Employment Alert: New York's "Faithless Servant" Doctrine Allows Employer To Recoup $7 Million For CEO's Salary And Bonus.In a recent case that Mintz Levin successfully litigated, the Supreme Judicial Court of Massachusetts held that a chief executive officer fired for harassing female employees and misappropriating company funds must forfeit approximately $7 million in salary and bonuses paid to him while employed by his former employer, pharmaceutical company Astra USA, Inc. Because Astra was incorporated in New York New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of , this ruling has special significance for New York employers, as Massachusetts' highest court applied New York law to reach this result, which pertains to the remedies available against corporate officers who breach their fiduciary duty Noun 1. fiduciary duty - the legal duty of a fiduciary to act in the best interests of the beneficiary legal duty - acts which the law requires be done or forborne . Summary Of The Astra Decision And Its Importance To New York Employers In the lower court proceedings before the Massachusetts Superior Court, a jury found Astra's former CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. , Lars Bildman, liable for fraud, conversion, waste of corporate assets, breach of fiduciary duty, and sexual harassment sexual harassment, in law, verbal or physical behavior of a sexual nature, aimed at a particular person or group of people, especially in the workplace or in academic or other institutional settings, that is actionable, as in tort or under equal-opportunity statutes. of Astra's employees. Despite this finding of liability, the lower court also ruled that Astra could not recover by forfeiture The involuntary relinquishment of money or property without compensation as a consequence of a breach or nonperformance of some legal obligation or the commission of a crime. The loss of a corporate charter or franchise as a result of illegality, malfeasance, or Nonfeasance. the compensation it paid to Bildman from 1990 through 1996, the period in which he was found to have breached his fiduciary duties to Astra. Following cross-appeals, Massachusetts' highest court reversed the lower court's judgment denying Astra the right to recover compensation it paid to Bildman during the period of his disloyalty dis·loy·al·ty n. pl. dis·loy·al·ties 1. The quality of being disloyal; faithlessness. 2. A disloyal act. Noun 1. . In reversing the lower court's decision, the Massachusetts Supreme Judicial Court The Massachusetts Supreme Judicial Court (SJC) is the highest court in the Commonwealth of Massachusetts. The SJC has the distinction of being the oldest continuously functioning appellate court in the Western Hemisphere. (the SJC SJC Supreme Judicial Court (Massachusetts) SJC São José dos Campos (Brazil) SJC St. John's College (Johannesburg, South Africa) SJC San Juan College SJC St Joseph's College ) applied New York's "faithless servant" doctrine, which may require a disloyal employee to forfeit compensation, even if the employee otherwise performed valuable services to the employer during the period of disloyalty. In so holding, the SJC cited Feiger v. Iral Jewelry, Ltd., 41 N.Y. 2d 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...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." In its analysis of New York forfeiture law, the SJC confirmed that New York law entitles AstraZeneca, Astra's successor who was represented by Mintz Levin, to recover sums paid to Bildman during the period of his disloyalty, even though the lower court tried the issue of Bildman's services and found that he had actually provided value equal to his salary and bonuses. The SJC also confirmed that New York law permits forfeiture for senior executives and low-level employees alike, and that despite the "harshness" of New York forfeiture law, New York's specific penalties should be applied to deter the corporate misconduct that the law seeks to discourage. The SJC decision is a significant victory for AstraZeneca and confirms that New York employers have a potent remedy to redress disloyal employees. The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. Mr Mintz Levin Employment, Labor and Benefits Group Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. 1 Financial Center Boston MA 02111 UNITED STATES United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. Tel: 6175426000 Fax: 6175422241 E-mail: AMFowler@Mintz.com URL URL in full Uniform Resource Locator Address of a resource on the Internet. The resource can be any type of file stored on a server, such as a Web page, a text file, a graphics file, or an application program. : www.mintz.com Click Here for related articles (c) Mondaq Ltd, 2009 - Tel. +44 (0)20 8544 8300 - http://www.mondaq.com |
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