(5:45 PM UPDATED WITH FOX STATEMENT) A month after Netflix was lambasted in the courts by Fox for allegedly “illegally” poaching two executives still under contract, the streaming service today struck back with a hard-hitting counter-complaint charging “unlawful and anti-competitive business practices” by the other side.
The argument could be a game-changer for future Hollywood contracts.
“Through its widespread use of unlawfully restrictive fixed-term employment agreements, Fox is facilitating and enforcing a system that restrains employee mobility, depresses compensation levels, and creates unlawful barriers to entry for Netflix and others competing in the film and television production business,” says the filing Wednesday in L.A. Superior Court, pointing the finger at Fox for seemingly breaking labor California law.
In mid-September, Netflix prophetically spoke of “employee mobility” and not viewing fixed-term contracts as “enforceable” after 20th Century Fox and Fox 21 sued them for intentional interference with contractual relations for snagging Marco Waltenberg and Tara Flynn, even though both were still under contract with Fox. In the flag-planting, jury-trial-seeking complaint filed in L.A Superior Court on September 16, the plaintiffs charged that the ever-expanding Reed Hastings-run Netflix was conducting a “brazen campaign to unlawfully target, recruit, and poach valuable Fox executives by illegally inducing them to break their employment contracts with Fox to work at Netflix.”
Seeking declarations from the courts to basically kneecap Fox’s “unreasonable” use of fixed-term contracts under the provisions of the California Business and Professional Code, as well as legal fees, Netflix’s filing today adds that “on information and belief, Fox actually bullies individuals into signing employment contracts, thus putting these employees in a ‘take-it-or-leave-it’ position.” This, says Netflix’s lawyers in an aggressive and possibly risky tactic, creates a “form of involuntary servitude among individuals who would ordinarily be at-will employees.”
“Fox permits some employees to terminate their fixed-term employment agreements early, while Fox withholds its consent to early contract terminations from others,” the cross-complaint also alleges. “On information and belief, Fox determines whether to enforce its fixed-term employment agreements based in part on whether the employee is seeking employment with a competitor.”
While other at-will Fox employees have made the move to Netflix in recent months, both Waltenberg, formerly an exec in the Promotions department, and Flynn, VP Creative, were under fixed-term deals with optioned extensions that would have seen them at Fox for at least a few more years. It’s noteworthy that the Fox complaint of last month did not name either Waltenberg or Flynn as defendants, instead directing its focus at Netflix.
(FOX STATEMENT: “Netflix is defiantly flouting the law by soliciting and inducing employees to break their written fixed-term employment agreements,” said a 20th Century Fox and Fox 21 spokesman this afternoon. “As Netflix expressly acknowledges, California law fully recognizes that fixed-term employment agreements are valid and enforceable. These employment contracts are sought by many employees in the media industry because they guarantee tangible benefits. We look forward to vindicating our rights in Court.”)
Orrick, Herrington & Sutcliffe LLP’s Lynne Hermle and Karen Johnson-McKewan are representing Netflix in the matter. Daniel Petrocelli of O’Melveny & Myers LLP is representing the Fox parties along with the firm’s Molly Lens and J. Hardy Ehlers.