Judge Orders Netflix to Stop Poaching Fox Employees

Twentieth Century Fox Film Corporation is suing Netflix for poaching two of their Vice Presidents who had entered into fixed-term employment contracts with Fox (TWENTIETH CENTURY FOX FILM CORP., ET AL. VS. NETFLIX, INC. SC126423). The VPs in question are Marcos Waltenberg and Tara Flynn. The initial complaint was filed in Los Angeles County Superior Court in September 2016, before Disney had bought Fox. Fox is being represented by Daniel Petrocelli of O’Melveny & Myers. Netflix is being represented Karen Johnson-McKewan of Orrick, Herrington & Sutcliffe.

Fox’s motion for summary adjudication of violations of Business & Professions Code §17200 through unfair competition was granted, after a hearing on November 25th held by Judge Marc D. Gross. The ruling bars Netflix from trying to entice employees of Fox to breach their fixed-term employment contracts as long as the contracts are valid.  Fox’s motion for summary adjudication of Netflix’s affirmative defense argument and their motion for summary judgment on Netflix’s cross-complaint were also granted. Fox also filed a motion for summary judgement on the complaint as a whole, as well as motions for summary adjudication for persuading Waltenberg to breach his fixed-term employment contract and summary adjudication for persuading Flynn to breach her fixed-term employment contract. These motions were denied.

The initial complaint outlines the terms of both the Waltenberg and Flynn Agreements as perceived by the plaintiff and Netflix’s violations thereof. It explains how each employee had an ongoing fixed-term agreement with Fox for a two-year period. Fox’s contract with Flynn, which was initiated in 2013 had been renewed in 2015 and had the option for renewal by Fox in 2017 which would terminate the contract in 2019. When Netflix hired Waltenberg and Flynn away from Fox, Netflix agreed to indemnify their new employees from any claim related to breaching their employee contracts with Fox. Fox alleged that Netflix was engaging in a campaign to poach their executives, implying that without court interference Netflix would not stop. Netflix did not dispute the fact that as of August 31, 2018 there were 14 instances in which Netflix made offers to ongoing Fox employees.

Netflix offered Waltenberg and Flynn double their salaries in order to persuade them to make the move. In answer to Fox’s complaint, Netflix alleged that the fixed-term employment agreements violated provisions in the Business & Professions Code, Civil Code, Labor Code, and C.C.P. They explain that the contract is one sided in favor of Fox because, among other things, only Fox can extend the contract for the additional time and the employee does not have a right to refuse this extension. Netflix puts forth that “Fox’s contracting practices are designed to create undue pressure on employees to accept the contracts Fox offers them, by leading those employees to believe that their continued employment and/or good standing with Fox depends upon acceptance of a proffered contract, and that have room to negotiate only to a limited extent” and that the Fox employees are therefore not receiving their market value in salary. Netflix argues that its actions were in accordance with California’s “open competition and employee mobility” policy. The court ruled that Netflix had not met its burden of proof in the allegation that Fox’s employment agreements are unconscionable.

Fox requested $1 in monetary damages be awarded to them for loss of profit due to Netflix’s breach of their employee agreements. The request was denied due to a lack of facts in the given motion to prove whether Fox suffered monetary losses due to Netflix’s actions. The judge’s order states that “The only reason the court denied Fox’s motion for summary adjudication of the inducing breach of contract causes of action is because there are triable issues of material fact as to resulting damages.” The ruling generally indicates that fixed term employment contracts are enforceable as are the one-sided extension options, at least within the state of California. Devin McRae, an attorney at Early Sullivan, added that “A lot of people have assumed that if I want to leave I can leave,” showing that there was a general belief that these clauses were not enforceable. McRae also noted that “The effect of the opinion will probably be to inhibit employee mobility.”

Variety reported that Netflix has already shown an intent to appeal.