Gather the shareholders' agreement, articles, by-laws, your employment contract and any signed restrictive covenants.
• Collect records of your share ownership, company financial statements and any past offers to buy or sell shares.
• Note the date your employment ended and keep the termination letter and your final pay records.
• Write down what the other owners told you about your future as a shareholder, and save related emails.
• Avoid signing a release or buyout offer until you understand what it gives up.
• Speak with an Ontario business or employment lawyer early, and ask them to confirm the section numbers cited here against the current text of the statutes.

Frequently asked questions