The Exciting Times of Family-Owned Businesses

The intertwined, emotion-bound relationships within a family business are often a source of employment law lessons if not downright entertainment. I suspect the entertainment value arises from the fact that we all presume a certain amount of affection exists within these family businesses that precludes the kind of cold-blooded opportunism permeating normal corporate structures. 

So it's a surprise when relatives go after each other like the lieutenants of Genghis Khan. A case in point- the top-level shenanigans at Adroit Medical Systems, a family heating pad manufacturing business. 

Apparently, the minority shareholder son of the owner was unhappy that his father's 80% ownership was passing to his wife, the son's stepmother.  What to do? Well, just have your father declared incompetent by a probate court, establish a conservancy for the estate naming yourself as conservator, and then proceed to take over the company, firing stepmother, other relatives, and changing the locks on the company doors. 

Oh, and before you kick this off, also make a surreptitious report to the IRS that your family members are engaged in tax fraud and embezzlement. You do that to give yourself some top cover just in case your coup attempt doesn't work. Specifically, the IRS complaint technically makes you a whistleblower. 

The whole Snidely Whiplash (that's him, above) plan fell apart in a matter of days once the probate court realized the old man was not incapacitated. The re-established company leadership promptly fired the son, who then leveraged his whistleblower status to sue his parents for retaliatory discharge. 

The Tennessee federal court, and ultimately the 6th Circuit, was having none of this silliness. The 6th Circuit panel noted that the bona fide reason for the termination- a phony claim of mental incapacity directed at the principal shareholder, followed by a complete takeover of the company and removal of its officers- was more than supported by the evidence. As one judge said, “ Who wouldn't think he would be fired?"