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Monday, February 24, 2014

Disloyalty Doesn’t Pay





By Tommy Eden

Vicki Edwards was the Branch Manager of the Huntsville location for Allied Home Mortgage Capital Corporation where she was to procure, facilitate and close home-mortgage loans underwritten by Allied. At some point she became very disgruntled with the way Allied’s home office in Texas was handling the business affairs of her office so Edwards begin retaining checks that were made payable to Allied and depositing those into her personal d/b/a account at SouthTrust Bank. Over ten years, she deposited more than $425,000 into her personal account. Edwards later stated that she had retained and deposited those checks out of her frustration in dealing with Allied on accounting questions related to the Huntsville branch account.

Allied attempted to perform a routine audit of the Huntsville branch office when the auditor was not treated in a businesslike manner. Immediately after his visit, Allied terminated its agreement with Edwards, closed the branch and collected 45  boxes of documents. One box contained a SouthTrust bank notice on her personal d/b/a account. After a full audit, Allied sued Howard for conversion, fraudulent suppression and the not often invoked faithless servant doctrine. The faithless servant doctrine precludes an employee from receiving compensation for conduct that is disloyal to the employer or in violation of the employee’s employment contract.

Allied eventually got a verdict of $513,000 against Edward and the court also ordered that she forfeited any right to receive other benefits. The case is  Edwards v. Allied before the Alabama Supreme Court.

In accordance with the faithless servant doctrine Allied used, an employee is entitled to no compensation for conduct which is disobedient or which is a breach of the employees duty of loyalty. If the conduct constitutes a willful and deliberate breach of an employees duty of loyalty, the employee is not even entitled to compensation for properly performed services. McGar v. Adams, 65 Ala. 106 (Ala 1880) was the first case in the United States to recognize this doctrine. The faithless servant doctrine has been recognized since in multiple state and federal courts and most harshly applied in the New York courts of late.

Common Sense Counsel: Realize that an employer in Alabama is not defenseless when an employee steals money or trade secrets, engages in disloyal acts in violation of contract or handbook policies, fraudulently conceals information or other conduct showing them to be a “faithless servant”. This is powerful claim every Alabama employer can pursue against the “faithless servant” to “claw back” bonuses, 401(k) payments, severance, and other payments made from the time the disloyal conduct commenced. Take time now to amend your handbook, benefits disclaimers and employment contracts to better sharpen your lance when an employee wishes to legally joust with you.

Tommy Eden is a partner working out of the Constangy, Brooks & Smith, LLP offices in Opelika, AL and West Point, GA and a member of the ABA Section of Labor and Employment Law and serves on the Board of Directors for the East Alabama SHRM Chapter. He can be contacted at teden@constangy.com or 334-246-2901. Blog at www.alabamaatwork.com