Good Employer Series: Being a good employer makes good business sense – Netflix a potential cautionary tale


Netflix has been in the media recently due to it quickly losing its position as a pioneer in streaming services.  The company lost 200,000 subscribers from January to March 2022.  In April 2022, the value of the company’s shares dropped 23 percent.  One could put this down to a bad quarter or poor business management.  Workplace culture may have also had a role to play in the company’s performance.  A recent Stuff article discussed the concept of Netflix’s poor management and referenced some questionable employment practices.

How culture impacts company performance

Netflix employees speaking to the media about company culture have described it as “ruthless, demoralising and transparent to the point of dysfunction”.  This indicates the pressure put on employees to perform is having the opposite effect than intended.

To optimise performance, employees should be made to feel valued and respected.  A psychologically safe environment, where team members are encouraged to share and challenge ideas, is necessary for innovation.  An environment in which healthy challenge is not tolerated could be a cause for Netflix’s slow in innovation.

A supportive work culture also assists in the prevention of burnout, which negatively impacts culture and performance.  See our burnout series for more ideas on spotting and preventing burnout.

Legal implication of toxic culture

Netflix Co-Founder and Co-Chief Executive Reed Hastings is known for the ‘keepers test’ his managers use.

Mangers are encouraged to assess employees by thinking “would I fight hard to keep this employee?”  If the answer is no, the employee will likely be dismissed.  Beyond its effect on workplace culture, following such a test could give rise to significant risk under New Zealand employment law.

In New Zealand, if an employer has concerns about an employee’s performance or conduct, prior to determining whether a dismissal is warranted, they are obligated to:

This could include raising the concern with the team member informally before beginning a formal process, and supporting their improvement.

The other legal red flag raised by the ‘keepers test’ is that continuity of employment boils down to the manager’s subjective view.  Under New Zealand employment law, personal views alone would be insufficient to justify a dismissal.  The company would be at risk of a valid personal grievance for unjustified dismissal.

This should not prevent managers from advocating for their team members.  However, employers must ensure they have objective justification for any disciplinary action (including dismissal) taken against an employee.

If an employee considers the employer’s decision was unjustified and unfair, they may raise a personal grievance against their employer.  This may result in the employee being reinstated to their position and/or financially compensated.

We always say it makes good business sense to treat your employees well.  Netflix’s recent share drop is the latest example of a potential impact when you don’t.

Contact the team at Black Door Law if you are wanting to address concerns regarding workplace culture or employee performance.

Disclaimer: This information is intended as general legal information and does not constitute legal advice. If you have a specific issue and wish to discuss it get in contact with the Black Door Law team.