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Current Developments in the Commercial Divisions of the
New York State Courts
Posted: November 23, 2016

Former Employees Can be Ordered to Repay Salaries under Faithless Servant Doctrine

On November 22, 2016, the First Department issued a decision in Beach v. Touradji Capital Management, LP, 2016 NY Slip Op. 07852, holding that former employees that formed a competing company could be held liable for breach of fiduciary duty, explaining:

Although plaintiffs were at-will employees, they could be found to have breached a fiduciary duty to their employer if they acted directly against the employer’s interests. Plaintiffs do not dispute that they were employed by TCM. . . .

Plaintiffs contend that the breach of fiduciary duty counterclaim should have been dismissed in its entirety because TCM failed to show that their actions caused it damage. They submitted evidence that investors withdrew from TCM for reasons other than their actions. However, counterclaim defendants’ damages are not limited to the loss of investors. For example, under the faithless servant doctrine, TCM could seek to recover the compensation it paid to plaintiffs.

(Internal quotations and citations omitted) (emphasis added).

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