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Speaker 1: Welcome to the Bloomberg Law Podcast. I'm June Grosso. Every

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Speaker 1: day we bring you insight and analysis into the most

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Speaker 1: important legal news of the day. You can find more

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Speaker 1: episodes of the Bloomberg Law Podcast on Apple podcast, SoundCloud

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Speaker 1: and on Bloomberg dot com slash podcasts. A lawyer for

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Speaker 1: Fox described Netflix's disregard for its contracts with its executives

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Speaker 1: as very audacious as the company's head toward a trial

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Speaker 1: and a high profile fight over poaching talent. Joining me

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Speaker 1: is entertainment lawyer Bobby Schwartz, a partner at Quinn Emmanuel.

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Speaker 1: The firm has represented Netflix in the past, but it's

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Speaker 1: not involved in this case. So Bobby tell us about

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Speaker 1: this lawsuit that started when two executives left Fox for

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Speaker 1: Netflix about three years ago. Well, Netflix has been eager

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Speaker 1: to stoke its fire of talent, and it's been going

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Speaker 1: around town it's studios to lure people away lawfully, as

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Speaker 1: it believes the case to be. And Fox fought back

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Speaker 1: and said, hey, you out touch our employees. They're under contract,

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Speaker 1: and that's what the fight's all about. Are these contracts enforceable?

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Speaker 1: Can Fox keep people from poaching their employees? Talk a

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Speaker 1: little bit more about what Netflix did in response and

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Speaker 1: what their argument is. Netflix's position is that Fox has

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Speaker 1: unlawfully handcuffed its employees by trying to invoke protections under

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Speaker 1: California law for stars, movie stars and singers and people

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Speaker 1: whose talents are truly unique, and put that in every

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Speaker 1: one of its contracts and then forced its employees to

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Speaker 1: continue their employment for more than the lawful length of

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Speaker 1: seven years under California law. So Netflix is saying, look, Fox,

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Speaker 1: we know you have contracts with these people, but they're

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Speaker 1: not legal contracts. And it's important under California law to

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Speaker 1: let people test their value in the marketplace at least

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Speaker 1: once every seven years, and it's important to allow people

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Speaker 1: to go look for other jobs. And the California legislature

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Speaker 1: has passed several important statutes to reinforce those principles. And

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Speaker 1: Fox's view is tough luck, we have a signed contract

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Speaker 1: and that should trump at all. And the judge made

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Speaker 1: a preliminary ruling agreeing with Fox. Tell us about that, well,

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Speaker 1: he agreed and didn't agree. In other words, the ultimate

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Speaker 1: outcome of this is that the case is going to

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Speaker 1: get tried and the jury will decide who's right. But

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Speaker 1: the judge was skeptical of some of Netflix's arguments, erroneously

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Speaker 1: frankly in my view, But it's his view that counts,

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Speaker 1: not mine. So why do you think netflix arguments are

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Speaker 1: better than he thinks they are? Well, primarily for this reason,

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Speaker 1: the famous actress Olivia to Haveland almost eighty years ago

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Speaker 1: one an important victory in the California Court of Appeal

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Speaker 1: that no personal services contract is enforceable more than seven

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Speaker 1: years after the commencement of services. There are no exceptions.

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Speaker 1: You can't contract around it. And what the judge did

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Speaker 1: is he did something that the Court of Appeal told

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Speaker 1: him he can't do. He said, well, I think um

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Speaker 1: allowing employees to do that provides financial security to meet

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Speaker 1: their financial obligations school tuition, etcetera. It's precisely because of

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Speaker 1: employers like Fox that have the economic advantage in those situations,

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Speaker 1: because their employees have those financial responsibilities, that employers like

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Speaker 1: Fox can extract promises that are contrary to the California statute.

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Speaker 1: It is not for the judge to decide what is

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Speaker 1: in the best interest of the employee. It's for the

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Speaker 1: employee to decide what's in his or her best interest

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Speaker 1: and That's where I think he made one of his

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Speaker 1: big errors. So the case is being watched closely in

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Speaker 1: Hollywood because Netflix and the other streaming companies want executives

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Speaker 1: that have experience in this area. What kind of contracts

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Speaker 1: might affect in the future. Would this have any presidential value?

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Speaker 1: It could have from end this presidential value. If Fox

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Speaker 1: wins this case, then it means that in California you

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Speaker 1: can lock up the services of any employee, except perhaps

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Speaker 1: for someone who sweeps the floor. But you can invoke

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Speaker 1: the protections that give you the right to an injunction

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Speaker 1: and prevent an employee from working for a competitor. For

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Speaker 1: any employee, even if their services, frankly are are somewhat

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Speaker 1: fungible and would make it very hard for people to

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Speaker 1: explore their value and frankly advance their careers, contrary to

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Speaker 1: specific provision in California law. So it could have a

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Speaker 1: very substantial effect. Is there a possibility of settlement before trial?

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Speaker 1: There always is. I have no visibility into this case.

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Speaker 1: I don't know what discussions the parties have had. I'm

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Speaker 1: sure there's a lot of acrimony. Netflix is the new

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Speaker 1: kid on the block, and all of the studios have

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Speaker 1: ganged up against it in terms of trying to protect

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Speaker 1: their employees. So maybe there's too much bad blood, but

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Speaker 1: you never know, there's always possibility. What is Fox looking

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Speaker 1: for here? Money damages? I know they said they're looking

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Speaker 1: only for one dollar. UM. I don't know how how

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Speaker 1: reliable that that assertion by their lawyer is. But what

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Speaker 1: they're really looking for is an injunction to prevent Netflix

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Speaker 1: or anybody else from luring away their employees who are

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Speaker 1: still under a term contract. So it's really the injunctive

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Speaker 1: relief that Fox wants. Now. Is Netflix involved in a

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Speaker 1: legal fight with Viacom over a similar matter, very similar case.

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Speaker 1: They debt Flix hired some people from the Viacom family

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Speaker 1: of companies, and they've been sued a very similar lawsuit,

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Speaker 1: very similar facts. Let me ask you this, These contracts

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Speaker 1: were their provisions for what might happen if the employee

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Speaker 1: broke the contract? Yes, But the primary provision that everyone

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Speaker 1: is focusing on is the provision that says that the

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Speaker 1: employee cannot go work for a competitor while they're working

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Speaker 1: for Fox and for some number of months or years

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Speaker 1: after the employment ends, So a noncompete clause noncompete provisions,

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Speaker 1: non solicitation provisions of other employees to go with them.

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Speaker 1: Are those noncompete clauses very popular outside of the entertainment

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Speaker 1: contracts in Hollywood, Well, you would expect to find them

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Speaker 1: predominantly in employment contracts. They're found in all kinds of

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Speaker 1: industries where companies want to ensure that if they enter

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Speaker 1: into a new agreement with someone, they're getting their services

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Speaker 1: and they're not just educating their competitors future employees, so

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Speaker 1: they can hold onto people. But California courts are very

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Speaker 1: clear about what limitations have to apply and when these

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Speaker 1: are enforceable and when they're not enforceable, and that's a

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Speaker 1: big issue in this case. That was going to be

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Speaker 1: my next question, which is how much would the law

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Speaker 1: here apply to other states or is California law so

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Speaker 1: particular on this matter that it will just apply in California.

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Speaker 1: I think only in California. California has specific statutes that

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Speaker 1: many other states don't have. No other state has a

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Speaker 1: seven year rule, No other state has what we call

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Speaker 1: six hundred, which says that any contract that interferes with

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Speaker 1: someone's ability to earn a living practice their trade is unenforceable.

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Speaker 1: These are protections that are fairly unique to California. Well,

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Speaker 1: thanks so much, it was great having you on. That's

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Speaker 1: Bobby Schwartz. He's a partner at Quinn Emmanuel. Thanks for

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Speaker 1: listening to the Bloomberg Law Podcast. You can subscribe and

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Speaker 1: listen to the show on Apple Podcasts, SoundCloud, and on

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Speaker 1: bloomberg dot com slash podcast. I'm June Brasso. This is

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Speaker 1: Bloomberg