High-ranking executives in Texas often commit to employment contracts when taking a new position. While state laws permit non-compete agreements, there are limitations on what types of agreements are acceptable. However, even when an employee has the right to break an employment contract, other companies may be restricted from trying to induce such a breach. This issue has come to the forefront in a major dispute in the entertainment industry as major studio 20th Century Fox Film is clashing with Netflix in court over what Fox claims were an orchestrated effort to poach its executives.
The case has been moving forward since 2016 when Fox sued Netflix after the streaming company recruited two of its leading executives. Netflix attempted to defend its activities by arguing that the executives’ contracts with Fox were already illegal. California, the location of the lawsuit, bars many types of non-compete agreements. In addition, the company also argued that Fox’s employment contracts were extended for multiple periods, breaking a state restriction on personal service contracts longer than seven years.
In a preliminary ruling from a Los Angeles Superior Court judge, Fox is appearing to prevail on many of its claims. The judge noted that Fox showed that Netflix deliberately aimed to undermine its employment contracts. However, he also said that the company had to show actual damages caused by Netflix’s behavior. The judge also rejected Netflix’s arguments that Fox’s contracts were illegal, saying that their arguments seemed to declare that it wasn’t legal for people in California to work for any company for more than seven years.
High-powered executives may be in great demand, a fact that may encourage some competitors to attempt to poach leading innovators. Businesses can consult with an attorney about how to develop contracts that protect their rights and comply with state law.