Netflix Sued for Interfering with Employment Contract

In the world of ever-increasing employee mobility, employer-employee litigation often focuses on non-competition and trade secret violations and generally rises or falls on the restrictive covenants and trade secrets themselves - are they reasonable, tied to a legitimate business interest, are the “trade secrets” actually secret, etc.  To prevent continued violations and recoup maximum monetary damages, most practitioners also give formal notice to the new employer of these restrictions and their violations.

Sometimes, however, employee mobility litigation is more mundane and focuses on a garden variety employment contract. Obviously, the employee can be liable if he or she violates an employment contract.  However, a recent case out of California demonstrates possible employer liability for inducing an employee to breach an otherwise valid employment contract.

Activision Blizzard sued Netflix in California state court claiming that Netflix poached its CFO, who was under an existing fixed term employment contract entered into in 2017.  According to the lawsuit, Netflix induced the CFO to breach the employment agreement and offered to pay the CFO’s anticipated legal fees. Activision claims interference with contract (a cause of action in Maryland, too), as well as unfair competition under California law and, perhaps more importantly, aiding and abetting the employee’s breach of fiduciary duty (somewhat more complicated in Maryland).

While non-competition, non-solicitation and trade secret litigation seems to be at the forefront in today's mobile gig economy, employers need to remember that they cannot go after an employee under an existing employment contract unless the contract itself provides a way out for the employee.  While employers may argue that it is all just healthy business competition, inducing a breach is often wrongful in and of itself. Moreover, a potential new employer should take very seriously any letter received from the former employer’s attorney and seek to resolve these issues before allowing the new employee to begin work.  Once the employer knows of possible wrongful conduct, it might find itself on the hook for damages, as well.   

Unfortunately (or fortunately depending on one's perspective), new employers sometimes simply rescind the offer of employment and/or terminate the employee if faced with potential liability over restrictive covenants or contractual prohibitions. But, if the employee is highly valued, or if the new employer can negotiate a resolution on the front-end, the employee can often commence work.  Likewise, the new employer may simply decide that the risk is worth it or that the claims lack merit, and choose to defend the new employee.  Of course, if the underlying contract (including any restrictive covenants) is invalid or the employee did not breach the contract, there cannot be any tortious interference.

The case is Activision Blizzard, Inc. v. Netflix, Inc., and has been posted by Deadline here.