Is it legal to secretly buy your employer's factory?

Question

An EU factory manager is offered an opportunity to purchase the building from which his employer's business operates. He buys it and says nothing to his employer about his intention before actually becoming the new owner.

By secretly becoming his employer's landlord, surely the manager now has the capacity to further increase his powers within his employer's business. For example, he may threaten to increase the rent unless he is given more freedom in relation to commercial decisions of the business. Or he may demand a stake in the business in exchange for security of tenure on the premises. In the extreme he may force the existing business out of the building entirely.

But can his employer, upon learning the identity of the new premises owner, fire the manager for breach of trust in the implied terms of his contract as his acquisition of the business premises effectively makes him a partner in the business ?

Answer 1

This might be considered a breach of fiduciary duty. The Cornell Legal Information Institute, for example, defines the Duty of Loyalty as:

The duty of loyalty stands for the principle that directors and officers of a corporation in making all decisions in their capacities as corporate fiduciaries, must act without personal economic conflict. The duty of loyalty can be breached either by making a self-interested transaction or taking a corporate opportunity.

It appears that using his dual roles as the company’s landlord and its manager to negotiate a better deal for himself at his employer’s expense, would breach that.

It’s difficult to see how the manager/landlord would be able to avoid taking advantage of the situation, even if he tried. For instance, would the company be able to replace him as manager if they knew he would then evict them in his capacity as landlord?

The purchase itself might breach rules as well. This might, depending on circumstances, fall under the doctrine of a corporate opportunity:

". . . a corporate officer or director may not take a business opportunity for his own if: (1) the corporation is financially able to exploit the opportunity; (2) the opportunity is within the corporation's line of business; (3) the corporation has an interest or expectancy in the opportunity; and (4) by taking the opportunity for his own, the corporate fiduciary will thereby be placed in a position inimicable to his duties to the corporation. The Court in Guth also derived a corollary which states that a director or officer may take a corporate opportunity if: (1) the opportunity is presented to the director or officer in his individual and not his corporate capacity; (2) the opportunity is not essential to the corporation; (3) the corporation holds no interest or expectancy in the opportunity; and (4) the director or officer has not wrongfully employed the resources of the corporation in pursuing or exploiting the opportunity. Guth, 5 A.2d at 509."

Answer 2

can his employer - and new tenant - upon learning the identity of the new premises owner, fire the manager for breach of trust in the implied terms of his contract ?

It is lawful for the employer to terminate the employment relation. Also note that there is no breach of the implied terms of that contract. A breach has to do with a party's actions that conclusively --rather than potentially-- contravene the contract. Your description only reflects that the employee now has "the capacity to further increase his powers" on the employer, not that the employee actually is taking advantage of his new status as landlord.

Labor laws in jurisdictions of the EU purport to compensate the imbalance from the greater bargaining power an employer typically has over the employee. However, the unusual premise that at some point an employee manages to become his employer's landlord weakens or strikes a presumption of said imbalance. Accordingly, treating the matter as an inter pares scenario is more appropriate than when a clear imbalance exists.

The employee's new status as employer's landlord reasonably disrupts the set of basic assumptions with which an employer makes his hiring decisions. A party has no obligation to accept the new risks that the counterparty deliberately creates after their contract was formed.