Can Netflix Change the Game for Employees in Hollywood?; Legal Issues Competing for Talents

Organizations often practice a technique known as employee poaching, a practice where a company recruits away an employee from a competing company. Employee poaching often happens in growing industries that require employees with high-demand skills. Therefore, it is especially common in entertainment industries where people with professional skills are needed. Unlike in the past, where employers had to personally make connections to a particularly talented worker, now, with the advent of technology, employers can easily obtain information and make connections with the worker through the internet. 

The negative connotation of the term employee poaching may make it appear that this practice is illegal, but it is actually legal and has several benefits for both the employers and the employees. For employees, the competition results in better career opportunities and income growth. They can also benefit by learning new skills and working for better-experienced employers. As for employers, they receive a benefit because they get to hire talented employees that can increase the organization’s productivity. Furthermore, employee poaching also benefits society by reallocating resources and encouraging competition between companies. However, there are the potentially negative aspects of the behavior being perceived as unethical and there are many instances where employee poaching leads to suits and the payment of damages.

Regarding the potential for legal issues, although the practice itself is not illegal, there could be several instances where litigation may arise. First, there could be potential monopolistic problems arising by those engaging in predatory conduct. In such cases, plaintiffs allege that the defendants have attempted to monopolize the market by eliminating their business or injuring their ability to compete by hiring away the competitor’s employees. One of the main cases that set the standard of predatory hiring is University Analytics, Inc v. Macneal Schwendler Corp., 914 F.2d 1256 (9th Cir. 1990). Here, Analytics claimed that Macneal’s hiring of five of their employees was predatory, in violation of Section 2 of the Sherman Act. However, the court held that Macneal’s conduct was not predatory since there was evidence that the hiring competitor did not use the employee or intended to hire the employee merely for the purpose of denying the employee’s talents to its competitor. Id, at 1258-59. Therefore, University Analytics, Inc. conveys that one needs clear evidence of damage from the poaching in order to prove monopolistic actions.

Another possible problem arises when there is a trade violation in the process of hiring a competitor, also referred to as third-party misappropriation claims, where someone newly entering an organization possesses proprietary information or trade secrets. In Molon Motor and Coil Corp. v. Nidec Motor Corp, 2017 U.S. Dist. LEXIS 71700 (N.D. Ill. 2017), the defendant hired plaintiff’s employee who copied trade secrets into his thumb drive while he was still employed by the plaintiff. The court held that: first, copying trade secrets was a breach of the employee’s employment agreement. Id, at 11. It also found that the plaintiff could show that the disclosure and use of the trade secrets under the “inevitable disclosure” doctrine and that there was a continued misappropriation because the trade secrets continue to be valuable. Id. At 13, 18. Thus, one of the key guidelines that is shown in this case to employers is that information gathered by an employee, even in the past, could lead to a lawsuit when employers hire an employee from its competitor.

Considering these precedents, there has been a recent case in the entertainment industry regarding employee poaching: Twentieth Century Fox Film Corp. v. Netflix, Inc., 2019 Cal. Super. LEXIS 7216. In 2016, Fox filed suit against Netflix, alleging that the latter was poaching away two executives, Marcos Waltenberg and Tara Flynn, and inducing them to break their fixed-term contracts. Both of the executives were on two-year contracts, with options for extending another two years. Netflix continued to poach employees after the lawsuit and Fox asked for an injunction to stop Netflix’s actions. On December 10, 2019, the court ruled for Fox and ordered an injunction to bar Netflix from employee poaching, confirming the validity of the employment contracts. Judge Gross mentioned that the undisputed facts show Netflix intentionally interfered with Fox’s contracts and that it arguably sought to further its own economic interest at Fox’s expense, and such conduct is not justified. Id. at 34. However, Netflix appealed the case in September of 2020, arguing that Fox’s contracts imprison employees, halting their ability to seek new opportunities, and that Netflix will keep fighting for workers’ freedom. This case caused quite a controversy because Netflix was challenging not only Fox but the entire Hollywood establishment of fixed-term deals across California. Some say that Netflix is being overly ambitious, but if the streaming company ends up winning the case, it would have a huge impact on employers of talent in California. 

Twentieth Century Fox Film Corp. shows two different views of employee poaching, in which if Netflix prevails, it will change the rules of fixed-term deals. For now, it can be either used as a tool for employees to freely choose the place in which they want to work or it could become an illicit act where industries fight for talented workers and search for loopholes in employment contracts. In this era where the media industry is developing more than ever, employee poaching will be continuously used to compete for employee talent. Depending on the outcome of Netflix’s appeal, Twentieth Century Fox Film Corp. has the potential to become another precedent which will have a huge impact on future employee poaching suits.