In what may seem to be a surprising series of events, given the state's infamous hostility to restrictive covenants, a
In affirming the judgment, the panel expressly rejected Netflix's contention that the injunction, which prohibits Netflix, "individually . and/or in concert with others," from "solicit[ing] employees who are subject to [f]ixed-[t]erm [e]mployment [a]greements with [Fox] or induc[ing] such employees to breach their valid [f]ixed-[t]erm [e]mployment [a]greements with [Fox]," constituted "an invalid restraint on employee mobility" under
Background
Fox originally filed suit in 2016, after Netflix hired two of its executives,
The Appeal
On appeal from the order granting in part Fox's motion for summary adjudication, the panel carefully recounted the facts relevant to Fox's unfair competition claim, reviewing the agreements at issue, the record as to the negotiations thereof, Fox's general practices involving fixed-term employment agreements, and Netflix's (pre- and post-suit) recruitment of Fox employees.
The panel first rejected Netflix's procedural argument that the injunction was improper because a triable issue remained as to damages, observing that it is the fact of damage, not its extent, that matters for purposes of establishing a right to relief under the UCL's unlawful prong. The court found that the undisputed evidence of Netflix's conduct showed an unlawful practice-"namely, intentional interference with the fixed-term agreements of both Waltenberg and Flynn, as well as continuing interference with the fixed-term agreements of more than a dozen other Fox employees . and that Netflix specifically targeted [employees whose salaries at Fox were "below market"]." Later in its opinion, the panel bolstered this analysis by pointing to the "extraordinarily broad" power afforded to courts fashioning remedies under the UCL. See Bus. &
The panel then moved onto an analysis of Netflix's unenforceability arguments based on public policy, Business and Professions Code section 16600, and other statutes concerning personal services contracts, including Labor Code section 2855. The court separated these issues into two main questions: (1) whether the challenged provisions were themselves, under the laws cited, unenforceable, and (2) whether Fox's contracting practices generally violated these statutes and/or public policy, rendering the provisions unenforceable. The court swiftly dismissed Netflix's suggestion that fixed-term provisions restrict employee mobility and therefore violate public policy as a matter of course, referencing the benefits of fixed-term contracts as recognized by the supreme court in Ixchel. The court also declined to invalidate the other provisions raised by Netflix as violative of public policy (the unilateral option, enforcement-by-injunction, nonsolicitation, and confidentiality provisions), finding that even if that were the case, the provisions could be severed from the agreement, leaving the defined term intact.
Similarly, the court found there was "nothing in the record" to suggest that Fox's practices, especially with regard to Waltenberg and Flynn, constituted or implicated an unlawful restraint on employee mobility. The panel specifically cited evidence showing that "both Waltenberg and Flynn were sophisticated business executives who negotiated their fixed-term employment agreements with Fox at arm's length." Even assuming that Fox had conditioned promotions, salary increases, or bonuses on the employees' willingness to agree to new fixed-term contracts, the court stated that "such conduct would be consistent with a desire to continue the stability and predictability of the parties' economic relationship."
Finally, the panel rejected Netflix's proffered justification defense to Fox's claims of interference, asserting that it was "promoting [Waltenberg's and Flynn's] interests in mobility in the job market," noting that the objective of Netflix's intentional interference "was to obtain [the Fox employees'] services and, in the process, gain a competitive advantage over Fox and other production companies." See
Takeaways
As in Ixchel, the court in
In the wake of the Great Resignation, when retaining talent has become more difficult than ever and "stability and predictability" have become increasingly attractive, businesses may want to reevaluate the relative merits and risks of fixed-term vs. other arrangements, particularly for high-level employees.1 The Fox decision serves as a reminder that businesses should be vigilant, in terms of revisiting and drafting employee agreements, and during the hiring process, taking care when onboarding individuals who may be subject to fixed-term contracts.
Importantly, courts will continue to analyze issues surrounding the enforcement of competitive restrictions on a case-by-case basis, subject to a number of highly specific factors. Here, for instance, issues presented in Fox's complaint, and in Netflix's appeal, were carefully contained to business-to-business interaction and unfair competition. As a general matter, courts are much more willing to scrutinize the conduct of employers than employees, particularly with regard to their competitors.2
Footnotes
1 At-will arrangements offer significantly more flexibility for both parties, but that flexibility comes at the expense of security, and there is much less recourse available for interference. While employees in fixed-term arrangements also remain free to quit, fixed term provisions can provide some greater assurances.
2 This can be seen in both the trial court's injunction, which was explicitly limited to valid fixed-term agreements-i.e., leaving unanswered whether Netflix might solicit employees subject to fixed-term agreements containing provisions other than those upheld in this case-and in the appellate court's analysis, which repeatedly emphasized Netflix's conduct over that of the individual employees. As specifically noted by the panel, the injunction "enjoins future predatory business practices by a competitor, but without compelling the affected employees to perform for the full term of their existing agreements. . The injunction does not restrain Fox employees from leaving Fox at any time, even during the fixed term of their agreement . the injunction restrains only Netflix . [and] Netflix thus remains free to solicit lawfully Fox's at-will employees and to hire Fox fixed-term employees at the end of their contract term. Netflix can also hire Fox employees during the fixed term, if the employee initiates the contact . without inducement or other act of interference by Netflix." In addition, it may have been easier for both courts to enforce the fixed-term agreements in this case, where the employees involved were "sophisticated executives" in the entertainment industry, and where Netflix had not only targeted them, but also allegedly continued in its conduct after Fox filed suit.
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