This is a growing issue with many social networking sites. Myspace has a place where you can complain to "Tom" (owner and developer of the site) about misuse. If by derogatory you mean false and defamatory information, you can sue the person for libel. Often ignoring it is the best way to get it to stop as posters tend to revel in getting the attention and anger of their subjects. Also, I would address this with the HR Dept at your company as it is not a purely a personal issue if the employee is attacking you about work-related issues. As a manager, you may also want to talk to HR about whether the employee handbook covers this issue or whether it can be modified to cover this type of conduct. One issue you will face is that in California has very liberal stance on "free speech" andis very protective of opinion. Maybe if you provided some more information about what the person actually posted, I can give you more specific advice.
DISCLAIMER: THIS DOES NOT CONSTITUTE LEGAL ADVICE NOR DOES IT CREATE AN ATTORNEY-CLIENT RELATIONSHIP
What kind of "derogatory" information is being spread on Myspace? Under California law, "Libel is a false and unprivileged publication by writing, printing, picture, effigy, or other fixed representation to the eye,
which exposes any person to hatred, contempt, ridicule, or obloquy, or which causes him to be shunned or avoided, or which has a tendency to injure him in his occupation. In many internet defamation situations, the alleged defamatory statement/statements is not actionable because it is a statement of opinion rather than a statement of fact. I would need to know more about the specific statements in order to evaluate the strength of the manager's case. If I were the manager I would follow the steps outlined in the answer above.