HR Management & Compliance, Talent

Netflix’s ‘Keeper Test’ Shows How to Be Proactive with Terminations

Over the past year, Netflix has provided the world with hours of binge-worthy content—from the likes of Tiger King to Cobra Kai. So, who would have guessed one of the largest subscription streaming services in the world is now also providing us with a very useful employment tactic?

netflix
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To stay competitive, the entertainment business has implemented a unique termination policy called “The Keeper Test.” The method encourages the company to be proactive and end the employment relationship “with employees whose managers wouldn’t fight like Cobra Kai to keep them onboard.” Perhaps we could all learn a lesson from Netflix and avoid a myriad of workplace issues by discharging employees in a more take-charge manner.

Pros

The Keeper Test encourages managers to ask themselves whether they would go out of their way to keep an employee if tomorrow she gave notice she is moving to another company. If not, managers are encouraged to let the employee go. Netflix also recommends paying a severance and getting a release.

Netflix’s policy promotes transparency. Because there are no formal reviews, managers are encouraged to discuss performance openly and consistently. The approach allows employees to know where they stand compared to their peers so they can make any necessary adjustments. The employer doesn’t terminate employees after they’ve had a bad week. Instead, the person must show a consistent downward trend in performance and productivity.

Netflix’s policy allows for personal growth. Just because you have a great job doesn’t mean it’s a great fit for you or the employer. The employer has fired both the chief product officer (who made its infamous algorithm) as well as the chief talent officer (or CTO, who helped create The Keeper Test) because it believed their time with the company had run out. The previous CTO is now an entrepreneur, author, and speaker helping other companies reform and stay innovative.

Netflix also has less voluntary turnover than the national average. The company credits its success to The Keeper Test and the fact employees must fight to keep their jobs. The perks help, too. Employees are encouraged to speak up with innovative ideas and are given no limits on their vacation policy or spending accounts so long as they’re acting in the employer’s best interest. As a result, people work more and spend less, according to the company.

Productivity isn’t something Netflix has to worry about. Employees are either competing for their job, or they’re new and eager to start working with the company.

Netflix prides itself on being a professional team rather than a family with unconditional love. To keep their spot, employees must be useful to the team. Because they were told about the policy when they were hired, they understand the means necessary to keep their job and have agreed to the policy by accepting employment.

Cons

Some Netflix employees have expressed their dislike for the policy because of a fear of losing their jobs. They feel the tension makes it harder to concentrate at work. The company’s policy includes transparency, however, and its leaders acknowledge the approach may not be for everyone.

Some have voiced concerns over a “lack of investment” in employees, but Netflix is simply trying to do what’s best for both the company and the workers. To continue to be successful and innovative, it must keep bringing on new talent with different skill sets and fresh ideas.

Netflix ensures the people let go are set up for success by offering a generous severance package. Although the approach may not always be ideal, it’s a perk that goes hand in hand with having Netflix on your resume. Thanks to the generous severance package, former employees have reported the luxury of being able to figure out what they want their next step to be instead of being forced to take the next job offered to them.

Netflix Policy’s Effect on Termination Laws

No lawsuits have resulted from The Keeper Test. Netflix’s policy is working well, especially in the United States. Some backlash includes the lack of differing opinions when deciding whether to terminate an employee.

There’s also some risk that the reasons for a termination may be flagged as having discriminatory motives, such as being a poor cultural fit. The best way to avoid the legal pitfall, however, is to implement an objective performance program where anyone can comment on an employee’s performance, according to the company.

The longer you wait to terminate someone, the more your company may risk discrimination and retaliation claims. As long as your company complies with state and federal employment laws and Equal Employment Opportunity Commission (EEOC) regulations (e.g., don’t discriminate based on protected characteristics or retaliate against an employee who complains about or participates in an investigation regarding perceived bias), you shouldn’t encounter any issues using a policy similar to Netflix’s if you are an at-will employer.

An old adage for employment lawyers is “slow to hire, quick to fire.” In retrospect, when you look back at problem employees, you knew they were problems before you terminated them—many times, long before.

Employers Taking Charge Of Terminations

Netflix’s policy isn’t for everyone. If your company thrives on employee creativity, the model may work. If your company relies on efficiency, you may want to keep a more traditional approach.

Netflix jobs are highly sought after and recognized. The company pays workers above the competitive market rate and provides separating employees with a generous severance package. Although the approach is unique to its industry and success, there are many ideas you can take away:

  • Become proactive with terminations;
  • Don’t settle for mediocrity;
  • Reward star employees to keep your workplace productive and innovative;
  • Engage in less micromanagement; and
  • Let go of set vacation hours.

Jacob M. Monty is the managing partner of Monty & Ramirez LLP and editor of Texas Employment Law Letter—practices at the intersection of immigration and labor law. He can be reached at jmonty@montyramirezlaw.com or 281-493-5529.