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Netflix and Fox Square Off in High-Stakes Poaching Suit

Attorneys for Netflix and Fox traded arguments on Tuesday in a high-stakes case involving the alleged poaching of two Fox employees.

The case revolves around the key question of whether 20th Century Fox, or any studio, can hold its employees to fixed-term contracts. Two Fox employees, Marcos Waltenberg and Tara Flynn, left for jobs with the streaming giant in 2016. It is not uncommon for employees to leave before their contracts are up, but Fox chose to sue Netflix to combat what it saw as poaching. Netflix has countered that Fox’s contracts illegally bind employees to the company in a practice akin to slavery.

The potential consequences of the case are far-reaching, and so the case has been aggressively litigated on both sides. Netflix filed a countersuit, seeking to have Fox’s agreements deemed unenforceable. Fox then filed a motion to strike the countersuit under California’s anti-SLAPP statute, which protects public debate, arguing that Netflix was improperly stepping on its rights to enforce its contracts. The trial court judge denied that motion, allowing both suits to proceed, which prompted Fox to file an appeal.

That appeal was argued Tuesday before a three-judge panel at the California 2nd District Court of Appeal.

“We want our day in court to prove their contracts are unenforceable,” said Netflix’s counsel, Eric Shumsky of Orrick, Herrington & Sutcliffe, after the hearing. “They shut down the proceeding with this anti-SLAPP motion.”

Jonathan Hacker, a partner at O’Melveny & Myers, argued the case on behalf of Fox. He told the panel that Netflix has engaged in “faux populism” by seeking to liberate Fox employees from their fixed-term agreements. He argued that Netflix, in fact, has its own fixed-term agreements with showrunners such as Shonda Rhimes.

“Kobe Bryant can’t start playing for the Clippers. Shonda Rhimes can’t work for Fox. They’re under contract,” Hacker argued. “Who is Netflix to tell Fox employees they have to be at-will employees when they don’t want to be?”

Netflix argues that under California law, employees with extraordinary talents — like Rhimes — can be compelled to perform under their contracts. But Netflix alleges that Fox’s contracts improperly seek to extend that obligation to every ordinary vice president, binding them to the company with the threat of a legal injunction whether they still want to work there or not. Before the panel, Shumsky argued that this provision of Fox contracts is “absurdly unlawful” and that it could violate the 13th Amendment, which outlawed slavery and involuntary servitude.

He also said that Fox unilaterally extends employment contracts in the middle of the term, with the threat of termination if employees don’t comply. Netflix has also argued that Fox selectively enforces its contracts, allowing employees to leave so long as they are not going to work for a competitor.

The appellate panel has three months to issue a ruling. The panel could affirm the lower court’s ruling, allowing both the Fox poaching suit and the Netflix countersuit to proceed. Or it could reverse, striking the Netflix countersuit but leaving the Fox suit in place. Either way, the fight will continue before the trial court.

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