Appellate Division Reaffirms The Strict Application of Faithless Servant Doctrine

The faithless servant doctrine has been a fixture of New York jurisprudence for over a century. This doctrine requires that an employee be loyal to his or her employer, and prohibits the employee from acting in a manner that violates the employer’s trust or in bad faith.  Should an employee breach this common law duty of loyalty and repeatedly commit disloyal acts (ex: theft, falsifying time records, etc.), he or she may be subject to “complete and permanent forfeiture of compensation, deferred or otherwise.”

Here, Defendant employed by Plaintiff as the Director of Parks and Recreation, and was responsible for the collection of various fees on Plaintiff’s behalf.  In April 2014, Defendant pleaded guilty to grand larceny in the third degree, having stolen more than $50,000 over the course of nearly six years. Thereafter, Plaintiff commenced the instant action to recover all compensation paid to the Defendant during that period and a declaration that Plaintiff had no obligation to continue providing health insurance. The Supreme Court granted summary judgment on the issue of liability, but concluded triable issues of fact remained as to Plaintiff's entitlement to damages under the faithless servant doctrine, noting Defendant’s “otherwise ‘unblemished’ 35 years of service.  Plaintiff appealed.  

On appeal, the Appellate Division, Third Department reversed, holding that “forfeiture of compensation is required even when some or all of the services were beneficial to the principal or the principal suffered no provable damage as a result of the breach of fidelity by the agent.” As there as conclusive proof that Defendant had stolen over $50,000 during the six-year span, Plaintiff was entitled to recover damages.  In addition, there is no basis for apportioning the forfeiture to the specific tasks about which Defendant was disloyal where payment was not made on a task-by-task basis pursuant to a contractual agreement. Thus, for a salaried employer such as the Defendant, forfeiture encompasses all compensation earned by the Defendant during the period in which he was disloyal (here, $316,535.54).

Should you find yourself in a situation where an employee has consistently acted in bad faith towards you and your business, whether through theft, embezzlement, falsifying records, or other misdeeds, the faithless servant doctrine may be a way to recoup the losses you’ve suffered.

The case was City of Binghamton v. Whalen, 32 N.Y.S.3d 727 (3d Dep’t 2016).

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