Titan Employers Fight To Keep Employees From Competitors
Titan Employers Fight To Keep Employees From Competitors
Most employers well know that it takes months (sometimes years) to realize the cost of onboarding new employees and with high level management employees and key employees, the loss can cause significant financial repercussions. Proactive employers typically have confidentiality agreements to protect confidential, valuable business information, but there is the risk that an employee will go to a competitor with confidential information that cannot be erased from memory, and with contacts in the industry that can be used to the original employer’s detriment.
So, there has been a trend for employers to enter into employment contracts with those valuable employees, binding the employee to a certain length of employment (a “fixed term” agreement) and in turn, binding the employer to pay the employee for that entire period of time. If the employee/employer relationship turns sour during that fixed term contract period, the employer nevertheless continues to pay the employee to keep the employee out of the market, away from competitors. As between the employee and employer, the viability of those contracts has mostly been upheld.
But what happens when titan giant employers in an industry try to lure contracted employees away from each other and then turn to the Courts to fight it out? Lawsuits show that Netflix has been particularly robust in its effort to take employees away from competitors. The latest is Activision Blizzard, Inc. v Netflix, Inc. (go to our website to see the complaint), where Activision alleges Netflix seems guided by a “Culture Memo” that states “what is special about Netflix is how much [it][…] avoid[s] rules.” Activision, a 9,000-employee video game powerhouse doing business around the world, asserted causes of action against Netflix, a huge entertainment online streaming and new video gaming giant in its own right, for Intentional Interference with Contract (with its contract with a high-level employee), Unfair Competition, and Aiding and Abetting Breach of Fiduciary Duty (by the poached Chief Financial Officer, whom Netflix hired). While working at Netflix, the CFO was in the middle of negotiations with Activision in a valuable contract to expand the video game market, when Netflix purportedly induced the Activision CFO to switch sides by Netflix unlawfully poaching him during the Activision contract term, per the lawsuit. This is a pattern, per Activision, and where Netflix has hired other executives from Netflix’s competitors regardless of their contractual obligations.
One problem with this is Netflix apparently did this in December 2018. So, there appears no basis for Activision to get an injunction to keep the CFO away from Activision and on the sidelines. And, while Netflix reportedly offered to pay for the CFO to have legal representation and to indemnify the CFO for any damages entered against him, Activision did not sue the CFO, which would be a typical move to place pressure on the employee and others thinking of making a move during a contract term. So, the story is not about this one event. It is about the battle between Netflix and its competitors.
Activision alleges damages: Activision has been required to pay the CFO’s successor millions more in compensation than it would have been obligated to pay the CFO through the end of the Initial Term of the CFO’s Agreement, pay other C-level employees more to remain when renewing their contracts, and other enumerated losses and damages. Activision seeks punitive damages and an ongoing injunction to stop Netflix’s practices as alleged. Activision might be successful.
In another case, Netflix was alleged to be soliciting away Twentieth Century Fox Film Corp.’s employees (that were subject to Fixed-Term Employment Agreements with Fox) and arguing that it could do so because Fox’s employment agreements were essentially non-compete agreements. The court sided with Fox and granted it injunctive relief – Netflix cannot solicit employees who are subject to valid Fixed-Term Employment Agreements or induce those employees to breach the contracts: https://deadline.com/2019/12/netflix-fox-lawsuit-poaching-executives-arguments-dismissal-motion-viacom-1202794603/. Netflix appealed, which is pending. But before that, in the state court litigation, Netflix made a flurry of filings trying to keep its information filed in the case sealed (for the court to see only).
We deal with these matters every day. But watching these cases will be fun. Bring out the popcorn for the entertainment.
For more information feel free to contact Dawn: dcoulson@eppscoulson.com.
EPPS & COULSON, LLP
Attorneys admitted to practice in
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