Firing Of Shareholder/Employee Without Cause

A shareholder and employee of a close corporation was fired by the other two shareholders without cause. The fired shareholder sued, saying his firing without cause was a breach of fiduciary duty. The Massachusetts Supreme Court upheld the firing even though the defendants owed the plaintiff a fiduciary duty of the utmost good faith and loyalty and the employment contract carried an implied covenant of good faith and fair dealing. The basis of the decision was that the employment contract contained a provision allowing for firing without cause. Because of the clause, the firing did not violate the fiduciary duty to the plaintiff or the implied covenant of good faith and fair dealing.

Why This Is Important . . . Although shareholder/employees of close corporations owe each other a fiduciary duty of the utmost good faith and loyalty, the corporation can fire such an person without cause if an employment contract authorizes such a firing.

Jury Trials Available For Disability Discrimination Claims

The Massachusetts Supreme Court has ruled that a plaintiff asserting a claim of disability discrimination under Massachusetts' employment discrimination law is entitled to have his case tried before a jury. Before this decision, Massachusetts courts had routinely rejected requests for jury trials in employment discrimination cases, other than those involving age discrimination. The courts reasoned that since the statute specifically provides for jury trials in age cases but is silent on the issue for other cases of employment discrimination, the Legislature did not intend for these other discrimination cases to be decided by juries. The Court found that merely because the statute does not specifically provide for jury trials, plaintiffs should not be deprived of the right.

Why This Is Important . . . This decision has now been used by other courts to allow jury trials in other types of discrimination cases and raises the stakes for employers.

Waiving The NOL Carryback Under IRS Rules

Normally, a taxpayer's net operating loss ("NOL") in the current tax year is carried back 3 years. If not used, it is carried forward 15 years. Under the Internal Revenue Code, there is an election available to waive the carryback of the NOL and have it carry forward. The United States Court of Appeals for the Fifth Circuit found no effective waiver when the taxpayer inadvertently said he was electing to carry forward his NOL to the next taxable year under section 56(b)(3)(c) rather than section 172(b)(3)

Why This Is Important . . . Taxpayers wishing to take the election must do so properly or the election will likely be challenged by the IRS. If the taxpayer intends to waive the carryback of an NOL, the taxpayer must say so explicitly and cite the correct Code section 172(b)(3) in an attached election to a timely filed tax return that generates the NOL.