Employee Who Engaged in Protected Activity Failed to Assert Viable Retaliation Claim Where Employee Terminated for Operating a Competing Company in Violation of Employer’s Conflict-of-Interest Policy

On April 24, 2018, the Tenth Circuit affirmed summary judgment in favor of an employer  where an employee alleged retaliatory discharge in violation of Title VII of the Civil Rights Act of 1964 because the employee failed to present evidence of a causal relation between her alleged protected activity and the termination of her employment.

The employer operated a telecommunications company.

In June 2012, the employee told her supervisor and human resources partner that she observed a manager treat an employee in an allegedly discriminatory manner.

The employee also contends that in August 2013 she made additional comments to management about the same manager engaging in discriminatory conduct towards the same employee.

In October 2013, the employer terminated a different employee for violating its conflict of interest policy. The terminated employee told a human resources partner that the plaintiff employee had a similar conflict.

Thereafter, the plaintiff employee’s supervisor asked the employee to disclose any potential conflicts that she had. The employee disclosed that her domestic partner and two uncles owned telecommunications businesses that were used by the employer’s customers.

On November 6, 2013, the human resources manager directed the human resources partner to conduct an investigation into the employee’s potential conflicts. The investigation revealed that the employee owned and operated a telecommunications business with her partner.

The human resources partner, submitted a report in December 2013 to the employer’s vice president of human resources who determined that the employee had a conflict of interest. The human resources partner told the employee’s supervisor that the employee had a conflict of interest because she had access to the employer’s current and prospective customer lists and could refer the employer’s customers to her own business.

On December 16, 2013, the human resources partner recommended that the employee be terminated because she owned, operated, and financially benefited from a telecommunications company that competes with the employer.

Thereafter the fired employee sued the employer alleging that she was terminated, in violation of Title VII, for engaging in protected activity, which protected activity consisted of her reporting the alleged discriminatory conduct referenced above, in June 2012 and August 2013.

In affirming the summary judgment dismissal in favor of the employer, the appeals court noted that: “a vague reference to discrimination and harassment without any indication that this misconduct was motivated by criteria prohibited by Title VII does not constitute protected activity and will not support a retaliation claim.” Nonetheless the court noted that the district court assumed that the employee had engaged in protected activity in August 2013.

The district court ruled that the employee failed to establish any causal connection between her alleged protected activity in August 2013 and her termination in December 2013.

The court found that asking the employee to disclose her potential conflicts in October 2013 does not qualify as a retaliatory action, nor does the employer’s commencement of an internal investigation of potential wrongdoing in November 2013. The court cited 10th Circuit caselaw holding that as to a First Amendment retaliation claim, courts do not consider standard workplace investigations to be materially adverse employment actions.

In sum, an employee assumed to have engaged in protected activity roughly four months before she was terminated for a conflict of interest, which conflict was created by the employee operating a competing business, failed to present sufficient evidence to establish a prima facie case of retaliatory discharge under Title VII.

See Nealis v. Coxcom, 2018 U.S. App. LEXIS 10302 (10th Cir. April 24, 2018)


CVS’ Conflict of Interest Policy Violated Where Pharmacist Formed a Compounding Pharmacy that Competed with CVS for Patients Even Though the Compounding Pharmacy Sold Pharmaceuticals that CVS Did Not Dispense

A CVS pharmacist founded her own compounding pharmacy that mainly created compounded pharmaceuticals that CVS did not dispense.

However, although the compounding pharmacy’s pharmaceutical products were distinct from CVS products, the pharmaceutical products sold at both pharmacies treated the same or similar conditions.

The pharmacist’s supervisor discovered her side-business and recommended that the pharmacist be terminated because her conduct violated the company’s conflict-of-interest policy. CVS terminated the pharmacist for violation of its conflict-of-interest policy.

The terminated pharmacist unsuccessfully sued her supervisor on a variety of grounds, including defamation.

The pharmacist alleged that her supervisor’s statement that the pharmacist’s business “clearly competes with CVS for Patients” was false.

The pharmacist argued that her compounding pharmacy did not compete with CVS because her compounding pharmacy sold different products than those available at CVS.

However, neither the district court nor the Minnesota Court of Appeals were convinced by the pharmacist’s arguments. The court noted that although the two businesses’ products might be different, they treated the same conditions, which showed that the compounding pharmacy clearly competed with CVS for customers.

The pharmacist asserted two other arguments for why her compounding pharmacy did not compete with CVS, but lost those arguments too.

The pharmacist unsuccessfully argued that pharmacies do not treat patients, doctors treat patients, and pharmacies simply fill prescriptions created by doctors; thus, the compounding pharmacy could not compete with CVS because the doctor decides what prescriptions to prescribe, not the pharmacist. Under this theory, the pharmacist argued that if a doctor prescribes medications that are fillable at the compounding pharmacy and not CVS, the compounding pharmacy has done nothing to detract from CVS’ business, because it was the doctor’s decision to prescribe the medication.

The courts were unconvinced by this argument on the grounds that the compounding pharmacy and CVS offer drugs that treat the same conditions and although a patient cannot receive prescription drugs from either pharmacy without a doctor’s prescription, a patient might ask their doctor to change their prescription such that the prescriptions could be transferred from a conventional pharmacy like CVS to a compounding pharmacy.

The pharmacist also argued that the compounding pharmacy was not competing with CVS because Minnesota law limits the types of products that a compounding pharmacy and CVS can legally sell and CVS is licensed under Minnesota law as a synthetic pharmacy and the pharmacist’s business was licensed as a compounding pharmacy; synthetic pharmacies sell pills that are mass marketed and are legally distinct from customized powders sold by compounding pharmacies. In response, the court found that the sale of compounded pharmaceuticals constitutes competition because those pharmaceuticals serve to treat substantially the same conditions in a pharmaceutical patient as the synthetic pharmaceuticals.

In sum, the court rejected the argument that the compounding pharmacy did not compete with CVS because its products are distinct and concluded that the CVS supervisor made a true statement when she said that the compounding pharmacy clearly competes with CVS Pharmacy for patients.

See Martinsen v. Engleka, 2018 Minn. App. LEXIS 214 (April 30, 2018).

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.