Ex-DraftKings VP’s Fight Against Non-Compete Clause Hinges on State Laws

In a major legal contest over non-compete agreements, the First Circuit Court of Appeals has questioned the efforts of a former DraftKings executive to work for rival company Fanatics while bypassing his agreement. Michael Hermalyn who formerly was the VP of marketing at DraftKings is fighting against enforceability issues surrounding his non-competition clause which have wider implications for employment law and corporate practices.

Judge’s Skepticism Raises Questions Over Non-Compete Agreement Enforcement

Judge O. Rogeriee Thompson during oral arguments indicated the conflict between California’s labor laws that are employee-friendly and Massachusetts’ business-protection policies. According to Hermalyn, he should be protected by his transfer to California where most non-compete agreements are banned from being subjected to any restrictions imposed by Massachusetts law. However, the judge was skeptical, questioning why California’s policies should override those of Massachusetts, where DraftKings is headquartered, reported Bloomberg Law.

Further complications arose when DraftKings accused him of downloading confidential information and client files prior to quitting. Additionally, if Hermalyn wins this case honoring Massachusetts laws instead of California ones this will create a loophole for employees seeking ways around contractual obligations. DraftKings’ representative Thomas Dupree Jr. of Gibson, Dunn & Crutcher LLP warned that this could set a dangerous precedent, allowing individuals to exploit state differences to nullify non-compete agreements.

Hermalyn’s attorney, Christopher Michel of Quinn Emanuel Urquhart & Sullivan LLP on the other hand argued that by saying that California laws were created to attract more employees and they should be respected. Each case, as per Michel should be treated differently taking into account various policies and interests of the states in question.

Massachusetts and California Courts Take Different Approaches in Non-Compete Case

Despite Hermalyn’s efforts, a federal district judge in April ruled against him, preventing him from working with any competitors. This decision was influenced by the fact that Hermalyn’s contract explicitly stated it would be governed by Massachusetts law, irrespective of his subsequent move to California.

In a parallel development, the Los Angeles Superior Court recently ruled in Hermalyn’s favor, stating that he had established residency in California. This court denied DraftKings’ motion to dismiss the case and allowed Hermalyn to proceed with his lawsuit. However, the court stopped short of issuing an injunction to block DraftKings from enforcing the non-compete clause, citing concerns over interference with the ongoing Massachusetts case.

The California court added that Hermalyn appeared likely to win on the merits of his lawsuit but said this did not settle the broader legal clash between the two states. It scheduled an expedited trial for August 27, 2024, to determine whether the one-year employment ban would be enforced.

DraftKings has argued that Hermalyn’s move to California and his new job at Fanatics were designed as a way around his contractual commitments. The firm intends to appeal against this ruling from California claiming that the state has no substantial connection to the case and that Massachusetts’ interest in protecting its businesses should prevail.