Netflix may see fixed-term contracts for entertainment executives as a form of involuntary servitude, but on Thursday, the streamer experienced a tough legal loss when a California appeals court refused to accept that perspective and overturn an injunction that prevented Netflix from poaching executives at Disney’s Fox unit.
Fox sued back in September 2016 upon the defection of production executive Tara Flynn and marketing executive Marcos Waltenberg. Netflix responded with a countersuit alleging that the executives’ respective Fox employment contracts were unenforceable as an illegal non-compete. Netflix argued that Fox held all the leverage when negotiating extensions with its workers, and that these employment deals should be declared void under California laws forbidding contracts that extended beyond seven years of personal service or restraining someone from engaging in a profession.
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In late 2019, a Los Angeles judge rejected the notion that these contracts are “unconscionable.” Fox scored an injunction after largely abandoning its pursuit of monetary damages in the case.
Netflix, facing similar contractual interference claims from Viacom and Activision Blizzard, took its big arguments about Hollywood’s contractual future to California’s 2nd Appellate District, but a three-justice panel led by Dorothy Kim has now affirmed the lower court’s conclusion.
The case attracted the interest of SAG-AFTRA, which warned this dispute could make an impact beyond executives as TV producers often hold actors off the market through contracts. (That figures to be a topic in future collective bargaining.) In the appellate briefing, there was also the suggestion that any win for Netflix could also upend the sports world.
When the case began, Rupert Murdoch owned 20th Century Fox Film, but that division was sold off to Disney, which then inherited the legal battle with Netflix. Represented by Daniel Petrocelli and Molly Lens, Fox held tight to its position that the benefits of contractual certitude were on the line at the dawn of the gig economy. What was important, according to Fox, was Netflix’s knowing interference in the contractual relationship between employer and employee.
Although Netflix argued that Fox was required to show resulting harm from the executives who defected to the streamer, Justice Kim writes that nominal harm suffices.
“Here, the undisputed evidence of Netflix’s conduct showed an unlawful practice, namely, intentional interference with the fixed-term agreements of both Waltenberg and Flynn, as well as continuing interference with the fixed-term agreements of more than a dozen other Fox employees,” states the opinion, later adding, “Further, the very purpose of injunctive relief, to prevent future bad acts, would be defeated if, as Netflix contends, the proponent of such relief were required to demonstrate that it had not enjoyed savings as a result of defendant’s conduct.”
As for Netflix’s arguments on the public policy front — specifically, that these contracts restrict an employee’s right to move freely within the marketplace — the appeals court nods to competing public policy benefits:
“As our Supreme Court recently observed, there are public policy benefits to fixed-term contracts: ‘When parties enter a contract not terminable at will, they cement their bargained-for intentions in accordance with the terms of that contract into the future. The concreteness of this relationship means that contracting parties as well as other entities may structure their decisions, invest resources, and take risks in reliance on it. It is precisely this ‘exchange of promises resulting in such a formally cemented economic relationship [that courts have] deemed worthy of protection from interference by a stranger to the agreement.’ ‘Intentionally inducing or causing a breach of an existing contract is therefore a wrong in and of itself.’”
Below, read the rest of the decision, which also addresses Fox’s contracting practices and how Waltenberg and Flynn were “sophisticated business executives.”
Petrocelli comments, “The court’s ruling definitively ends years of unlawful poaching by Netflix. The decision not only affirms the trial court’s condemnation of Netflix’s conduct, but also ensures that the rights and choices of employees will remain protected.”
