Get access to the exclusive HR Resources you need to succeed in 2018.
Sign up for free email newsletters and get more SHRM content delivered to your inbox.
Is your employee handbook keeping up with the changing world of work? With SHRM's Employee Handbook Builder get peace of mind that your handbook is up-to-date.
Build competencies, establish credibility and advance your career—while earning PDCs—at SHRM Seminars in 14 cities across the U.S. this fall.
Gain the skills you need to rise to the next level in your career. Jon us at SHRM's Leadership Development Forum, October 2-3 in Boston.
Members may download one copy of our sample forms and templates for your personal use within your organization. Please note that all such forms and policies should be reviewed by your legal counsel for compliance with applicable law, and should be modified to suit your organization’s culture, industry, and practices. Neither members nor non-members may reproduce such samples in any other way (e.g., to republish in a book or use for a commercial purpose) without SHRM’s permission. To request permission for specific items, click on the “reuse permissions” button on the page where you find the item.
An employer need not demonstrate that it suffered an economic loss in order to recoup the wages of a disloyal employee, the New Jersey Supreme Court ruled. The court explained that courts have the equitable power to require an employee to repay his or her salary for any pay periods during which the employee was disloyal.
In 2002, Bruce Kaye hired Alan Rosefielde to serve as the chief operating officer and general counsel of several timeshare business entities that Kaye managed. Dissatisfied with Rosefielde’s performance, and upon discovering that Rosefielde had engaged in a pattern of unauthorized self-dealing and other actions that exposed Kaye’s businesses to potential liability, Kaye terminated Rosefielde’s employment in January 2005.
Kaye then sued Rosefielde for breach of fiduciary duty, fraud, legal malpractice, unauthorized practice of law, and breach of the duty of loyalty. Relying on evidence that Rosefielde engaged in unauthorized and fraudulent business transactions for his own benefit, made inappropriate sexual advances towards female employees and submitted a $4,000 non-business-related expense for a Las Vegas hotel stay with three adult film stars, a trial court determined that Rosefielde’s conduct constituted, among other things, a breach of his duty of loyalty. Although the trial court awarded compensatory damages, it declined to order the repayment of Rosefielde’s $500,000 annual salary because his breach of the duty of loyalty did not cause any damage or loss to Kaye’s businesses. After the Appellate Division affirmed the trial court’s decision, the New Jersey Supreme Court granted certification to determine whether disgorgement of a disloyal employee’s salary can be awarded absent a showing of economic loss.
The New Jersey Supreme Court’s Decision
The New Jersey Supreme Court unanimously ruled that equitable disgorgement is an available remedy in New Jersey even where there is no finding of economic loss to the employer. The Court explained that the “[t]he disgorgement remedy is consonant with the purpose of a breach of the duty of loyalty claim: to secure the loyalty that the employer is entitled to expect when he or she hires and compensates an employee.” Simply stated, an employee “is not entitled to be paid when he has not provided the loyalty bargained for and promised.”
Significantly, the court pointed to “the valuable deterrent effect” of disgorgement because its availability may signal to potential bad actors that their breach of the duty of loyalty will result in “adverse consequences.”
The court remanded the case to the trial court to determine whether Rosefielde’s conduct warrants disgorgement considering the following factors: 1) “the employee’s degree of responsibility and level of compensation;” 2) “the number of acts of disloyalty;” 3) “the extent to which those acts placed the employer’s business in jeopardy;” and 4) “the degree of planning to undermine the employer that is undertaken by the employee.”
The court stated that if disgorgement is warranted, it should be ordered for all pay periods during which the employee was disloyal. The court noted that, in some cases, an employee’s entire salary may be clawed back.
Kaye v. Rosefielde, N.J., No A-93-13 (Sept. 22, 2015).
Professional Pointer: The court’s ruling is a welcome decision for New Jersey employers. It provides a potentially potent remedy against a disloyal employee, especially one entrusted with significant discretion and authority.
You have successfully saved this page as a bookmark.
Please confirm that you want to proceed with deleting bookmark.
You have successfully removed bookmark.
Please log in as a SHRM member before saving bookmarks.
Please sign in as a SHRM member before saving bookmarks.
Please purchase a SHRM membership before saving bookmarks.
An error has occurred
Recommended for you
Become a SHRM Member
SHRM’s HR Vendor Directory contains over 10,000 companies