There are many reasons to pay attention to the legal fight between 21st Century Fox and Netflix over the flight of entertainment executives under contracts. One barely considered: The battle has a shot at totally disrupting professional sports.
Consider, for example, Fox’s latest brief in the case that began when Netflix recruited programming executive Tara Flynn and marketing executive Marcos Waltenberg, and Fox sued.
Netflix is putting forward the theory on cross-claims that Fox’s use of restrictive fixed-term employment agreements for Flynn and Waltenberg amounts to an illegal system that restrains employee mobility, depresses compensation for workers and creates impermissible barriers of entry for competitors. On summary judgment, Netflix is also aiming to kill Fox’s claim of unfair competition and arguing against any injunction that would prevent Netflix from soliciting, recruiting and inducing Fox employees to leave. One of the points in contention is whether Fox constantly re-upping executives flouts California’s barrier on personal service contracts that lasts longer than seven years.
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On Tuesday, Fox pointed to an NBA Hall of Famer (and Hollywood Reporter contributing editor) to take a shot at Netflix’s position.
According to Fox, “Netflix’s position reduces to the untenable proposition that two independent contracts must be treated as one under California law merely because they are consecutive — ‘back-to-back,’ in Netflix’s words — even though the second contract (i) was negotiated and signed after the first; (ii) contains terms materially different from the first agreement; (iii) does not incorporate or depend on the terms of the first contract; and (iv) applies to a different time period. On that remarkable theory, no employee in California may lawfully work uninterrupted for a single company for longer than seven years — according to Netflix, Kareem Abdul-Jabbar’s storied 14-year career with the Los Angeles Lakers was a violation of California law. To state the proposition is to refute it.”
The fact that Fox’s lead attorney Daniel Petrocelli is leaning into sports as the choice metaphor doesn’t come out of the blue. In fact, in our March feature story about this legal fight, we pointed to a 1960s case involving Rick Barry as well as the proposition that if Netflix prevails, there might be a decent argument that NBA superstar Anthony Davis can sign with the Los Angeles Lakers right now.
Of course, the seven-year-rule has special significance in the entertainment industry thanks to the way in the 1940s that Gone With the Wind actress Olivia de Havilland prevailed in a court battle with Warner Bros. after the studio kept extending her contract upon suspensions for her refusal to take roles. She convinced an appeals court that this violated the seven-year rule.
“Nowhere did De Havilland — or any other decision before or since — suggest that Section 16600 is violated by employment contracts with fixed terms no greater than seven years,” states Fox’s brief.
According to Fox, its employees are agreeing to “consecutive — but separate — employment contracts,” and not simply amendments that extend old deals. These contracts, in Fox’s view, supersede the past ones and implicitly reset the clock.
That’s an issue that has come up in other fights over the years, including the one between UTA and CAA over poached agents, but perhaps is not fully settled.
Fox believes that the material difference with consecutive contracts is that employees get a “meaningful choice” to end employment at a company.
“Were Fox to negotiate a successive employment contract only at the precise termination date of the initial agreement, each employee would be (rightly) anxious in the months preceding the expiration of a contract that she would no longer have a contract-guaranteed job come termination date,” continues Fox. “And if negotiations took several days or weeks, as arms-length contract negotiations often do, the employee (even if she ultimately chooses to sign a new contract) would lack contract-guaranteed benefits and salary for an indeterminate negotiations period. Netflix cannot justify a legal rule that would require a break in employment every seven years, and thus deprive a significant portion of the California workforce of fundamental elements of job security.”
Fox sticks up for the remedy of injunction in its brief (read here) while Netflix submits its own summary judgment opposition memorandum that presents Fox’s fixed term contracts as having troubling provisions whereby employees don’t have meaningful choice. Netflix’s attorney Karen Johnson-McKewan aims to prevent Fox from winning before trial any claim that her client has illegally induced contract breaches. According to Netflix, there are genuine disputes of material fact as to the validity of Fox’s contracts, Netflix’s conduct and whether the streamer was really a factor in causing the breach. (Read Netflix’s memorandum in full here.)
Kind of puts new spin on comments from LeBron James in December about the future of Anthony Davis — seen in some NBA quarters as improper interference with a player under contract.
