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David B. Saxe and Danielle C. Lesser

An ancient common law doctrine of agency law – the faithless servant doctrine – is still alive and well in the First Department. The rule – which provides that an employee who acts unfaithfully towards his or her employer may be liable to forfeit all compensation earned during the period of unfaithfulness – was recently applied by the First Department in Mahn v. Major, Lindsey, & Africa, LLC, Nos. 653048/2014, 155645/2014, 2018 N.Y. App. Div. LEXIS 1713 (1st Dep’t Mar. 20, 2018), a case involving a legal recruiter accused of disseminating proprietary information to competitors in return for kickbacks. Mahn raises an important issue that the First Department did not directly address:  whether or not a “faithless servant” may keep compensation relating to actions that were not found to be disloyal.

The faithless servant doctrine, sometimes described as the “faithless agent doctrine,” dates back hundreds of years. In Murray v. Beard, 102 N.Y. 505, 508 (1886), the Court of Appeals explained that “[a]n agent is held to uberrima fides [good faith] in his dealings with his principal, and if he acts adversely to his employer in any part of the transaction, or omits to disclose any interest which would naturally influence his conduct in dealing with the subject of the employment, it amounts to such a fraud upon the principal, as to forfeit any right to compensation for services.”  See also Feiger v. Iral Jewelry, Ltd., 41 N.Y.2d 928, 928 (1977) (“One who owes a duty of fidelity to a principal and who is faithless in the performance of his services is generally disentitled to recover his compensation, whether commissions or salary.”) (citation omitted); Consol. Edison Co. v. Zebler, 40 Misc. 3d 1230(A), 1230(A) (Sup. Ct. N.Y. Cty. 2013) (“Under the faithless servant doctrine, the act of being disloyal to one’s employer is itself sufficient grounds for disgorging all compensation received during the period of disloyalty, and does not depend on actual harm to the employer”).  It does not “make any difference that the services were beneficial to the principal, or that the principal suffered no provable damage as a result of the breach of fidelity by the agent.”  Feiger, 41 N.Y.2d at 928-29 (citations omitted).

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