First Circuit Court Enforces DraftKings Non-Compete Despite California Move

The US Court of Appeals for the First Circuit just backed the enforcement of a non-compete deal between DraftKings and Michael Hermalyn, a former executive even though he moved to California. 

Court Battle in DraftKings Case Shows Impact of Choice-of-Law Clauses

The case, DraftKings Inc. v. Hermalyn, shows how strong well-written contract terms can be choice-of-law clauses, in deciding which state’s laws apply to restrictive agreements.

The legal battle began when Hermalyn quit his job at DraftKings to work for a rival, Fanatics Sportsbook, in California. DraftKings based in Massachusetts, tried to enforce the non-compete clause in their contract, which stated that Massachusetts law would govern. This caused a big problem because California does not allow non-compete agreements, while Massachusetts permits them under certain rules, including a one-year limit unless the employee has done something wrong.

DraftKings said Massachusetts law should govern the agreement because both sides had agreed to it. Hermalyn argued for California law pointing to where he lived and the state’s strong stance against non-competes. The district court sided with DraftKings. It enforced the one-year non-compete but narrowed its reach to cover the US instead of the whole world. Hermalyn challenged this ruling. He wanted to apply California law or keep California out of the injunction’s scope.

First Circuit Upholds Nationwide Enforcement of DraftKings Non-Compete

In September 2024, the First Circuit Court backed the district court’s decision. It determined that Massachusetts law applied to the agreement. The court decided California’s policy did not outweigh Massachusetts’ interest in enforcing its own contract laws. The judges reasoned that Hermalyn worked for DraftKings outside California. They also noted that any harm from breaking the non-compete would affect Massachusetts. The court also rejected Hermalyn’s use of an earlier Massachusetts case. It pointed out that this case came before the state’s 2018 Noncompetition Agreement Act.

Although Hermalyn started a separate lawsuit in California where a judge hinted he might succeed in nullifying the agreement, the First Circuit’s ruling remains in effect.

This decision enforces the non-compete across the nation, including California.

As the court cases go on, signs point to both parties talking about a possible settlement. This could end the expensive legal fight. Hermalyn and DraftKings have agreed to pause the federal case until November 20, 2024. This date comes just after a planned one-day trial in California that could further affect how the case turns out.