Sexual Harassment of Employees is Not a Breach of an Executive's Fiduciary Duties to His Employer

On April 2, 2018, Justice Scarpulla of the New York County Commercial Division issued a decision in Pozner v. Fox Broadcasting Co., 2018 NY Slip Op. 30581(U), holding that an executive did not breach his fiduciary duty to his employer by sexually harassing employees, explaining:

Fox's breach of fiduciary duty counterclaim, however, is not tenable. Pozner had a contractual employment relationship with Fox. As a Fox executive and employee, he owed a duty of loyalty to Fox, which bound him to exercise the utmost good faith and loyalty in the performance of his duties. Further, he was prohibited from acting in any manner that was inconsistent with his agency.

This duty of loyalty, however, has only been extended to cases where the employee acts directly against the employer's interests - as in embezzlement, improperly competing with the current employer, or usurping business opportunities. There are no such allegations against Pozner in the breach of fiduciary counterclaim.

Fox has failed to present, and I haven't found any New York case, in which sexual harassment by an executive, without more, forms the basis for a breach of the duty of loyalty claim, resulting in the employer's recovery of the employee's salary for the entire term of such conduct. Rather, Fox relies only on cases in other non-controlling jurisdictions, that are clearly distinguishable on their facts.

(Internal quotations and citations omitted).

Fiduciaries have special duties, but the question of whether a defendant is a fiduciary, and thus can be liable for a breach of fiduciary duty, is sometimes a complicated one. And, as this decision shows, not every kind of misconduct is a breach of fiduciary duty (note that in a different part of this decision, the court held that the alleged sexual harassment was a breach of the executive's employment contract). We both bring and defend breach of fiduciary duty and professional malpractice claims and other claims relating to the duties of trustees and professionals such as lawyers, accountants and architects to their clients. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions regarding such claims or appeals of such claims.