Netflix, Fox battle over executive employment contracts

By Dee Thompson | Mar 15, 2017

LOS ANGELES — Fox and Netflix are locked in a battle over the employment contracts of two executives who Netflix lured away from the rival network.

LOS ANGELES — Fox and Netflix are locked in a battle over the employment contracts of two executives who Netflix lured away from the rival network.

After the defection, Twenty-First Century Fox sued Netflix, while Netflix countersued, saying such fixed-term employment agreements amount to involuntary servitude.

In February, Fox lawyer Daniel Petrocelli filed a writ petition, stating to the appeals court, "Unless reviewed now, the order will unleash months and possibly years of litigation and uncertainty over the enforce-ability of agreements affecting Fox's executive workforce, and disrupting Fox's business operations at the highest level — which of course is an essential purpose of Netflix's cross-complaint. And not just Fox's operations — the order also casts a shadow over all the California employers and employees who depend on fixed-term agreements for the mutual stability they provide."

Last September, according to the Hollywood Reporter, Netflix faced a lawsuit by Fox over its hiring of programming executive Tara Flynn and marketing executive Marcos Waltenberg. Their employment contracts contained clauses that said they couldn’t terminate employment until after a certain deadline. Netflix countersued, claiming that those clauses violated California Business and Professions Code Section 16600, which states "every contract by which anyone is restrained from engaging in a lawful profession, trade or business of any kind is to that extent void."

Attorney Robert Eassa, the co-chair of the Employment and Labor Practice Group of Sedgwick LLC who is based in San Francisco, understands those fixed-term contracts.

“Those clauses are common and they give the employer and employee the right to negotiate and enter into agreements and they provide security for both sides,” he told the Northern California Record.

Eassa explains that in California, there is a limit to the number of years one can put an employee under contract for a fixed period of time.

“Employment contracts for personal services are limited by statute to seven years,” he said. “Employees who sign such contracts can try to negotiate an early exit — if there are clauses allowing the employee to leave early — or buy their way out. If the employee just leaves, however, they are in breach of contract and liable for any damages which can be proven.”

“It is, per se, unlawful in California to say to anybody you cannot operate in your profession for some period of time,” Eassa said. “If the employees who left Fox were told they couldn’t work in their profession for a period of time after leaving Fox, that voids the contract. That’s not going to be enforceable.”

Fox tried to end Netflix’s countercomplaint in two ways, according to a Hollywood Reporter article.

Fox argued that Netflix’s cross-action was based on protected activity and filed an anti-SLAPP motion, with SLAPP standing for Strategic Lawsuits Against Public Participation. Fox also filed a demurrer asking if Netflix had properly brought a cross-complaint. Judge Gerald Rosenberg of the Los Angeles Superior Court rejected both arguments.

“The SLAPP motion is a unique tool in California and in other states,” Eassa said. “You cannot restrain someone from speaking their mind or criticizing someone openly. It’s similar to a free-speech mechanism. It says you can’t try to intimidate somebody by filing a lawsuit against them to prevent them from exercising a legal right. It’s a very important motion and it’s subject to an immediate appeal, which is very unusual in the law.”

Normally, Eassa said, litigants have to either get a writ granted in rare cases or wait until a final judgment to appeal.

“In the SLAPP-motion world, you get treated just like you have a final judgment,” Eassa said. “It gives a party an immediate right to the court of appeals. It’s just like appealing from a final judgment. You get the same review process. If you lose, though, attorneys fees are awarded. In this case, it’s not the kind of motion a SLAPP motion deals with. I think the court’s right. They made the right decision.”

A demurrer challenges the legal sufficiency of the way the claim was pleaded in the papers, Eassa said. It claims the pleadings were not properly written and left out critical elements. The judge has discretion in granting a demurrer.

“The real issue here, which I think Petrocelli was trying to raise, if they take an appeal of the SLAPP motion, then the status quo has to remain. The status quo remains until the court of appeals makes a final decision,” Eassa said.

Fox has now filed a petition for a writ of mandate, which Eassa said will likely be denied.

“In these types of high-profile cases, I can speculate that Netflix induced the executives to go over to them, promising they would fully indemnify and hold harmless,” he said. “Netflix assumes the risk of breaching the contract… That happens only when you’ve got a new employer that has endless funds and isn’t worried about taking a potentially significant hit.”

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