I’ve spoken with many people who, when confronted with the possibilities of starting their own business, hesitate – and not a small bit – because of their fear that they will forfeit their severance package from their current employer. Stated in slightly different fashion, they are concerned that any effort they expend to start a new business while they are still employed will be perceived as employee disloyalty, or, in legal terms, a breach of fiduciary duty, and thereby nullify their right to severance.

But is that fear grounded in reality?

The short answer under New York law, as you might well guess, is that it depends on whether you have a formal written severance agreement, and if so, what the agreement says. For example, in a July 1 decision in Coastal Sheet Metal Corp. v. Vassallo, New York’s Appellate Division, First Department held that the plaintiff’s former CEO had forfeited his right to his severance package because “the [trial] court’s finding that [defendant] breached his employment agreement by ‘violat[ing] the trust of his position’ negates [his] claim for severance, as a matter of law.”

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