Wednesday, October 27, 2010

Seventh Circuit Reaffirms Complete Salary Forfeiture Principle (Gross v. Town of Cicero)

The most powerful remedy for a breach of fiduciary duty claim is that of salary forfeiture. The Seventh Circuit reaffirmed the availability of this remedy in a long-running municipal dispute involving the Town of Cicero. While the facts of that case don't shed any light at all on salary forfeiture in the context of unfair competition cases, the Court cited a number of past precedents.

In particular, the Court stated that "[t]he salary subject to forfeiture is not limited based on the ratio of injurious to legitimate work performed, since an agent who breaches his fiduciary duty has no right to any compensation while acting adverse to the principal's interests." Put differently, there really is no proportionality defense available though my experience is that courts (and juries) effectively consider how serious the fiduciary's transgressions actually were.

The key to salary forfeiture is determining when the fiduciary breach began. For any plaintiff pursuing this remedy against a disloyal employee, it is critical to tailor discovery to find out when precisely an agent started acting in a manner directly adverse to his or her principal.

Often times, this is not easy because of the preliminary stages doctrine. Agents can "prepare to compete", and there is no real bright-line between preliminary competitive activities that are acceptable and actual competition that is not. Each case, of course, turns on its own facts in this regard.


Court: United States Court of Appeals for the Seventh Circuit
Opinion Date: 8/27/10
Cite: Gross v. Town of Cicero, 2010 U.S. App. LEXIS 17911 (7th Cir. Aug. 27, 2010)
Favors: Employer
Law: Illinois

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