Judge Finds The Wrap's Contract With Reporter to Be Unlawful

Sharon Waxman attends the 2020 Breakthrough Prize Red Carpet at NASA Ames Research Center - Getty-H 2019
Ian Tuttle/Getty Images for Breakthrough Prize

Is it legal for employers in the state of California to hold employees to fixed-term contracts that prevent them from working for a competitor? Remarkably, two different conclusions came this week in Los Angeles Superior Court.

In one case, Sharon Waxman's The Wrap filed a tortious interference suit against The Information after reporter Matt Pressberg resigned in December 2017 and took a job at the digital business publication. The Wrap alleged that The Information had intentionally poached its former employee, who was under a two-year contract that wouldn't terminate until November 2018. Pressberg's employment deal included a non-compete clause that allowed him to accept a job at The New York Times or The Wall Street Journal, but basically nowhere else during his term of service.

In defense of the suit, The Information successfully convinced Judge Mark Young that it had no knowledge of Pressberg's contract when it hired him, but perhaps more notably, that Pressberg's non-compete violated a California code that voids "every contract by which anyone is restrained from engaging in a lawful profession, trade or business of any kind." 

"The plain language of the contract restrained [The Wrap's] former employee from engaging in his lawful profession even after his employment with [The Wrap] ends," states Young's Dec. 10 summary judgment ruling. "In their opposition, Plaintiff appears to argue that Pressberg’s December 1, 2017 resignation was ineffective because he was still under contract to work for Plaintiff until November 2018. The court finds that the contract is void as a matter of law pursuant to Business and Professions Code Section 16600."

This decision (read in full here) came on the very same day that The Wrap, among others, reported an injunction issued in a closely watched battle between Fox and Netflix.

That battle, which explored the history of labor mobility and contractual certitude in entertainment, featured some remarkable similarities to The Wrap's own legal situation.

Like The Wrap, Fox made tortious interference and unfair competition claims after its employees were poached. Like The Information, Netflix defended itself by pointing to California law frowning upon a contractual attempt to restrain a worker from engaging in a lawful profession. The essential question in both cases: Do fixed-term contracts amount to involuntary servitude?

Ultimately, Judge Marc Gross ruled in Fox's favor by deciding its contracts weren't invalid.

Was there much of a difference in the two cases besides the judges, the attorneys and of course, the outcome?

In Fox's case, the contracts didn't explicitly have a non-compete provision that barred employees from accepting work for a competitor. Nevertheless, Fox's contracts did have a fixed term of several years as well as an injunctive relief provision that allowed Fox to prevent any breach. Netflix argued that the injunctive relief provision amounted to an illegal non-compete. The judge disagreed.

In the official order (read here) that was issued, Gross ruled that 16600 has consistently been interpreted to invalidate non-competes after the contract term ends and that limitations on an employee's conduct while employed were not affected. The judge further rejected Netflix's policy arguments for open competition and employee mobility. Moreover, the judge decided that Fox's injunctive relief provisions hadn't prevented at least 15 employees from leaving Fox for Netflix and that the contracts' lack of a "resignation provision" rendered them as invalid.

Netflix has been ordered to stop soliciting employees under contract with Fox. No such luck for Waxman (whose news outlet has been on the other side of poaching too). A rep for The Wrap says it is considering an appeal. Both cases will continue to be worth watching if appeals do follow.