Illinois Shareholder Agreements
The CEO of a small Seattle credit card processing company has made headlines recently with his decision to raise the minimum salary of his employees to $70,000. That company, Gravity Payments, handles a fair amount of credit processing business in Seattle’s Pike Place Market and employs a little fewer than 150 people. The CEO, Dan Price, made the announcement of the wage change three months ago. Since then he and his company have gotten plenty of press coverage. Some have heralded the move as a bold step against wage inequality, a topic of frequent and heated contention in America for several years, while others have condemned Mr. Price’s decision as a move toward socialism.
What’s gotten less coverage so far is the reaction among some of Gravity Payments’ employees, specifically some of the shareholders and higher ups who feel they haven’t been treated fairly. Mr. Price’s own brother, Lucas Price, who was a co-founder of the company, has sued Dan Price, alleging violation of his rights as a minority shareholder. According to Lucas Price’s attorney, the lawsuit is about a variety of factors and not just the pay raise. Since the lawsuit was filed less than two weeks after the pay raise announcement, that certainly makes sense.
Several high ranking employees from the company have also left the company following the announcement. A common thread among their comments has been the feeling that the wages at Gravity Payments have been made too equal. It’s not necessarily the problem that the lowest paid employees make more than they did before but rather that there’s little difference in pay between somebody who’s working nine to five and an executive putting in longer hours and more work for the company.
In the case of a lawsuit of minority oppression, two avenues jump out immediately. The first possible course of argument has to do with fairness. It could be argued that if a receptionist is getting $70,000 a year, it’s unfair for a director to be making little more than that. That argument could be somewhat flimsy since it depends upon a court deciding what a fair salary for a director is. This case would be in Washington, of course, but in Illinois there is a principle by which the decisions of the officers and directors of the company (salary included) are presumed to be made in good faith for the wellbeing of the company unless sufficient evidence to the contrary is provided. Assuming a similar principle holds in Washington courts, this first line of argument could be a tough sell.
The second approach is probably stronger (though of course that all depends upon the specifics of the case, which we do not know). The shareholders could argue that paying everyone $70,000 or more is going to raise the cost of wages so high as to harm the business. This could constitute a breach of fiduciary duty on the part of the CEO, i.e. his responsibility to do what is best for the company.
Again, both of these are hypothetical. We don’t know the specifics of the case. Still this story provides a real life example of many of the issues we’ve covered on this blog.
Horowitz Law Offices represents shareholders and partners, litigating their difficult disputes. You are welcome to contact us at (312) 787-5533 or email@example.com