Israel & Samuels LLP wishes each of you Happy Holidays. We appreciate you and wish you a happy, healthy and prosperous new year!!
Big Changes In California Employment Privacy Laws for 2025
Employers need to prepare for significant amendments to the California Consumer Privacy Act (CCPA) of 2018, as amended by the CPRA (CCPA) in 2025.
The CCPA grants California residents, including employees, specific rights relating to collecting and using their personal information. These changes include amendments to key definitions, application of data privacy rules to artificial intelligence (AI), and heightened regulatory oversight and enforcement.
Below is a synopsis of the top five developments that California employers should anticipate for 2025:
- AB 1008: CCPA now expressly covers generative AI systems. The definition of “personal information” (PI) expands to PI located in various formats, including AI systems. If an AI system is capable of exposing PI—such as names, addresses, or biometric data—businesses will be subject to restrictions on how they may use or profit from that data. The Legislature’s goal is to ensure that AI systems adhere to the same privacy protections that govern other forms of data storage, processing, and use.
- SB 1223: The CCPA’s definition of “sensitive personal information” is expanded to include a consumer’s neural data—information generated by measuring the activity of a consumer’s central or peripheral nervous system.
- AB 1824: In 2025, a business that receives the consumer’s PI as part of a merger, acquisition, bankruptcy or other transaction must expressly comply with a consumer’s opt-out preferences.
- Increased Enforcement Activity: The Privacy Police have stepped up the enforcement of the CCPA in recent years. After issuing its first enforcement action under the CCPA in 2022, several new enforcement actions against a variety of businesses for their use and disclosure of PI have been publicized. In 2024, the Privacy Police issued a $6.75 million fine against a cloud software company relating to a 2020 ransomware attack that resulted in California consumers’ PI theft. They also announced a stipulated judgment with a mobile app developer relating to collecting and sharing children’s data without parental consent. These actions show an increased focus on privacy and a willingness to go after companies who fail to take proper safeguards to protect PI.
- New CPPA Regulations: The California Privacy Protection Agency (CPPA) published a set of draft regulations for public comment. The regulations primarily seek to update existing regulations, implement requirements for businesses to conduct cybersecurity audits, risk assessments, and implement consumers’ rights to opt out of automated decision-making technology (ADMT). These regulations could go into effect on April 1, 2025, following public comment period.
Contact your business attorney to discuss compliance with privacy laws, any investigation by the California Privacy Protection Agency, or any questions about these laws.
Happy Holidays
The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.
Update Your California Arbitration Agreements for 2025
Mandatory arbitration is legal in California. However, there are a few issues to look for to ensure your arbitration agreements are enforceable. These include:
- If you have an opt-out, it is no longer necessary and should be removed;
- If you have multiple entities, you should confirm that your agreement is in the name of the correct entity (the same employer listed on your Labor 2810.5 notice).
- Translate the agreement especially if other employment documents and policies are translated.
- Many plaintiffs challenge their signatures or electronic signatures, so double check that any electronic signatures are traceable back to the employee only.
- Ensure the agreement clarifies that it is governed by the FAA (“Federal Arbitration Act”).
- Update your class action waiver section to reflect new developments in PAGA reform.
- Consider expanding carve outs due to the federal “Ending Forced Arbitration and Sexual Harassment Act”.
- If you have provisions in your agreement about confidentiality of the arbitration beyond the applicable JAMS or AAA rules, you might want to revisit that area since it is an area plaintiffs’ counsel like to challenge.
- Make sure a viable company representative signs it.
If you are going to have an arbitration agreement, take these steps to ensure it is enforceable. We suggest you send your arbitration agreements for revision to your business attorney.
The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.
BOI Report Filing On Hold
A Texas U.S. Federal Court has placed the mandatory filing of Beneficial Ownership Information Reports (BOI) with the Financial Crimes Enforcement Network (FinCEN) on hold. Thus, the mandatory filing date of January 1, 2025 no longer applies. The case that challenged the filing of BOI, and that has resulted in the elimination of the requirement to file BOI’s on or before January 1, 2025, is Top Cop Shop, Inc. et al, v. Garland, et al..
On December 3, 2024, the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction in Texas Top Cop Shop, Inc., et al. v. Garland, et al., blocking enforcement of the Corporate Transparency Act (“CTA”) and its beneficial owner information (“BOI”) reporting requirements. The case has been appealed and the legal consensus is that the requirement is likely to be reinstated although the mandatory filing date will need to reset in the future.
If you have yet filed your business BOI you may want to wait until the case on appeal plays out. You should discuss whether to file a BOI, notwithstanding the injunction, with your business attorney.
The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.
Prevent Employer Liability
n 2023, the California legislature expanded the state’s Healthy Workplaces Healthy Families Act of 2014 (HWHFA), primarily by providing more leave. This year, Governor Newsom signed bills into law that expand paid sick leave (PSL) protections.
Cal/OSHA has implemented heat illness standards, and, as a result, employees cannot be retaliated against for refusing to report to work in emergency conditions. Also, SB 1105 provides that agricultural employees who work outside may use PSL to avoid smoke, heat, or flooding conditions created by a local or state emergency, including when a worksite is closed due to these conditions.
SB 1105 and AB 2499 also expanded existing law that provides for using PSL where there is domestic violence, sexual assault, and stalking. It is now available to victims of “qualifying acts of violence,” i.e., conduct, or patterns of conduct that justify safe time, including when:
- an individual causes bodily injury or death to another individual;
- an individual exhibits, draws, brandishes, or uses a firearm, or other dangerous weapon, with respect to another individual; and
- an individual uses or makes a reasonably perceived or actual threat to use, force against another individual to cause physical injury or death.
The HWHFA previously limited use of PSL for safe time to when an employee was a victim. The combination of SB 1105 and AB 2499 extends this category of leave to employees whose family members are victims as well. The HWHFA’s definition of “family member” was expanded to include a “designated person” of the employee.
AB 2499 extends existing rights to take time to obtain restraining orders, seek medical attention, obtain certain services or counseling and participate in safety planning for family members. It also creates new explicit rights to take time for relocation, enrolling children in a new school, obtaining legal services, participating in legal proceedings and obtaining childcare in connection with qualifying acts of violence.
The law also allows employees to use paid sick leave for time spent serving on a jury or a victim who takes time off to appear as a witness in court in compliance with a subpoena or court order.
The California Labor Code affords unpaid leave protections for jury duty, victims serving as witnesses in compliance with a subpoena or court order, and victims of domestic violence, sexual assault, stalking, or crimes. AB 2499 reformulates these protections under the umbrella of the Fair Employment Housing Act. This shift gives the Civil Rights Department (“CRD”) enforcement authority over violations of these protections and eliminates potential Private Attorneys’ General Act claims for such violations.
Additional changes include limiting the duration of leave employers with at least 25 employees must provide. A victim of a qualifying act of violence may take no more than 12 weeks of unpaid leave. If an employee’s family member is a victim of a non-fatal crime, and the employee takes leave for the limited purpose of relocating or securing a new residence and enrolling a child in a new school or childcare, the employee may take no more than 5 days of leave. When an employee’s family member is a victim of a non-fatal crime, the employee may take no more than 10 days of leave.
Absences that would also qualify under the Family and Medical Leave Act (FMLA) or CFRA must run concurrently if the employee is eligible.
AB 2499 also expanded eligibility for reasonable accommodations to include employees who are victims, or whose family members are victims of a qualifying act of violence to ensure the safety of the employee while at work.
Employers must inform employees of their rights under AB 2499 at the time of hire, annually, upon request, and if an employee provides notice that their family member is a victim as defined under the law.
The CRD will be developing a form that complies with these notice requirements before July 1, 2025—six months after the law goes into effect.
AB 2499 and SB 1105 go into effect in less than three months. Thus, employers should:
- Review existing leave policies and practices to ensure compliance with the new laws, including related attendance, conduct, anti-retaliation, and discipline policies and practices.
- Train supervisory and managerial employees, and HR on the new requirements.
- Develop a form to comply with the notice requirements to use in advance of the CRD’s development of a form.
If your business is confronted with an employee or employees seeking time off under these provisions, contact your employment attorney to discuss your rights and responsibilities.
The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.
Avoidance of Wage Claims in California Private Works Construction
In California, higher-tiered contractors can find themselves paying subcontractors’ employees if the subcontractors’ subcontractors fail to pay their workers.
With some limitations, higher-tiered contractors on private works projects are liable for their lower-tiered subcontractors failing to pay their workers. With its enactment in 2019, Labor Code section 218.7, which applies to contracts entered into between January 1, 2018 and December 31, 2021, and later enactment of Labor Code section 218.8, which applies to contracts entered into on or after January 1, 2022, “direct contractors” who enter into contracts for the “erection, construction, alteration, or repair of a building, structure, or other private work” are jointly liable for “any debt owed to a wage claimant or third party on the wage claimant’s behalf, incurred by a subcontractor at any tier acting under, by, or for the direct contractor for the wage claimant’s performance of labor included in the subject of the contract between the direct contractor and the owner.”
Both Labor Code sections 218.7 and 218.8 are limited to “direct contractors” (i.e., parties in direct contract with the project owner), not to all higher-tiered parties who have lower-tiered subcontractors, and only apply to wage debts owed by subcontractors not material suppliers. However, direct contractors are liable for wage debts owed by lower-tiered subcontractors of all tiers, whether a 1st tier subcontractor, a second-tier subcontractor, or lower, and it applies broadly to all private construction works.
Under Labor Code sections 218.7, which applies to contracts entered into between January 1, 2018 and December 31, 2021, direct contractors are liable for unpaid wages, fringe or other benefit payments or contributions, and interest but not penalties or liquidated damages. However, under Labor Code section 218.8, which applies to contracts entered into on or after January 1, 2022, direct contractors are liable for unpaid wages, fringe or other benefit payments or contributions, and interest as
well as penalties or liquidated damages.
The California Labor Commissioner, in response to a complaint filed by an unpaid worker, can bring an administrative wage enforcement action, issue a citation, or bring a civil action against the direct contractor for unpaid wages and interest. In addition, unions owed fringe or other benefit payments or contributions, can bring a civil action against the direct contractor, and if they do, are also entitled to recover their reasonable attorneys’ fees and costs as well as expert witness fees.
Finally, joint labor-management cooperation committees established under the federal Labor Management Cooperation Act of 1978 can bring a civil action against the direct contractor and offending subcontractor for unpaid wages, and if they do, are also entitled to recover their reasonable attorneys’ fees and costs as well as expert witness fees. However, they must first provide the direct contractor and offending subcontractor 30-days’ notice of such claim by first-class mail describing the general nature of the claim, the project name, and the name of the employer.
If the direct contractor does not have sufficient assets to pay for the wage debts owed by a subcontractor on a private works project, their property can be attached and sold to satisfy any judgment rendered against the direct contractor.
A claim against a direct contractor must be filed within one (1) year of the earliest of the following: (1) recordation of a notice of completion; (2) recordation of a notice of cessation of work; or (3) actual completion of the project.
Direct contractors can protect themselves against such claims on private works projects. Labor Code section 218.8, which, unlike Labor Code section 218.7, makes a direct contractor potentially liable for penalties or liquidated damages, includes a “safe harbor” from penalties and liquidated damages. Under Labor Code section 218.8, a direct contractor is not liable for penalties or liquidated damages unless (1) the direct contractor had knowledge of the subcontractor’s failure to pay wages, fringe or other benefit payments or contributions; or (2) the direct contractor complies with the following:
- The direct contractor monitors the subcontractors’ wage, fringe or contributions through periodic review of the subcontractor’s payroll records;
- Upon becoming aware of the subcontractor’s failure to pay wages, fringe or other benefit payments or contributions, the direct contractor takes corrective action to halt or rectify the failure, including, but not limited to, retaining sufficient funds from the subcontractor; and
- Prior to making final payment to the subcontractor, the contractor obtains an affidavit from the subcontractor, signed under penalty of perjury, that the subcontractor has paid all wage, fringe or other benefit payments or contributions.
Under both Labor Code sections 218.7 and 218.8, upon request by a direct contractor to a subcontractor, the 1st tier subcontractor and any 2nd-tier subcontractors must provide: (1) payroll records showing the last four (4) digits of the social security numbers of workers working on the project with information, as applicable, of fringe or other benefit payments or contributions (“Payroll Information”); and (2) award information including the project name, name and address of the subcontractor, the contractor with whom the subcontractor is under contract, anticipated start date, duration, and estimated journeymen and apprentice hours, and contact information for its subcontractors on the project (“Award Information”).
Withholding payment is considered a good faith or bona fide “dispute” for purposes of the state’s prompt payment laws. However, Labor Code section 218.8 states that a payment withholding is considered “disputed” for purposes of the state’s prompt payment laws but only if: (1) the subcontract provides that the subcontractor must provide upon request (or automatically) Payroll Information or Award Information; (2) such information is not provided; and (3) money withheld is released upon submission of such information.
Contractors can also mitigate the risk by contract. Contractors can include right of approval provisions in the subcontract giving the direct contractor the right to approve 2nd tier and lower subcontractors to help ensure that only reputable subcontractors, who are more likely to pay their workers, are hired.
They can also require inclusion of provisions requiring that subcontractors provide the Payroll Information and Award Information discussed above, or be subject to withholding, so that the direct contractor has the right to withhold payment from the subcontractor without fear of being subject to prompt payment penalties.
Contractors can also include a flow-down provision requiring that subcontractors include the same requirements in their subcontracts with 2nd-tier subcontractors and a requirement that their subcontractors include the same requirements in any subcontracts with their lower-tiered subcontractors. Such provisions should specifically state that a direct contractor can withhold payment from a subcontractor, not only if Payroll Information and Award Information is not provided, but if a subcontractor does in fact not pay wages when due or if the direct contractor has an objective good faith believe that the subcontractor has not or will not pay wages when due.
Contractors can should also ensure that indemnity provisions are broad enough to cover “wage claims” including claims for “penalties” and “liquidated damages.”
Although not always feasible, contractors can require that 1st tier subcontractors obtain a payment bond and the right of the direct contractor to make a claim on that payment bond for unpaid wages, fringe or other benefit payments or contributions, including, interest, penalties, and liquidated damages.
If you are a direct contractor that hires subcontractors it is not only prudent, but also imperative, to have your legal counsel review your contracts and revise them to provide protection in case a subcontractor does not pay its workers.
The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.
LLCs and LLPs May Defeat Diversity Jurisdiction in Federal Court
A recent case decided in the District Court for the Eastern District of New York, places in stark relief, the difficulty in establishing diversity jurisdiction that would allow for an action in Federal Court when one of the parties is an LLC or LLP.
In Coward v. Nat’l Railroad Passenger Corp. the plaintiff brought a purported diversity action alleging he was a resident of New Jersey and the defendant was a limited liability company formed and existing under the laws of the State of Connecticut. The Court issued an Order requiring the plaintiff to show cause why the case should not be dismissed for failing to adequately plead subject matter jurisdiction.
The citizenship of an LLC or LLP has nothing to do with its state of formation or principal place of business. The citizenship of an LLC consists of the imputed citizenship of each one of its members.
The Plaintiff responded to an Order to Show Cause with a proposed amended Complaint alleging, upon information and belief, that the managing member listed on the LLC’s certificate of organization was the sole member of the LLC and his residence address was in Connecticut.
The Court determined that the “information and belief allegation” that the managing member of the LLC and who was the sole member of the LLC was inadequate as the only basis. The certificate of organization requirement in nearly all fifty states does not require the identification of all of the members of the LLC and, therefore, the allegation was not supported by information or belief and was just plaintiff’s wishful thinking and dismissed the second cause action for lack of subject matter jurisdiction. The Court recognized the hardship on the plaintiff. It stated:
No doubt, this can make it hard for a plaintiff to sue an LLC in federal court, as one of the purposes of forming an LLC may be to deter public identification of its members…. “While various state legislatures have decided to permit the members of LLCs to remain anonymous to the public at large, Congress has not created an exception to the requirements of diversity jurisdiction which would allow the members of LLCs to remain anonymous in federal court.” … As the Eleventh Circuit has noted, this means there is “difficulty [in] applying established diversity jurisdiction principles to 21st-century business organizations.” But that is the way Congress has left it. The Court is not going to circumvent the statute by finding that it has diversity jurisdiction based on a conclusory allegation than an interest holder is the sole interest holder….
If you are involved in a diversity action in Federal Court with an LLC or LLP, consult your legal counsel question about subject matter jurisdiction, It may result in dismissal of the case. However, be aware that may not preclude a subsequent action
in State Court and the rendering of a nonunanimous jury decision.
The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.
New Law Reminders for California Employers
As we approach the end of the year, California employers need to be prepared for new California laws affecting their relationships with their employees. Here are a few new laws that California employers will need to know and implement preferably before the end of 2024:
Changes to the Minimum Wage
Although California voters soundly rejected Proposition 32 (which would have increased the minimum wage to $18.00 per hour for large and medium-sized employers and $17.00 per hour for employers with 25 or fewer employees), the existing minimum wage will still increase based on the consumer price index. Thus, effective 2025, the new California minimum wage will increase to $16.50 per hour from the present $16.00 per hour.
As a result of this increase, the minimum salary test for the primary overtime exemptions (administrative, executive and professional) in 2025 will be $68,640.00 annually or $5,720.00 monthly. Employers should be checking salaries of their exempt and salaried employees to ensure that they qualify for the exemption.
Please also be aware that the minimum wage is different for certain industries and workers starting in 2025. Fast food workers must be paid $20.00 per hour based on the state law that took effect this past year. Certain healthcare industry employees must be paid a minimum of $23.00 per hour effective last month, and on June 30, 2025, will increase to $24.00 per hour – and by another dollar per hour to $25.00 per hour on July 1, 2026.
There are also many local ordinances that require higher minimum wages that are related to inflation and have automatic increases in 2025. We recommend that you check local law to determine the exact required minimum wage or contact your employment attorney to help figure it out.
Paid Family Leave
Starting January 1, 2025, California employers cannot require their employees to use up to two weeks of accrued vacation time before they start receiving Paid Family Leave benefits
under the EDD’s paid family leave program.
Expanded Sick Leave
Commencing next year, California employees will be able to use sick leave to assist family members who are victims of certain types of violence or threats of violence. Employers should provide notice to their California employees of this change in their sick leave policies and practices and also train management and HR about the changes since the violence is not limited to victim of domestic violence, sexual assault and stalking.
Captive Audience Meetings
Commencing with the new year, California has banned mandatory captive audience meetings. Employers can no longer discharge, discriminate, or retaliate against, or threaten to carry out such actions because an employee refuses to attend any employer-sponsored meeting relating to religious or political matters or anything related to the support or the lack thereof of a labor organization or union.
Requiring Drivers’ Licenses for Job Openings
Starting January 1, 2025, it is impermissible for a California employer to include a statement in job advertisements, job applications, or other employment materials that a job applicant must possess a valid driver’s license unless the employer can prove that it reasonably suspects driving to be one of the job functions of the position, and, reasonably believes that using an alternative form of transportations, such as a bike or public transportation, that does not require a driver’s license would not be comparable in travel time or cost to the employer.
These new laws are only a small snippet of some of the key changes in California employment law for 2025. It is best to seek advice from your employment lawyer with regard to these changes and how to implement them in the workplace.
The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.
More Required Time Off for California Employees
In 2023, the California legislature expanded the state’s Healthy Workplaces Healthy Families Act of 2014 (HWHFA), primarily by providing more leave. This year, Governor Newsom signed bills into law that expand paid sick leave (PSL) protections.
Cal/OSHA has implemented heat illness standards, and, as a result, employees cannot be retaliated against for refusing to report to work in emergency conditions. Also, SB 1105 provides that agricultural employees who work outside may use PSL to avoid smoke, heat, or flooding conditions created by a local or state emergency, including when a worksite is closed due to these conditions.
SB 1105 and AB 2499 also expanded existing law that provides for using PSL where there is domestic violence, sexual assault, and stalking. It is now available to victims of “qualifying acts of violence,” i.e., conduct, or patterns of conduct that justify safe time, including when:
- an individual causes bodily injury or death to another individual;
- an individual exhibits, draws, brandishes, or uses a firearm, or other dangerous weapon, with respect to another individual; and
- an individual uses or makes a reasonably perceived or actual threat to use, force against another individual to cause physical injury or death.
The HWHFA previously limited use of PSL for safe time to when an employee was a victim. The combination of SB 1105 and AB 2499 extends this category of leave to employees whose family members are victims as well. The HWHFA’s definition of “family member” was expanded to include a “designated person” of the employee.
AB 2499 extends existing rights to take time to obtain restraining orders, seek medical attention, obtain certain services or counseling and participate in safety planning for family members. It also creates new explicit rights to take time for relocation, enrolling children in a new school, obtaining legal services, participating in legal proceedings and obtaining childcare in connection with qualifying acts of violence.
The law also allows employees to use paid sick leave for time spent serving on a jury or a victim who takes time off to appear as a witness in court in compliance with a subpoena or court order.
The California Labor Code affords unpaid leave protections for jury duty, victims serving as witnesses in compliance with a subpoena or court order, and victims of domestic violence, sexual assault, stalking, or crimes. AB 2499 reformulates these protections under the umbrella of the Fair Employment Housing Act. This shift gives the Civil Rights Department (“CRD”) enforcement authority over violations of these protections and eliminates potential Private Attorneys’ General Act claims for such violations.
Additional changes include limiting the duration of leave employers with at least 25 employees must provide. A victim of a qualifying act of violence may take no more than 12 weeks of unpaid leave. If an employee’s family member is a victim of a non-fatal crime, and the employee takes leave for the limited purpose of relocating or securing a new residence and enrolling a child in a new school or childcare, the employee may take no more than 5 days of leave. When an employee’s family member is a victim of a non-fatal crime, the employee may take no more than 10 days of leave.
Absences that would also qualify under the Family and Medical Leave Act (FMLA) or CFRA must run concurrently if the employee is eligible.
AB 2499 also expanded eligibility for reasonable accommodations to include employees who are victims, or whose family members are victims of a qualifying act of violence to ensure the safety of the employee while at work.
Employers must inform employees of their rights under AB 2499 at the time of hire, annually, upon request, and if an employee provides notice that their family member is a victim as defined under the law.
The CRD will be developing a form that complies with these notice requirements before July 1, 2025—six months after the law goes into effect.
AB 2499 and SB 1105 go into effect in less than three months. Thus, employers should:
- Review existing leave policies and practices to ensure compliance with the new laws, including related attendance, conduct, antiretaliation, and discipline policies and practices.
- Train supervisory and managerial employees, and HR on the new requirements.
- Develop a form to comply with the notice requirements to use in advance of the CRD’s development of a form.
If your business is confronted with an employee or employees seeking time off under these provisions, contact your employment attorney to discuss your rights and responsibilities.
The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.
Non-Compete Agreements Made in Another State May Be Enforceable in California
Recently, in Draftkings Inc. v. Hermalyn, a decision of the United States Court of Appeals for the First Circuit, held a noncompete agreement entered into by Michael Hermalyn, a New Jersey resident employee of the Massachusetts-based employer DraftKings Inc. was enforceable even though Hermalyn moved to California, where such agreements are unenforceable under California law.
Hermalyn quit his job with DraftKings to take a similar job with a rival, Fanatics’ California-based subsidiary, a position that requires him to live and work in Los Angeles. DraftKings and Fanatics (are sports betting and online gaming companies). DraftKings thought Hermalyn’s new post violated a noncompete he had signed before quitting — an agreement that had a Massachusetts choice-of-law proviso and a one-year noncompete clause. So DraftKings sued him in Massachusetts federal court for breach of the noncompete. Among other causes. There appeared to be universal agreement, if the non-compete is enforceable, Hermalyn breached it by joining Fanatics.
DraftKings asked the district judge to use Massachusetts law and Hermalyn requested that the Judge use California law. Siding with DraftKings, the judge after using Massachusetts law — ruled the non-compete enforceable and preliminarily enjoined Hermalyn from competing against DraftKings in the United States for one year. Hermalyn filed this interlocutory appeal that made two alternative arguments. The first is that the judge wrongly held that Massachusetts law governed the enforceability of the noncompete. The second is that if Massachusetts law does govern, then the judge should’ve excluded California from the preliminary injunction’s scope. The Appellate Court rejected both of Hermalyn’s arguments.
Even though California’s law asserts that the location of the signing of the contract is not relevant, the Court of Appeals relied heavily on the fact that Hermalyn was a New Jersey resident (not California resident) when he worked at Draftkings and signed the Non-Compete, which called for enforcement under Massachusetts’ law, and then, later, quit to move to California to work for a competitor. Consequently, it ruled Massachusetts law applied and affirmed the enforceability of the non-compete provision.
California and Non-California employers should consult with business legal counsel when evaluating whether to take legal action related to non-competes signed by former employees, especially noncompete agreements signed under the laws of other states.
The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.
