Legal Definitions - fickle-fiduciary rule

The fickle-fiduciary rule is a legal principle that requires an employee or business partner to give up all compensation, bonuses, and other financial benefits they received during a period when they were actively violating their duty of loyalty to their employer or partnership. This rule often applies when an individual secretly prepares to leave and start a competing business, or begins working for a competitor, while still employed or associated with their original firm.

The rule is generally very strict, meaning that courts typically do not consider factors like whether the employer suffered actual financial harm. However, in rare cases where applying the rule strictly would lead to an extremely unfair outcome, some courts may consider such mitigating circumstances.

Here are some examples illustrating the fickle-fiduciary rule:

• Example 1: Secretly Planning a Competing Business
  Sarah works as a senior software engineer at "InnovateTech Solutions." While still employed and receiving her regular salary and bonuses, she secretly spends evenings and weekends developing a competing software product. She also starts recruiting some of her colleagues to join her new venture, all before giving notice of her resignation. InnovateTech Solutions later discovers her activities.

  How it illustrates the rule: Sarah has a fiduciary duty of loyalty to InnovateTech Solutions. Her actions of developing a competing product and recruiting colleagues while still employed constitute a breach of this duty. Under the fickle-fiduciary rule, InnovateTech Solutions could seek to recover all compensation (salary, bonuses) Sarah received during the period she was actively preparing to compete, even if her new business hadn't launched yet or caused immediate financial harm to InnovateTech.

• Example 2: Partner Diverting Clients
  Mark is a partner in a marketing agency, "Creative Campaigns LLP." For several months, while still a partner and drawing his share of the firm's profits, he secretly meets with key clients of Creative Campaigns. He convinces them to transfer their business to a new agency he plans to open with another partner, without informing Creative Campaigns.

  How it illustrates the rule: As a partner, Mark owes a high fiduciary duty of loyalty to Creative Campaigns LLP. By diverting clients to his future competing business while still a partner, he breached this duty. The fickle-fiduciary rule would allow Creative Campaigns LLP to demand that Mark forfeit his share of the profits and any other benefits he received from the partnership during the time he was actively engaged in diverting clients, regardless of whether Creative Campaigns immediately lost revenue.

• Example 3: Misusing Company Resources
  David is a sales manager at "Global Logistics Corp." He decides to leave and start his own logistics company. While still employed by Global Logistics, he uses his company laptop, office phone, and even some of his work hours to research competitors, draft business plans for his new venture, and contact potential clients from Global Logistics' database. He continues to receive his salary and commissions during this period.

  How it illustrates the rule: David's use of company resources and time to build a competing business is a clear breach of his fiduciary duty to Global Logistics Corp. The fickle-fiduciary rule would enable Global Logistics to reclaim the salary, commissions, and other benefits David earned during the specific period he was misusing company assets and time to establish his competing firm, even if Global Logistics cannot prove specific lost sales directly attributable to his actions.