NY Faithless Servant Doctrine

In a recent case applying New York law, the highest Massachusetts court applied New York’s faithless servant forfeiture law against a former CEO. A Massachusetts jury had found the former CEO liable for fraud, conversion, waste of corporate assets, and breach of fiduciary duty. The lower court, however, ruled that the employer corporation could not recover the compensation it paid to the CEO during the period in which he breached his duties. Massachusetts’ highest court reversed holding that New York’s “faithless servant” doctrine required a disloyal employee to forfeit compensation, even if the employee performed valuable services during the period of disloyalty. The court quoted the 1977 New York Court of Appeals decision Feiger v. Iral Jewelry, Ltd.: “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…Nor does it 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.” The Massachusetts court confirmed that for New York, the harshness of the remedy is precisely the point and is meant to deter disloyalty and corporate misconduct. See Astra USA, Inc. v. Bildman, 455 Mass. 116, 214 N.E.2d 36 (2009).

Written by Andre Castaybert |
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