The transition from departing iPod chief Tony Fadell to new vice president of Devices Hardware Engineering Mark Papermaster is not going to an easy one for Apple.

A U.S. District Court judge ruled Friday that Papermaster would have to cease work immediately for Apple (Nasdaq: APPL) while allegations of a breach of contract with his former employer, IBM (NYSE: IBM), is looked into, reports Reuters.

Papermaster was a top IBM researcher, especially in “blade” server development. He had been based in Austin, Texas. (Much of IBM’s blade server work is done in Research Triangle Park, North Carolina)

Apple formerly announced Papermaster’s role on Tuesday after word leaked out of his departure from IBM the previous week. At the time, it was thought that Papermaster would use his experience with microprocessors at IBM to help Apple build some of its own for devices such as the iPhone. But with Fadell’s departure (he’ll be staying on as an advisor to Apple chief executive Steve Jobs), Papermaster got the larger task of overseeing all the work on the iPhone and iPod divisions.

IBM is not happy about that. It claims Papermaster’s contract stipulates that if he left IBM he could not work for a competitor for a year. Lawyers are now arguing over if Apple is really an IBM competitor and if it’s fair to make someone sit out of work in their industry for a year.

“We will comply with the court’s order but are confident that Mark Papermaster will be able to ultimately join Apple when the dust settles,” an Apple spokesman told Reuters.

Fadell, meanwhile, will be be getting a $300,000 annual salary and restricted stock options that are potentially worth millions.

Apple confirmed Nov. 4 that Fadell, its senior vice president of the iPod Division, was stepping down. The reason the company gave for the departure is that Fadell wanted to spend more time with his young family. His wife, who also worked for Apple, is leaving as well. But Apple also announced that Fadell would remain affiliated with the company as an advisor to Jobs, a gig which apparently pays very well.

Of course, “restricted” is the key word for the stock options. Fadell’s 77,500 options won’t vest until March 24, 2010, which means that if he were to leave, he’d forfeit the right to those millions of dollars. That means that Microsoft or whoever else might want to get their hands on the man who has been hailed as the “father of the iPod” won’t be getting access to him anytime soon.

This key part of the filing:

“On November 3, 2008, Tony Fadell, Senior Vice President, iPod Division of the Company became Special Advisor to the Company’s Chief Executive Officer. In this new position, Mr. Fadell no longer will be an executive officer of the Company. In connection therewith, Mr. Fadell and the Company have entered into a Transition Agreement and a Settlement Agreement and Release (the “Transition Agreement” and the “Settlement Agreement,” respectively), under which Mr. Fadell will receive a salary of three hundred thousand dollars annually, and will be entitled to bonus and other health and welfare benefits generally available to other senior managers for the duration of the Transition Agreement, which remains in effect until March 24, 2010. The Transition Agreement also provides for the cancellation of outstanding and unvested 155,000 restricted stock units held by Mr. Fadell. Upon approval by the Compensation Committee of the Company’s Board of Directors, Mr. Fadell will be granted 77,500 restricted stock units that will vest in full on March 24, 2010, subject to his continued employment with the Company through the vesting date and further subject to accelerated vesting if the Company terminates his employment without cause. The restricted stock units are payable upon vesting in shares of the Company’s common stock on a one-for-one basis. The Settlement Agreement includes Mr. Fadell’s release of claims against the Company and agreement not to solicit the Company’s employees for one year following the termination of his employment.”