Court Sides with Employer Who Fired Employee for Failing to Disclose Outside Employment

On December 27, 2017, the U.S. Court for the Southern District of New York dismissed the case of a former Teva Pharmaceuticals USA, Inc. (“Teva”) employee who was fired, for cause, because he violated Teva’s: (1) Conflict of Interest Policy, Outside Employment Policy, and Electronic Communications Policy.

The terminated employee was an Associate Director of Process Engineering.  While employed by Teva, the terminated employee failed to disclose, in writing, an ownership interest in multiple other businesses, including an ownership interest in Suffern Pharmacy (“Suffern”), a retail pharmacy and wholesale supplier of branded drugs.

During a period of time when the terminated employee worked for Teva and simultaneously held an ownership interest in Suffern, Teva purchased roughly $470,000 in branded drugs from Suffern.  As a result, Suffern made approximately $50,000 in profit from these transactions.

As the result of a routine audit, Suffern was identified as a supplier in need of further review.  Because the terminated employee had an ownership interest in Suffern, the review of Suffern was transferred to Teva’s Office of Business Integrity and an investigation ensued.

The investigation determined that the terminated employee used his Teva email to correspond on behalf of his outside business interests during regular Teva business hours.  At the conclusion of the investigation, Teva terminated the employee for cause because, as stated above, he violated Teva’s Conflict of Interest PolicyOutside Employment Policy, and Electronic Communications Policy.

The Court agreed that the employee was terminated for cause.  In reaching this conclusion, the Court stated that: “[b]ehavior that constitutes cause for termination is defined by contract, including company policies and procedures even if the employee is at will.” (citation omitted).

The Court found that the employee was in violation of several Teva policies at the time he was fired.  Specifically, Teva’s Code of Conduct states:

E]mployees who violate the Code will be held accountable and sanctioned appropriately.  This may include termination for employment…Misconduct that may result in discipline includes…violation of the Code.

The Court noted that Teva’s Code of Conduct also incorporates, by reference, other Teva policies.  In this regard, Teva’s Code of Conduct states:

In certain cases, this Code of Conduct is supplemented by additional policies that cover specific topics in more detail…[The Code] is not as comprehensive as these supplemental policies and therefore does not supersede them or act as a substitute for reviewing each policy that applies to [an employee’s] specific job. 

The other policies that the Court examined were Teva’s Conflict of Interest Policy, Outside Employment Policy, and Electronic Communications Policy.

First the Court found that the employee violated Teva’s Conflict of Interest Policy by failing to disclose to Teva, in writing, his interest in Suffern.  Teva’s Conflict of Interest Policy states:

Each employee must be free from any actual or potential conflict of interest and must avoid even the appearance of such a conflict in dealing with other businesses or individuals on behalf of Teva.  A conflict of interest may arise in any situation in which an employee’s judgments and loyalties are divided between any business or outside interest that, to any degree, is incompatible with the best interest of Teva…Types of activities and relationships that could potentially affect an employee’s independent judgment may include outside employment relationships…[or] personal investments…For this reason, employees must disclose, in writing and in advance, any potential or actual conflict of interest for resolution…Employees should avoid outside business or consulting activities that would divert their time, interests or talents from Teva business.  The employee’s manager must approve, in writing, any outside or consulting activity for a vendor, a supplier of goods or services…or a business that provides services to or related to the healthcare industry. 

Second the Court found that the employee violated the Outside Employment Policy an Electronic Communications Policy by using Teva work time and Teva-owned technology to further Suffern’s interest.  The Outside Employment Policy states:

It is the policy of Teva that no outside employment or interests interfere with the ability of employees to satisfactorily perform their job duties and meet scheduling demands and other work requirements of Teva…Teva may opt to terminate the employee’s employment if Teva, at its sole discretion, determines that the circumstances of the employee’s violation of the policy renders continued employment inappropriate. 

Teva’s Electronic Communication Policy states:

All electronic communication systems and hardware must be used primarily for business purposes.  Personal use must remain limited, incidental and in no way affect productivity.  The consequences of a violation could include termination of employment. 

The terminated employee used his computer and email to conduct business for Suffern and his other businesses.  These emails were voluminous and in one month generated 115 emails that related to one Suffern transaction alone.

Having concluded that Teva terminated the employee for cause, the Court found that the terminated employee was not entitled to retroactive payment of a higher salary, a bonus since he was not employed by Teva at the time discretionary bonuses were awarded, or stock options that he failed to exercise before his termination.

See Iqbal v. Teva Pharms. USA, Inc., 2017 US. Dist. LEXIS 212740.




PA Supreme Court Weighs in on Post- Employment Restrictions Finding Restrictions Apply Equally to Attorneys

In Yocum v. Commonwealth, an attorney working for the Pennsylvania Gaming Control Board (“the Board”) challenged, as unconstitutional, certain temporal employment restrictions imposed upon attorneys by the Board.

The Board’s restrictions stated that any employee of the Board was restricted for a period of two years after termination of employment with the Board from: (1) accepting employment with a licensed gaming facility; (2) accepting employment with an applicant, licensed entity, affiliate, intermediary, subsidiary, or holding company; or (3) appearing before the Board for a hearing or proceeding representing any of the aforementioned entities.

The Board attorney asserted that she wished to seek employment as an attorney representing gaming clients and that the Board’s employment restrictions placed an unconstitutional restriction on her ability to practice law.

Had the Board’s employment restrictions only applied to attorneys, the Pennsylvania Supreme Court would have declared the restriction unconstitutional.  However, since the restriction applied to all Board employees, the Pennsylvania Supreme Court found the employment restriction constitutional.

Instead, the Court expressed its support for the sound public policy considerations underlying the Board’s restrictions on future employment, which include preventing conflicts of interest, or the appearance of conflicts, in a historically controversial industry, by restricting current Board employees from using their contacts and insider expertise as a springboard to other employment opportunities within the gaming industry for a certain period of time.

In other words, the Court found it reasonable for the state legislature to place restrictions on the gaming industry aimed at preventing corruption and ensuring public confidence. The court noted that such restrictions are not novel and can be found in other industries where employees are privy to information and knowledge which could lead to the appearance of a conflict of interest in their field of post-employment.


When Platonic Friendships Create Conflicts of Interest

Even in this Netflix and chill world, some friendships create personal conflicts of interest (“COIs”).  Take for example, the 2011 U.S. Supreme Court case  of Nevada Commission on Ethics v. Carrigan, heard during a time when Obama was in office and Justice Scalia sat the bench (ah, the good ol’ days).    The case, which decided whether state legislators have a personal, First Amendment right to vote on any given matter (they don’t), is an example of a situation where a platonic long-time friendship created a conflict of interest that warranted disclosure and recusal.

From the facts of the case, it appears that a Nevada elected city councilmen, mindful of an upcoming vote to approve the application of a hotel/casino project, approached the city’s attorney with concerns that his long-time friend was a consultant for the company seeking approval of the application.  The city’s attorney seemingly advised the councilmen that disclosing his long-time friendship with the consultant before voting would satisfying the councilmen’s obligations under Nevada’s Ethics in Government Law.   Accordingly, the councilmen disclosed his friendship and then voted in favor of the application that benefited his friend’s employer.

Predictably, the Nevada Commission on Ethics received complaints that the councilmen had a disabling conflict that required him to abstain from voting on the application because his long-time friend (who was also the councilmen’s campaign manager) was a paid consultant of the company seeking the application’s approval.

The Commission launched an investigation and concluded that the councilmen had a disqualifying conflict of interest under Nevada’s Ethics in Government Law’s catchall provision because the councilmen’s relationship with his long-time friend/campaign manager was substantially similar to other prohibited relationships listed in the statute.  Prohibited relationships in the statute included: (1) members of the elected official’s household; (2) relatives related by blood, adoption or marriage; (3) employers of the elected official; (4) employers of members of the elected official’s household; and (5) anyone with a substantial and continuing business relationship with the elected official.  The catchall provision essentially said that if a relationship was substantially similar to any of the relationships listed above, that relationship would also be construed as conflicting.

The Commission censured the city councilmen for failing to abstain from voting, but did not impose a civil penalty because his violation was not willful.  Remember, the councilmen sought advice from the city’s attorney before voting; he just got bad advice.

Ethics & Chill Takeaways

  1. The catchalls will get you.  Many states, public agencies, and corporations have catchall provisions to capture relationships like long-time friendships.
  2. Trust your gut and seek ethics opinions.  The councilmen was smart enough to consult the city’s attorney before voting. The city’s attorney just gave him bad advice on Nevada’s Ethics in Government Law.   Not all attorneys are experts in the field of ethics.  In addition to legal advice, consider seeking an opinion from a state ethics commission, a public agency’s ethics officer, or, in the case of private industry, the company’s ethics officer.
  3. Think Critically.  Ask Yourself Why Is the Policy/Rule In Place.  The city attorney advised the councilmen to disclose the close friendship before voting, but did not tell him to abstain from voting.  The councilmen should have questioned how merely disclosing the conflict would alleviate the statute’s concern over the potential for the councilmen’s objectivity to be impaired by his close friendship.  The only way to mitigate the conflict was to abstain from voting.  It’s important to ask what the ethics statute or policy is seeking to prevent or protect and then question whether your actions are consistent with the intended purpose of the statute/policy.