T.V. Development Corp. v. Stapell, 9 N.Y.2d 71 (1961)

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An employee wrongfully discharged must mitigate damages by seeking other employment, and profits earned from a new business venture may be deducted from the damages recoverable for breach of the employment contract.

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Summary

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Stapell, the plaintiff, sued T.V. Development Corp. for breach of an employment contract after being wrongfully discharged. The trial court awarded Stapell damages, but he appealed, claiming the amount was inadequate. The Appellate Division affirmed, holding that Stapell’s decision to start his own competing business constituted an election to forego further damages. The court reasoned that Stapell couldn’t simultaneously pursue profits from his new venture and claim damages from his former employer for the same period. The court also denied T.V. Development’s counterclaims.

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Facts

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Stapell was hired as General Manager by T.V. Development Corp. for a five-year term beginning March 1962, at $20,000 annually. His contract included covenants not to compete and required him to assign all inventions to the corporation. T.V. Development Corp. breached the contract by wrongfully discharging Stapell in August 1963. After his discharge, Stapell started his own business venture that competed with T.V. Development.

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Procedural History

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The trial court granted Stapell judgment against T.V. Development Corp. for unpaid wages and prospective salary loss. It declared Stapell the owner of an invention but granted T.V. Development a nonexclusive right to use it. The court dismissed Stapell’s claims for malicious interference and share of profits. The trial court also dismissed T.V. Development’s counterclaims. Stapell appealed, arguing the damages were inadequate. The Appellate Division affirmed the trial court’s decision, stating that Stapell had mitigated his damages by starting a new, competing company. The New York Court of Appeals heard the case on appeal from the Appellate Division.

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Issue(s)

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Whether an employee, wrongfully discharged, who subsequently starts a competing business, can recover lost wages for the full term of the contract, without accounting for profits earned from the new business?

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Holding

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No, because an employee who starts a competing business after being wrongfully discharged is deemed to have mitigated damages and accepted the profits of their new venture in lieu of damages from the former employer, at least to the extent those profits offset the lost wages.

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Court’s Reasoning

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The court agreed with the Appellate Division that Stapell, by forming a corporation to market Colorgrams,