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.