3d Dept. Rejects “Apportionment” Limitation on Faithless Servant Doctrine in Case of Larcenous Director of Parks & Recreation

In City of Binghamton v. Whalen, 2016 NY Slip Op 04289 (App. Div. 3d Dept. June 2, 2016), the court held that plaintiff – the defendant’s former employer was entitled to summary judgment on its claim under the “faithless servant doctrine.”

The court explained the doctrine as follows:

New York law with respect to the disloyal or faithless performance of employment duties has developed for well over a century. Firmly rooted in this state’s jurisprudence is the principle that “an employee is to be loyal to his [or her] employer and is ‘prohibited from acting in any manner inconsistent with his [or her] agency or trust and is at all times bound to exercise the utmost good faith and loyalty in the performance of his [or her] duties'” (Western Elec. Co. v Brenner, 41 NY2d 291, 295 [1977], quoting Lamdin v Broadway Surface Adv. Corp., 272 NY 133, 138 [1936]; see Sokoloff v Harriman Estates Dev. Corp., 96 NY2d 409, 416 [2001]; Duane [*2]Jones Co. v Burke, 306 NY 172, 188 [1954]; Murray v Beard, 102 NY 505, 508-509 [1886]). Under what is commonly referred to as the faithless servant doctrine, “[o]ne who owes a duty of fidelity to a principal and who is faithless in the performance of his [or her] services is generally disentitled to recover his [or her] compensation, whether commissions or salary” (Feiger v Iral Jewelry, 41 NY2d 928, 928 [1977]; see Murray v Beard, 102 NY at 508-509; Matter of Blumenthal [Kingsford], 32 AD3d 767, 768 [2006], lv denied 7 NY3d 718 [2006]; American Map Corp. v Stone, 264 AD2d 492, 492-493 [1999]). Thus, where an employee “engage[s] in repeated acts of disloyalty, complete and permanent forfeiture of compensation, deferred or otherwise, is warranted.

Here, defendant – plaintiff’s former employee – pleaded guilty to grand larceny in the third degree, admitting that he stole more than $50,000 from plaintiff.

The court held that there was no “basis for apportioning forfeiture of compensation to the specific tasks as to which defendant was disloyal”, noting that such a limitation has been recognized by the Second Department, but only where “the employee or agent is compensated on a task-by-task basis” (unlike here, where plaintiff was a salaried employee).

In sum, the court “decline[d] to relax the faithless servant doctrine so as to limit plaintiff’s forfeiture of all compensation earned by defendant during the period in which he was disloyal.”

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