Artificial IntelligenceCryptocurrencyMetaverseCybersecurityTech Forward

Netflix Sues Fox for the Right to Poach Employees

October 19, 2016, 10:04 PM UTC
Special Screening Of Netflix's "House Of Cards" Season 2 - Red Carpet
Photograph by Kevin Winter—Getty Images

A nasty spat between 21st Century Fox and Netflix over employee poaching took a new twist on Wednesday, as the streaming giant filed a counter-lawsuit that accuses the studio of using illegal non-compete clauses and creating “involuntary servitude” among workers.

The allegations, filed in Los Angeles state court, come one month after Fox sued Netflix for poaching two of its program development executives.

According to Netflix, the studio violates California law by using clauses in its employment contract that bar them from working for competitors, and by reserving the right to extend these contracts indefinitely. Here it is in legalese:

Combined with the threat of injunctive relief to prevent these employees from leaving Fox and joining Netflix, these agreements not only violate Section 16600, they are anti-competitive and create a form of involuntary servitude among individuals who would ordinarily be at-will employees.

A spokesperson for Fox challenged the Netflix claims and claimed the contracts are legal.

“As Netflix expressly acknowledges, California law fully recognizes that fixed-term employment agreements are valid and enforceable,” said the spokesperson in an email statement. “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.”

California is unique in that it flatly forbids employers from using non-compete agreements or other anti-poaching agreements that restrict employee mobility. Netflix (NFLX) says Fox(FOXA) violated general unfair competition rules, and also a section of the state’s legal code.

Fox’s initial decision to sue Netflix, rather than the employees themselves, represented an unusual legal tactic, and may have been intended as an end-run around the California law.

In its complaint, Netflix asks a judge to declare the contract language Fox is employing against the Netflix employees is unenforceable and, more generally, that the studio cannot try to enforce fixed term employment contracts against its current employees.

The former Fox employees named in the original lawsuit are Tara Flynn, who Netflix hired as a drama programming development executive in September, and Marcos Waltenberg, who has worked in a similar role since January.

Despite California’s prohibitions on restricting employee mobility, a fight for talent in the state has sometimes led companies to try to do so, all the same. Last year, for instance, a group of tech companies—Apple, Google, Intel and Adobe—agreed to pay $415 million to compensate workers for arranging an unlawful conspiracy not to poach each others’ workers.

This story was updated at 11pm ET to include Fox’s statement.