Tuesday, December 7, 2021
California is generally known as a state that takes a dim view of restrictive employment contracts so I was surprised to learn that a three-judge panel of the California Second District Court of Appeals recently upheld a trial court order enjoining Netflix from soliciting Fox employees.
There were two particularly striking facts about the case. First, the employees that Netflix approached had fixed term written employment agreements. The term of these agreements was initially two years, but gave Fox a “unilateral option” to extend the contracts for additional two-year terms. They also allowed Fox to pursue equitable relief, including an injunction, to prevent breach.
The second notable fact was that the Fox employees were paid substantially below market salaries -- approximately in the 25th percentile for their positions. That’s an “F” grade for salary, Fox! No wonder they wanted to leave.
It sounded as though Fox used some rather un-employee friendly practices, including the inclusion of a “no-shop” clause that prohibited employees from seeking new employment more than 90 days before their Fox employment agreement expired. Fox also told its employees that they could “work for Fox (and no one else) through the term of their agreements” and sent employees and prospective employers cease and desist letters. Fox, by contrast, had a contract payout policy where it could terminate employees prior to the end of their fixed term employment agreements. The company also exercised their bargaining power and “frequently offered employees new fixed-term agreements while they had significant time remaining on their existing contracts” and “made raises and promotions contingent on signing a fixed-term agreement.” According to Netflix, “at least 127 Fox employees had entered into sequential fixed-term contracts that, together, provided an employment term that was longer than seven years.”
Fox sued Netflix alleging unfair competition and tortious interference with contracts and sought compensatory and punitive damages and a permanent injunction. Netflix responded that Fox’s fixed term agreements were void as against public policy and that they were unconscionable.
The court sided with Fox, finding that “the undisputed evidence” showed that it intentionally interfered with the agreements of the Fox employees and that the
“undisputed evidence also showed that both employees’ salaries from Fox were below market, at least for most of the years of the employees’ employment with Fox, and that Netflix specifically targeted both of them, offering to double their salary and to defend and indemnify them against any claims brought by Fox.”
In other words, Netflix tried to hire Fox's underpaid employees by offering fair compensation but the court wouldn't let them.
To all this, I say - Are you kidding me, California Second District Court of Appeals?
Hopefully, Netflix will appeal. Better still, maybe the state legislature will pass a law prohibiting some of Fox’s nasty employment practices, such as the no-shop for 90 days provision.