One Way That Employees Can Forfeit Their Severance Under New York Law July 12, 2010

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.”

Jonathan Cooper is a New York Business Litigation and New York Commercial Litigation Lawyer with a focus on New York breach of contract and New York business fraud claims before the Nassau, Queens, Brooklyn, Bronx, Westchester and Suffolk County courts of New York State. For more information, feel free to contact his Long Island office at 516-791-5700.

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