Netflix Defends Bold Gambit Aimed at Poaching Studio Executives

The streaming giant argues it has every right to challenge Fox's use of fixed-term contracts.
Courtesy of Fox
Tara Flynn

If Netflix had its way, some of the brightest minds in the entertainment industry would be coming to work for the streaming giant. But there's one big problem. Ask Iva Colter, the director of talent acquisitions at the company. She oversees 12 individuals who scout the marketplace for executives, contacting potential candidates and inquiring about their interest in employment opportunities at Netflix. In a declaration filed on Thursday in an ongoing dispute with Fox, Colter nodded to the reason why Netflix hasn't poached more executives.

"The candidates in whom we are generally most interested are those who are already employed in the television or film business, usually at other studios, including Fox entities like Fox 21 and 20th Century Fox Film Corporation," she says. "Based on preliminary information that we have collected, I can report the following: Of the executive-level candidates with whom we initiated contact in 2016 who were then working at a Fox entity ... all of them told us they were under contract. Of those, about half cited those contracts as a reason they would not talk with us about potential employment at Netflix."

Despite the impediment, in 2016 Netflix was successful in convincing two Fox executives to cross over.

One was Marcos Waltenberg, a marketing executive who at Fox was focused on Latin America. In his own court declaration, Waltenberg describes some of his attempts to negotiate better employment conditions. There was the time in 2012 during salary negotiations when he inquired whether Fox would sponsor a green card so he could legally remain in the U.S. and was allegedly told that Fox had no obligation to do so. He says he was shocked and interpreted it as a threat to have him deported. He held off on demands for a raise for another two years, but upon promotion at Fox, he says he negotiated a minimal increase. It wasn't enough to deter him from opening up discussions with Netflix.

The second was Tara Flynn, who was a creative executive on Fox shows like Homeland, Tyrant and The Americans. By 2015, she was making $127,500 annually and says there were several employees reporting to her who had substantially higher salaries. Flynn says an offer came to her at Fox to bump up her compensation to $180,000. Considering this to be below market, Flynn responded the offer was insulting and that she didn't need a new contract. Asked to counter, Flynn says she proposed $250,000 a year, increasing over a four-year period to $350,000. Fox came back at $190,000, rising to $225,000. Flynn didn't accept immediately and says she was berated and told that people high up in the company were angry at her. Allegedly fearful that she would be unemployed and find it difficult to find new employment, she signed an amendment to her agreement. Some months later, she took a job at Netflix.

Flynn informed Bert Salke, president of Fox 21, of her decision.

"When I told Mr. Salke I was not asking for his permission, but was leaving, he asked where I was going," she states in her declaration. "When I told him I had accepted a job with Netflix, he told me, 'Netflix is public enemy No. 1.' He repeatedly told me I could not leave, and refused to accept my resignation."

Now, the departures have triggered a legal fight with huge implications.

In September, Fox filed a tortious interference lawsuit against Netflix, seeking an injunction preventing Netflix from interfering with its contracts with executives.  

Netflix responded with a counterclaim demanding a declaration that Fox's fixed-term employment agreements are unenforceable. The content streamer alleges that Fox is bullying employees with "take-it-or-leave-it" deals that amount to "involuntary servitude" via contractual provisions that, thanks to the possibility of enforcement through injunction, are essentially "non-competes." By raising a bold interpretation of California Business and Professions Code Section 16600, Netflix is aiming for an earthquake in California employment law that would render full-time, salaried executives hirable at will.

But will Netflix's gambit be allowed?

Fox is attempting to strike the counterclaims with an anti-SLAPP motion that argues that Netflix's moves arise from protected activity, namely its First Amendment-based petitioning rights to enforce its employment agreements. This has raised a second important legal issue beyond interpretation of employment laws that Netflix contends prize mobility and Fox argues has no limitations on the validity and enforceability of fixed-term contracts. 

In an opposition brief arguing its cross-complaint is entirely proper (read here), Netflix argues that its demand for a declaration doesn't arise from Fox's lawsuit and pre-litigation warnings but rather "Fox's sweeping practice of binding employees to these illegal contracts."

"Fox's analysis not only is incorrect, it would lead to absurd results," Netflix continues. "Under Fox's analysis, no cross-complaint for declaratory judgment could ever survive an anti-SLAPP motion if it cited pre-litigation threats as part of its allegations to demonstrate the existence of a controversy, or to evidence a pattern of unlawful conduct. Nor could an employee, facing Fox's threat of injunction, ever seek a declaration of his or her rights under that contract."

Netflix aims to convince the judge that it wishes to redress a larger problem than just two executives, which is why it trotted out Colter's recruiting problems. Nevertheless, it seizes on Waltenberg and Flynn as examples at hand to show why Fox's contracts are unenforceable. Netflix points out that Fox has reserved the right in employment contracts to seek injunctions to prevent breaches of Walternberg's and Flynn's contracts by supposedly mischaracterizing their services as special, unique, unusual and extraordinary.

"Neither Ms. Flynn nor Mr. Waltenberg supplied services that were actually special or unique, and the statutes permit injunctive relief only against individuals who provide such services," states Netflix in a passage that out of context, might sound as if it was insulting its new employees. "Netflix alleges that other similarly-situated employees are also subject to these restrictive fixed-term agreements."

In a statement to THR, a Fox spokesperson responds, "Although they try hard to obscure the simple, straightforward issues before the Court, Netflix's rambling filings only confirm there is no merit to their position."

On Jan. 19, both sides will appear before Los Angeles Superior Court judge Gerald Rosenberg to argue whether the counterclaims are proper. The judge will take up the issue of whether Netflix's demand arises from an act in furtherance of Fox's right of petition, and if he agrees with Fox that it does, will next move to the issue of whether Netflix has a probability of prevailing on its interpretation of Fox's contracts under California employment law. 

This is only the first phase. Since the losing party will have an automatic right to appeal, the issue initially brought to the court — whether Netflix is illegally inducing executives to break employment contracts — could take a back seat to a California appeals court look at Netflix's gambit to challenge Fox's fixed-term contracts. Then again, that determination could go a long ways to settling the entire dispute. Waiting in the wings for clarity on the legality of poaching executives under contract are corporate recruiters like Netflix's Colter.

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