Articles

LEGAL TRENDS, November 2005

In this issue of Legal Trends, we focus in on a lawsuit brought by Motorola against its former President and discuss the latest Vioxx verdict.

Employment Law

Motorola settles alleged breach of non-compete agreement with ex-President

It is an issue that confronts many sales representatives and executives - what happens when you sign a non-competition agreement with your current employer and decide to leave to go to work for a competitor? If your employer sues will a court enforce the agreement and enjoin you from working for the new company?

Earlier this month, Motorala announced that it had resolved its lawsuit for such a claim against its former President, Mike Zafirovski. In 2000, Motorola hired Zafirvoski to run its largest division, which manufactured mobile telephones. Several years later, Motorola promoted Zafirovski to President of the company. Zafirovski was targeting the top job of Chief Executive Officer, previously held by Christopher Galvin, who left the company in 2003. Instead of hiring Zafirovski, the Board of Directors decided to hire Edward Zander, former President of Sun Microsystems, Inc. Zafirovski remained for another year until he resigned about

one year later. As part of his separation agreement, Motorola gave Zafirovski $16.8 million in compensation, $11 million of which was cash. Motorola claimed that Zafirvoski agreed not to work for a competitor for two years.

Nortel Networks Corp., based in Ontario, Canada, then hired Zafirovski as its CEO. Motorola sued, and the parties settled the matter Pursuant to the terms of the settlement, Zafirovski agreed to repay Motorola $11.5 million, and Nortel agreed to make Zafirovski whole on the agreement. The agreement also placed certain restrictions on Zafirovsky's future activities. Nortel was not named as a party to the lawsuit.

While it is not unusual for an employer to attempt to contractually tie up a valuable departing employee with the enticement of additional cash, the more typical scenario is that a sales representative is requested to execute an employment agreement either at the outset of his employment, or even a number of years after he started his job. Often faced with the prospect or implied threat of losing one's job, the employee signs the agreement, forgetting about it until such time that the employee seeks to leave.

The former employer then may file suit against the employee and possibly the new employer seeking to enjoin the two from allowing the employee to work at the new company for the contractual period, typically a year or two. The employee is often left in the lurch, with the new company unwilling to be part of an expensive legal battle. Sometimes the new company, without much of a vested interest in the new employee, will simply let him go. Other times, the new company recognizes that it has a valuable asset, may be willing to lock horns with the former employer.

The outcome of any such litigation will depend on a number of issues. One of the primary things a court will analyze is whether the agreement has reasonable restrictions on its face. If the agreement seeks to bar the employee for a reasonable period of time, and for a limited geographic radius, the agreement is more likely to be enforced.

Even with reasonable restrictions, however, a court may still not enforce the agreement. Recently, Illinois courts have engaged in analyzing whether the former employer has a "near permanent" relationship with its clients, and whether the employee would have had contact with the customers because of his employment with the company. Courts recognize that companies do not "own" their customers, but may have enforceable rights the more time and money that they invest in acquiring and maintaining these relationships.

How can an employee know what course of action to take when confronted with such a contract? Obviously, the answer is to seek counsel before executing any such agreement. Other factors which may be relevant to the agreement's enforceability include whether the employee was offered something of additional value for signing the document and how competitive the industry is.

Product Liability Law

Merck Wins Round Two In Drug Case.

Recently, a New Jersey jury found Merck & Co. not liable for failing to warn a user of Vioxx of the painkiller's risks. The jury found in an eight to one split, that the drug manufacturer properly advised doctors of a link between the drug and an increased risk of heart problems.

Consequently, the jury never reached the issue of proximate cause, or in other words, whether the use of the drug caused Frederick "Mike" Humeston's heart attack. This verdict stands in stark contrast with the $253 million verdict for a plaintiff in Angleton, Texas in August of this year. In that case, the verdict will be cut to about one tenth of that amount due to Texas' cap on punitive damages. Also, Merck is appealing the jury verdict.

Vioxx is the brand name for a painkiller the company introduced in 1999. It is part of a class of drugs known as Cox-2 inhibitors. Merck withdrew Vioxx from the marketplace after a study revealed that it increased heart risks after using the drug for 18 months or more. More than 20 million Americans took the drug.

In the New Jersey case, Humeston took Vioxx for about two months. Observers felt that his case was weak, however, as Humeston had other issues associated with heart attacks, like high blood pressure and stress.

One juror stated that a Food and Drug Administration study which was admitted into evidence, stating that drugs like Vioxx do not cause heart attacks with short-term use, swayed her. This study was a major battleground between the parties - the trial judge first found that the memo had certain scientific flaws, but then allowed some of it to be admitted into evidence.

To date, about 7,000 cases have been filed, although it is not known how many involve short-term use. The company has stated that most users took the drug for less than 18 months. Following the verdict, the stock market reacted with approval - the company's shares nearly rose four percent.

Merck is hardly in the clear, however. The next case is scheduled to proceed on November 21 before a federal judge in the Eastern District of Louisiana, who has been temporarily located to Houston. In that case, the user died after only using Vioxx for one month. Regardless of that jury verdict, there are many more Vioxx cases to be tried.

Office News

Eugene K. Hollander was recently named again as an Illinois Super Lawyer in the field of employment litigation. The organization Law & Politics conducted a statewide survey of 47,000 lawyers who were in practice for five years or more. The survey will be published in the February, 2006 issue of Chicago Magazine.

Eugene Hollander recently guest lectured the Chicago Bar Association's Labor and Employment Committee on issues concerning expert evidence in employment cases.

Erin Buck has just joined the firm as an associate attorney. Ms. Buck is a 2005 graduate of the Loyola University School of Law and a 2002 graduate of the University of Wisconsin. Ms. Buck will concentrate her practice in general civil litigation, including employment claims and personal injury matters.

About the author:

Eugene Hollander is a trial attorney and currently heads his own law office in Chicago. Mr. Hollander has tried numerous cases in the state and federal courts. The Law Offices of Eugene K. Hollander is a full service law firm, concentrating its practice in employment discrimination claims, personal injury and medical malpractice suits, and various types of commercial litigation.

For more information, visit our web site at: http://www.ekhlaw.com/, or contact us directly at:

The Law Offices of Eugene K. Hollander
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E-mail: EHollander@ekhlaw.com

Copyright © 2005 The Law Offices of Eugene K. Hollander. This publication may be considered advertising material under the Illinois Code of Professional Responsibility and is not intended to create any attorney-client relationship. The reader should not rely upon any statement or opinion as legal advice, but rather, should consider it as generally informative.