19 Oct Fox v. Nexflix And Employee Poaching Under California Law
21st Century Fox recently made news when it filed suit against Netflix for poaching two of Fox’s top executives. Fox claims in its suit filed on September 16, 2016, that its executives were still under contract and Netflix’s poaching constituted tortious interference with those contracts. It is common practice in the entertainment industry and throughout the business world for headhunters to lure top executives away from their positions. However, companies should be careful when doing so because courts in California have recognized claims for intentional interference with contract if a company knows of a valid employment contract and actively seeks to hire the employee away.
In order to allege a tort of intentional interference with contract, an employer must establish the following elements: “(1) a valid contract between plaintiff and a third party; (2) defendant’s knowledge of this contract; (3) defendant’s intentional acts designed to induce a breach or disruption of the contractual relationship; (4) actual breach or disruption of the contractual relationship; and (5) resulting damage.” CRST Van Expedited, Inc. v. Werner Enterprises, Inc., 479 F.3d 1099, 1105 (9th Cir. 2007). It is easy to see how a company’s intentional wooing of an employee under contract with a competitor could qualify for this tort. Theoretically, 21st Century Fox will only need to establish that Netflix knowingly reached out to Fox’s executives who were under contract, then persuaded them to break their contract with Fox, and that Fox was harmed by the executives leaving the company. Although California law has become more and more hostile to non-compete agreements and any contracts restricting worker mobility, this type of claim is arguably quite different as it does not directly affect the employee’s ability to obtain alternative work; it only restricts the actions of competitive companies.
Another interesting aspect of California law is that tortious interference with contract can also recognized for at-will employees under certain prescribed situations. For at-will employees, the Supreme Court of California has held that the defendant must have engaged in an independently unlawful act, i.e., an act proscribed by some constitutional, statutory, regulatory, or other legal standard that induced an at-will employee to leave the plaintiff. Reeves v. Hanlon, 33 Cal. 4th 1140, 1152-53 (2004).
Despite Netflix’s attempts to upend the entertainment content distribution model through its streaming services, it appears to want executives who have traditional experience with more established production companies to help lead them. But it has been reported that Netflix is not offering its employees contracts and is taking the more non-traditional approach of having its top executives serve as at-will employees. This at least comports with the defense tack they will be taking in the Fox suit—arguing that these type of employment contracts are not enforceable in California. Based on the established law in California, however, Netflix might be fighting an uphill battle. Fox is clearly taking a firm stand against Netflix’s behavior, considering that poaching employees is fairly common in the entertainment industry and most companies don’t want to burn bridges by instigating litigation when it’s not necessary. This may indicate that Fox’s counsel is confident in that the law is on their side, and they hope to set strong precedent that blatant poaching of valuable executives will not be tolerated.
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