In a significant legal battle over non-compete agreements, the First Circuit Court of Appeals is scrutinizing a former DraftKings executive’s attempt to join rival company Fanatics, despite his non-compete agreement. Michael Hermalyn, the former VP of marketing at DraftKings, is challenging the enforceability of his non-competition clause, a case with broader implications for employment law and corporate practices.
Judge’s Skepticism Puts Non-Compete Agreement Enforcement in the Spotlight
During oral arguments, Judge O. Rogeriee Thompson highlighted the conflict between California’s employee-friendly labor laws and Massachusetts’ business-protection policies. Hermalyn argues that his relocation to California, where most non-compete agreements are prohibited, should protect him from restrictions imposed by Massachusetts law. However, Judge Thompson expressed doubt, questioning why California’s policies should override Massachusetts’, where DraftKings is headquartered, as reported by Bloomberg Law.
Further complicating the case, DraftKings accused Hermalyn of downloading confidential information and client files before his departure. If Hermalyn prevails, it could create a loophole for employees to circumvent contractual obligations by relocating. DraftKings’ representative, Thomas Dupree Jr. of Gibson, Dunn & Crutcher LLP, warned this could set a dangerous precedent, allowing exploitation of state law differences to nullify non-compete agreements.
On the other hand, Hermalyn’s attorney, Christopher Michel of Quinn Emanuel Urquhart & Sullivan LLP, argued that California laws were designed to attract more employees and should be respected. Michel contended that each case should be evaluated individually, considering the policies and interests of the states involved.
Divergent Approaches of Massachusetts and California Courts in Non-Compete Case
Despite Hermalyn’s efforts, a federal district judge ruled against him in April, preventing him from working with competitors. This decision was based on the fact that Hermalyn’s contract explicitly stated it would be governed by Massachusetts law, regardless of his subsequent move to California.
In a related development, the Los Angeles Superior Court recently ruled in Hermalyn’s favor, acknowledging his California residency. This court denied DraftKings’ motion to dismiss the case and allowed Hermalyn to proceed with his lawsuit but did not issue an injunction to block DraftKings from enforcing the non-compete clause, citing ongoing proceedings in Massachusetts.
The California court noted that Hermalyn appeared likely to win on the merits of his lawsuit but stated this did not resolve the broader legal conflict between the two states. An expedited trial is scheduled for August 27, 2024, to determine the enforceability of the one-year employment ban.
DraftKings contends that Hermalyn’s move to California and his new job at Fanatics were strategic attempts to evade his contractual commitments. The company plans to appeal the California ruling, arguing that the state has no substantial connection to the case and that Massachusetts’ interest in protecting its businesses should take precedence.