Fox Strikes Back at Netflix's Attempt to Void Fixed-Term Employment Deals

The content giant demands that a judge halt Netflix's counterclaims.
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From left: Fox's Lachlan, Rupert and James Murdoch

Netflix is mounting what could be a groundbreaking challenge to fixed-term employment agreements.  Even 21st Century Fox acknowledges what Netflix is doing is "audacious." In a motion submitted in court on Wednesday, Fox is asking a judge to put a stop on Netflix's efforts to have its employment agreements deemed invalid. The content giant contends Netflix is impermissibly basing counterclaims premised on Fox's own lawsuit over the way two of its executives were poached. 

Fox filed suit in September with the allegation that Netflix had induced programming executive Tara Flynn and marketing executive Marcos Waltenberg to breach their contracts. The action attracted the attention of employment attorneys throughout California thanks to Fox's rare decision to go to court over poaching and Netflix's strong reaction where the streaming giant raised doubts as to the enforceability of fixed-term employment contracts. In October, Netflix moved forward with the assertion in counterclaims that Fox's "take-it-or-leave-it" deals amounted to "involuntary servitude" and necessitated a judge's red light.

Now, Fox has filed a motion premised on California's SLAPP statute, enacted to deter frivolous litigation on First Amendment protected activity. 

The result of Fox's latest move could mean that a judge may provide analysis of the legality of fixed-term employment agreements sooner rather than later. And since there's an automatic right to appeal under the SLAPP statute, Fox's motion also could mean that higher authorities also get an opportunity to address the larger issues.

First, however, the judge will need to decide that Netflix's claims arise from constitutionally protected activity. In this instance, Fox is contending that petitioning for the enforcement of its employment agreements constitutes such activity and says the way it communicated with Netflix and then initiated litigation is immunized by California's statutory litigation privilege.

If a judge accepts Fox's argument that Netflix is essentially aiming to chill its petitioning rights — and that's hardly a given since counterclaims seem to be a routine maneuver in litigation — Netflix would then need to demonstrate a probability of prevailing before Netflix's counterclaims are allowed to proceed.

"Netflix makes no Constitutional or interpretative challenge to the Labor Code — rather, it audaciously asks the Court to disregard the law or create new limitations and conditions on the validity and enforceability of fixed-term contracts," states the motion being handed by attorney Daniel Petrocelli. "The Court has no power to do what Netflix asks. Netflix’s cross-complaint belongs in the Legislature, not the Courthouse."

Fox says that its deals with Flynn and Waltenberg are exactly the type of agreements that countless employers across California and the nation enter with employees.

In its cross-complaint, Netflix spoke how "California prizes employee mobility" and asserted that Fox "actually bullies individuals into signing employment contracts," alleging that neither Flynn nor Waltenberg were permitted to negotiate terms upon Fox's exercise of options in contracts to extend their service.

In its latest court papers (read here), Fox retorts that there's no argument that the contracts qualify as "unfair" nor are "fraudulent."

"Rather, Netflix argues only that the enforcement of Fox’s contracts are 'unlawful,'" states Fox. "But it is axiomatic that an act cannot be unlawful when it is expressly permitted by law."

Fox contends that California Labor Code expressly recognizes the enforceability of fixed-term contracts with provisions that directly address "employment for a specified term" and delineate the circumstances under which an employee may prematurely terminate such an agreement without breaching it. The studio also mentions a California law that's famous in Hollywood circles — Section 2855, enacted around the time when Warner Bros. repeatedly attempted to extend actress Olivia de Havilland's contract against her wishes and she filed suit. The California law creates a seven-year limit on personal service contracts.

"Netflix does not allege that Fox has sought to enforce its contracts 'beyond seven years,'" continues Fox. "Quite the contrary, Netflix goes outside the Labor Code and rests its entire argument on Business & Professions Code Section 16600, arguing that Fox’s contracts violate it as 'an expression of California public policy' by seeking to restrain an individual from engaging in a lawful profession, trade or business. Netflix, however, cannot so easily sidestep the Supreme Court’s proclamation that 'courts may not use the unfair competition law to condemn actions the Legislature permits.'”

Fox also has filed a demurrer that challenges the sufficiency of the claims on this same basis.

Netflix and its attorneys at Orrick, Herrington & Sutcliffe, through its action, took the notable step of providing explicit word that it would be eyeing more of Fox's employees in the future.

"At a more fundamental level, Netflix’s UCL claim boils down to the preposterous position that Fox owes Netflix — its competitor — a duty to release its employees from their fixed-term employment contracts or otherwise make them available for Netflix to hire," responds Fox. "Fox, of course, owes Netflix no such duty, and Section 16600 does not remotely suggests otherwise. Far from it."

In a statement, Netflix responds to the motions: "Fox is merely attempting to limit the mobility and salary potential of its employees, an archaic industry practice that doesn't reflect modern workplace norms in a state that has been consistent and clear about the illegality of such practices."

Update Dec. 8: Netflix's response added.

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