Has Your Employer Been Taken Over? Your Loyalties Must Shift!

When a company is taken over by another, its employees may have mixed feelings, but the legal position is clear – they must shift their loyalties to the new owner. Two men who found themselves in exactly that position were hit hard in the pocket after maintaining their attachment to the old guard.

The men worked for a transport and logistics company in which they each had a 5 per cent shareholding. After a purchaser acquired the remaining 90 per cent of the shares, they retained their stakes in the company and continued in their employment under new management for about two years.

They eventually exercised put options, requiring the purchaser to buy their shares at their fair value. Under the terms of agreements signed at the time of the takeover, that would have had the effect of automatically terminating their employment on three months’ notice. However, after they were instead dismissed on grounds of alleged gross misconduct, they launched proceedings.

The company contended that they were guilty of a number of material breaches of their employment contracts and that their dismissals were justified. They responded with claims that the sole motive for sacking them was to avoid the purchaser’s contractual obligation to pay them a fair price for their shares.

In ruling on the matter, the High Court found that the men were aware of accounting irregularities in the company’s affairs prior to the buy-out and that it was in the grip of a cashflow crisis. Unbeknown to the purchaser and the company’s directors, they had shared highly confidential information concerning the company with a former shareholder, who was the father of one of them. Notwithstanding the change in ownership, their loyalties had remained firmly with the company’s former management, rather than with their employer.

Rejecting their wrongful dismissal claims, the Court found that their breaches of the confidentiality obligations that they owed to the company were serious and went to the heart of the employer/employee relationship. On the basis that they could no longer be trusted, the company was entitled to dismiss them. As defaulting shareholders, they were also entitled to only a nominal price for their shares.

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