View source for Social:Faithless servant

{{Short description|American legal doctrine}}

The '''faithless servant''' doctrine is a [[Social:Legal doctrine|doctrine]] under the laws of a number of states in the United States, and most notably New York State law, pursuant to which employees who act unfaithfully towards their employers must forfeit to their employers all compensation received during the period of disloyalty.<ref name="auto6">{{Cite book|url=https://books.google.com/books?id=3RaGDwAAQBAJ&q=%22faithless+servant%22&pg=PA472|title=Employment Law: Private Ordering and Its Limitations|first1=Timothy P.|last1=Glynn|first2=Rachel S.|last2=Arnow-Richman|first3=Charles A.|last3=Sullivan|date= 2019|publisher=Wolters Kluwer Law & Business|via=Google Books|isbn=9781543801064}}</ref><ref name="auto">{{Cite book|url=https://books.google.com/books?id=7VdCAQAAIAAJ&q=%22faithless+servant%22|title=Annual Institute on Employment Law|volume=2|date= 2004|publisher=Practising Law Institute|via=Google Books}}</ref><ref name="auto3">{{Cite book|url=https://books.google.com/books?id=bD0pAQAAMAAJ&q=%22faithless+servant%22+-bible+-england+-jesus+-lord+-testament|title=New York Jurisprudence 2d|volume=52|date=2009|publisher=West Group|via=Google Books}}</ref><ref name="auto2">{{Cite book|url=https://books.google.com/books?id=r-BZAAAAYAAJ&q=%22faithless+servant%22+-bible+-england+-jesus+-lord+-testament|title=Labor Cases|volume=158|date= 2009|publisher=Commerce Clearing House.|via=Google Books}}</ref><ref name="auto5">{{Cite web|url=https://www.cnn.com/2018/05/18/us/met-opera-sues-conductor/index.html|title=Met Opera sues former conductor for $5.8 million over sexual misconduct allegations|author=Ellie Kaufman|date=May 19, 2018|website=CNN}}</ref>

==History and application==
The faithless service doctrine is a very old common lawdoctrine that springs out of agency law.<ref name="auto1">{{Cite web|url=https://www.law.com/newyorklawjournal/2018/05/29/the-ancient-common-law-faithless-servant-rule-still-relevant-in-new-york/|title=The Ancient Common Law Faithless Servant Rule: Still Relevant in New York|first1=David B.|last1=Saxe|first2=Danielle C. |last2=Lesser|work=New York Law Journal|date=May 29, 2018}}</ref><ref name="auto7">Manning Gilbert Warren III (2010). [https://www.law.upenn.edu/journals/jbl/articles/volume12/issue4/Warren12U.Pa.J.Bus.L.1135%282010%29.pdf "Equitable Clawback: An Essay on Restoration of Executive Compensation,"] {{Webarchive|url=https://web.archive.org/web/20210307020150/https://www.law.upenn.edu/journals/jbl/articles/volume12/issue4/Warren12U.Pa.J.Bus.L.1135(2010).pdf |date=2021-03-07 }} 12 ''University of Pennsylvania Journal of Business Law'' 1135.</ref><ref name="auto"/> It is a doctrine under the laws of a number of states in the United States, and most notably New York State law, pursuant to which an employee who acts unfaithfully towards his or her employer must forfeit all of the compensation received during the period of disloyalty.<ref name="auto6"/><ref name="auto"/><ref name="auto3"/><ref name="auto2"/><ref name="auto5"/> That period of disloyalty during which equitable forfeiture of all compensation is calculated is the period "from the date of the agent’s first disloyal act, and 'a fiduciary may be required to disgorge any ill-gotten gain even where the plaintiff has sustained no direct economic loss'."<ref>{{Cite web|url=https://www.jdsupra.com/legalnews/the-common-law-tort-of-breach-of-68655/|title=The Common-Law Tort of Breach of Fiduciary Duty: The Total Package}}</ref>

==Application in New York State==
In a case from the 19th century that is still referred to today, ''Murray v. Beard'', 7 N.E. 553, 554-55 (N.Y. 1886), the New York Court of Appeals held that a broker could not recover commissions from his employer, holding that "An agent is held to ''uberrima fides'' in his dealings with his principal; and if he acts adversely to his employer in any part of the transaction ... it amounts to such a fraud upon the principal, as to forfeit any right to compensation for services."<ref name="auto7"/><ref>{{Cite book|url=https://books.google.com/books?id=61l4CgAAQBAJ&q=%22faithless+servant%22+murray+beard&pg=PA424|title=The Impact of Corruption on International Commercial Contracts|first1=Michael Joachim|last1=Bonell|first2=Olaf|last2=Meyer|date=2015|publisher=Springer|via=Google Books|isbn=9783319190549}}</ref><ref name="auto8">{{Cite web|url=https://www.martindale.com/labor-employment-law/article_Withers-Bergman-LLP-Withers-LLP_661798.htm|author=Chaya F. Weinberg-Brodt|date=April 3, 2009|title=The Faithless Servant Doctrine in New York State|website=www.martindale.com}}</ref><ref name="auto9">{{Cite journal|title=Mastering the Faithless Servant? Reconciling Employment Law, Contract Law, and Fiduciary Duty|first=Charles A.|last=Sullivan|date=March 4, 2011|journal=Seton Hall Public Law Research Paper No. 1777082|ssrn = 1777082}}</ref>

In ''Astra USA v. Bildman'', 914 N.E.2d 36 (Mass. 2009), applying New York's faithless servant doctrine, the court held that a company's employee who had engaged in financial misdeeds and sexual harassment must "forfeit all of his salary and bonuses for the period of disloyalty."<ref name="auto6"/> The court held that this was the case even if the employee "otherwise performed valuable services," and that the employee was not entitled to recover restitution for the value of those other services.<ref name="auto6"/><ref>{{Cite journal|title=Faithless Servants Beware: Massachusetts Forfeiture Law is More Severe than Astra USA, Inc. v. Bildman Might Suggest|first1=James R.|last1=Carroll|first2=Jason Collins|last2=Weida|journal=Boston Bar Journal, Winter 2010|date=January 1, 2010|ssrn = 1775205}}</ref> The decision attracted a good deal of attention by legal commentators.<ref name="auto9"/>

Similarly, in ''[[Biography:Chip Skowron|Morgan Stanley v. Skowron]]'', 989 F. Supp. 2d 356 (S.D.N.Y. 2013), the leading case by a New York federal district court applying New York's faithless servant doctrine in Manhattan in the Southern District of New York, United States District Judge Shira Scheindlin held that a hedge fund's employee engaging in [[Insider trading|insider trading]] in violation of his company's code of conduct, which also required him to report his misconduct, must repay his employer the full $31 million his employer paid him as compensation during his period of faithlessness.<ref name="auto6"/><ref name="auto4">{{Cite web|url=https://www.ibtimes.co.uk/faithless-ex-morgan-stanley-fund-manager-ordered-repay-31m-former-employer-1429819|author=Jerin Matthew|title='Faithless' Ex-Morgan Stanley Fund Manager Ordered to Repay $31m to Former Employer|date=December 20, 2013|website=International Business Times UK}}</ref><ref>{{Cite web|url=https://dealbook.nytimes.com/2013/12/23/the-huge-costs-of-being-a-faithless-servant/|title=The Huge Costs of Being a 'Faithless Servant'|first=Peter J.|last=Henning|date=December 23, 2013|website=New York Times DealBook}}</ref><ref>{{Cite web|url=https://www.greenwichtime.com/news/article/Morgan-Stanley-seeks-10-2-million-from-convicted-4193127.php|title=Morgan Stanley seeks $10.2 million from convicted former trader|date=January 15, 2013|work=GreenwichTime}}</ref> Judge Scheindlin called the insider trading the "ultimate abuse of a [[Finance:Portfolio manager|portfolio manager]]'s position."<ref name="auto4"/> The judge also wrote: "In addition to exposing Morgan Stanley to government investigations and direct financial losses, Skowron's behavior damaged the firm's reputation, a valuable corporate asset."<ref name="auto4"/>

The doctrine was applied as well in ''Mahn v. Major, Lindsey, & Africa'', 2018 N.Y. App. Div. LEXIS 1713 (1st Dep’t Mar. 20, 2018), which involved a legal recruiter accused of disseminating proprietary information to competitors in return for kickbacks, who was required to pay back her employer more than $2.7 million.<ref name="auto1"/><ref>{{Cite web|url=https://www.hrdive.com/news/recruiter-must-pay-former-employer-27m-court-says/520126/|title=Recruiter must pay former employer $2.7M, court says|author=Riia O'Donnell| date=March 29, 2018| website=HR Dive}}</ref><ref name="auto8"/>

==Application in other states==
The faithless servant doctrine has also been applied by courts in the states of California, Maryland, Georgia, Missouri, New Jersey, and Oregon.<ref>{{Cite web|url=https://www.law.com/njlawjournal/almID/1202741603182/|title=NJ Supreme Court Reaffirms 'Faithless Servant' Doctrine|first1=Robert H.|last1=Bernstein|first2=Mark D.|last2=Lurie|first3=Michael J.|last3=Slocum|date=November 4, 2015|work=New Jersey Law Journal}}</ref><ref name="auto10">Robert B. Fitzpatrick. {{Cite web|url=http://www.robertbfitzpatrick.com/papers/FaithlessServantDoctrine.pdf|title=Faithless Servant Doctrine: Employer's Right to Recover Compensation from Disloyal Employees}}</ref><ref>{{Cite journal|title=Equitable Clawback: An Essay on Restoration of Executive Compensation|first=Manning G.|last=Warren|journal=University of Pennsylvania Journal of Business Law|volume=12|date= 2010|ssrn = 1407129}}</ref> Courts in other states have chosen to apply the doctrine in part, while Connecticut, Florida, and Rhode Island have chosen not to adopt the doctrine.<ref name="auto10"/>

== References ==
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==External links==
*Lenzer, Robert (January 16, 2014). [https://www.forbes.com/sites/robertlenzner/2014/01/16/morgan-stanley-claws-back-31-million-compensation-from-crooked-hedge-fund-manager/#2e7a04f35cd4 "Morgan Stanley Claws Back 100% Compensation From Crooked Hedge Fund Manager,"] ''Forbes''.


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[[Category:Legal doctrines and principles]]

{{Sourceattribution|Faithless servant}}