Employer’s Breach of Contract Claim, Based on Alleged Secret Recording of Conversations in the Workplace, Dismissed

In Mezinev v. Donald Smith & Co., Inc., 161367/2017, 2020 NY Slip Op 33429 (N.Y. Sup. Ct. N.Y. Cty. Oct. 9, 2020), the court, inter alia, dismissed defendant employer’s counterclaims for breach of contract, breach of fiduciary duty, and violation of the faithless servant doctrine.

Plaintiff commenced this action seeking damages for alleged employment discrimination (based on his Bulgarian national origin). In response, defendants asserted counterclaims “for breach of fiduciary duty and breach of defendants’ governing documents based on plaintiff secretly recording conversations in the workplace which defendants maintain exposed ‘proprietary information’ to potential hacking and unauthorized access.”

In dismissing defendants’ breach of contract counterclaim, the court explained:

To prevail on a claim for breach of contract, defendants must show plaintiff’s breach and resulting damages. While defendants cite generally to its Code of Ethics and Cybersecurity Policy, plaintiff correctly points out that defendants fail to specify a provision of either document that plaintiff purportedly breached or what damages were incurred as a result of plaintiff’s conduct. Assuming that either governing document constitutes a contract, a closer inspection of both the Code of Ethics and Cybersecurity Policy reveals no express prohibition against recordings and permits plaintiff’s access to client data/information. 5 Although defendants maintain that the recordings in and of themselves expose proprietary information to potential hacking and unauthorized access, without further action on the part of the plaintiff it is unclear how plaintiff’s recordings would violate either policy as he maintains, and defendants do not deny, that he had sole access to the purported client data/information which is permitted by both the ethics code and the security policy. Moreover, there are no allegations made by the defendants that plaintiff misused, sold, or profited in any way from the client data/information. Thus, without any actual exposure or misuse of the client data/information it is unclear what damages, if any, were incurred by the defendants. Consequently, defendants’ breach of contract claim must be dismissed.

The court reached the same conclusion as to defendants’ claim of breach of fiduciary duty, for which they were required to “establish misconduct and damages directly caused by plaintiff’s misconduct.” The court held that “[a]ssuming that plaintiff’s recordings constitute misconduct, defendants have failed to proffer evidence of any damages directly caused by plaintiff’s recordings therefore, defendants claim for breach of fiduciary duty must likewise be dismissed.”

Finally, the court dismissed defendants’ claim under the “faithless servant doctrine,” which “is premised on an employee violating its fiduciary duty of loyalty and as a result, forfeiting the right to compensation during the period of disloyalty.” Here, based on the present record, “there are no facts to suggest that plaintiffs actions, while perhaps disconcerting, violated his fiduciary duties as there are no facts or allegations to support a finding that any propriety information was exposed or misused[.]”

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