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Netflix Loses Appeal in Employee Poaching Lawsuit

·2 min read

Netflix has lost an appeal of a 2019 ruling that ordered the streaming service to stop poaching employees from Fox.

The streaming service has been battling Fox since 2016 over the practice of locking midlevel executives into fixed-term contracts. Netflix has argued that Fox’s contracts are illegal under California law, and that they unfairly restrict employee mobility. Netflix’s argument, had it succeeded, could have upended how Hollywood studios do business.

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But on Thursday, a three-judge appellate panel upheld the injunction, finding that Fox’s contracts are a legitimate way to provide “stability and predictability” in its employment relationships.

The case began in late 2015, when Netflix hired Marcos Waltenberg, 20th Century Fox’s vice president of promotions, enticing him to leave by doubling his salary. A few months later, Netflix hired Tara Flynn, an executive at Fox21, also doubling her salary. Both were on two-year contracts at the time, and Fox had a unilateral option to extend those contracts for another two years.

Fox filed a poaching suit later in 2016, and Netflix countersued, arguing that the contracts were unenforceable. California law makes it illegal to hold an employee under contract longer than seven years. Netflix argued that Fox coerced its employees into extending its contracts in mid-term, effectively holding employees longer than the seven-year limit.

Justice Dorothy C. Kim, joined by Justices Carl H. Moor and Brian M. Hoffstadt, found that Waltenberg and Flynn were “sophisticated executives,” who had agreed to extend the term of their contracts in arm’s length negotiations. In other words, they had voluntarily relinquished their mobility as employees in exchange for the security of a fixed-term contract, and it was not Netflix’s job to liberate them.

“Netflix’s interference could not be justified as promoting an interest or right that the targeted employees had voluntarily relinquished,” Kim wrote for the panel. “[T]he social interest in protecting Fox’s legitimate expectancy of stable and predictable economic relationships outweighs any arguable competitive interest that could have been advanced by Netflix’s interference.”

Los Angeles County Superior Court Judge Marc Gross granted Fox’s request for an injunction in December 2019. A separate judge issued a similar injunction that barred Netflix from poaching Viacom employees last year.

Netflix appealed the Fox ruling in September 2020, arguing that it was time to strike a blow against the “Hollywood establishment” and its restrictive employment terms.

Netflix declined to comment on the ruling.

Daniel Petrocelli, who represented Fox, said the ruling puts the issue to rest.

“The Court’s ruling definitively ends years of unlawful poaching by Netflix,” he said. “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.”

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