Background
Joseph Hendry hired Helen Michelle Allen, his ex-wife, in 2018 to serve as bookkeeper for two of his limited liability companies. Ms. Allen received $469 per week and was given signatory authority over business accounts. Within approximately one year, Hendry learned through his payroll service that Ms. Allen had unilaterally increased her own salary to $2,100 per week. Upon investigation, Hendry discovered that Ms. Allen had created fictitious employees on the payroll, added her personal housekeepers and assistants to company payroll, charged personal expenses to company and personal credit cards including spa visits and groceries, and issued unauthorized checks to herself.
When confronted, Hendry terminated Allen’s employment. The two LLCs and Hendry subsequently sued Allen for unjust enrichment, conversion, breach of the duty of loyalty, and fraudulent misrepresentation. The trial court found that conversion and fraudulent misrepresentation were not supported by the evidence but determined that Allen had breached her duty of loyalty and unjustly enriched herself. The court awarded $78,029.83 in damages.
The Court’s Holding
The Tennessee Court of Appeals affirmed the trial court’s judgment in all respects. The court held that even employees who are not officers, managers, or directors owe a duty of loyalty to their employers—requiring them to “act solely for the benefit of the employer in matters within the scope of employment” and to refrain from conduct adverse to the employer’s interests. An employee who breaches this duty must return any compensation received during the disloyal conduct and disgorge any profits arising from the wrongful activities. Notably, the employer need not prove it suffered an actual loss to recover such “illicit profits or compensation.”
The appellate court gave substantial deference to the trial judge’s credibility determinations, finding that the lower court properly rejected Allen’s testimony that her actions were authorized and accepted Hendry’s account that the expenditures were unauthorized. The evidence demonstrated that Allen gave herself pay raises without permission, created fictitious employees using her own social security number and bank account, charged personal expenses to company credit cards, and wrote unauthorized checks to herself—all contrary to her employment duties. The court also rejected Allen’s contention that the damage award was excessive, finding that the trial court thoroughly examined each transaction through testimony from the current bookkeeper and supporting financial documentation.
Key Takeaways
- Regular employees owe a duty of loyalty to their employers regardless of whether they hold officer or director positions, particularly when granted financial access or authority.
- Unauthorized pay increases, fictitious payroll entries, and personal charges using company funds constitute breaches of this duty, entitling employers to recover damages without proving direct financial loss.
- Trial court credibility determinations receive great weight on appeal and are reversed only upon clear and convincing evidence to the contrary.
- Evidentiary objections must be timely raised at trial; failure to object forecloses appellate review of admission or exclusion of evidence.
Why It Matters
This decision provides important clarity for Tennessee employers regarding their ability to recover from disloyal employees with financial authority. By explicitly holding that the duty of loyalty extends to regular employees—not merely officers and directors—the court significantly expanded employer protections. Businesses that grant bookkeepers, accountants, or other staff access to financial accounts and payment authority now have a clear legal framework for recovery when those employees abuse that trust, even where actual damages are difficult to quantify.
The ruling also underscores practical litigation considerations: the detailed testimony and financial documentation supporting the damage award proved dispositive, and the appellate court’s deference to trial-level credibility findings emphasizes the importance of thorough witness examination and documentary evidence at trial. For defendants, the decision reinforces that procedural compliance matters—Allen’s failure to timely object to evidence at trial eliminated potentially viable appellate arguments.