DEFENDING FLORIDA EMPLOYERS: RECOUPMENT OF WAGES PAID TO DISHONEST EMPLOYEES

Under Florida law, employees have a duty of loyalty to their employers. The breadth of the duty of loyalty depends on whether the employee qualifies as a fiduciary under the law. High level employees, such as corporate officers and directors, hold a strict fiduciary duty of loyalty to a corporation. The fiduciary duty of loyalty requires them to always work in the best interest of the corporation and its shareholders. Taubenfeld v. Lasko, 324 So. 3d 529 (Fla. 4th DCA 2021). This includes refraining from competing against the corporation during employment. Lower-level employees hold a more limited duty of loyalty that prohibits them from improperly using their employer’s confidential information to compete with the employer during employment. See Fish v. Adams, 401 So. 2d 843 (Fla. 5th DCA 1981) (“[An] employee may not engage in disloyal acts in anticipation of his future competition, such as using confidential information acquired during course of employment or soliciting customers and other employees prior to end of employment.”). The Fort Lauderdale business litigation attorneys of the Mavrick Law Firm represent businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment litigation, and other legal disputes in federal and state courts and in arbitration.

If an employee breaches their duty of loyalty and causes damage to the employer, the employer will likely want to pursue litigation against the employee. Two questions arise from this situation. What monetary damages can an employer recover from the employee and can the employee retain wages paid by the employer earned during his or her fiduciary duty breach? The answer to both questions lie in the “faithless servant doctrine.” This doctrine allows an employer to disgorge wages paid to the employee while the employee was in breach of the duty of loyalty. In other words, the employee can be required to repay the employer those wages.

The faithless servant doctrine originates from New York law. See e.g., Feiger v. Iral Jewelry, Ltd., 363 N.E.2d 350 (N.Y. 1977) (establishing faithless servant doctrine in New York). There is little Florida case law on the doctrine. However, one Florida appellate court affirmed a judgment that disgorged wages in a breach of fiduciary duty case. In ICMFG & Associates, Inc., v. Bare Board Group, Inc., 238 So. 3d 326 (Fla. 2d DCA 2017), two corporate executives assisted in the formation of a competing business while they were still employed by the corporation. The corporation sued for breach of the fiduciary duty of loyalty and sought the remedy of disgorgement of the executives’ wages. After trial, the court issued a final judgment that included disgorgement of the executives’ wages. The appellate court affirmed the disgorgement remedy.

ICMFG & Associates did not discuss the faithless servant doctrine in detail. However, its affirmation of the judgment for disgorgement of wages suggests that a claim for disgorgement of wages in a breach of the duty of loyalty action is viable in Florida. If a business in Florida is pursuing litigation against a former employee for breach of the duty loyalty, the business should consider seeking disgorgement of wages. Asserting this remedy could be a way for the employer to increase its award and may also be a way to discourage similar behavior from other employees in the future.

The Fort Lauderdale business litigation attorneys of the Mavrick Law Firm represent businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment litigation, and other legal disputes in federal and state courts and in arbitration.