What happens when a senior executive leaves a Massachusetts company, with which he has a non-compete, to go to work for a competitor in California, which forbids most non-competes? This question was front and center when DraftKings’ marketing chief Michael Hermalyn took a similar job at Fanatics in California despite having signed a one-year non-compete with DraftKings.

Mr. Hermalyn’s employment agreement with DraftKings said that it was governed by the laws of Massachusetts. He lived in New Jersey while employed by DraftKings, but he visited DraftKings in Massachusetts at least 25 times for his work.

Mr. Hermalyn established residency in California two days prior to his resignation from DraftKings. When DraftKings sued him to enforce his non-compete, he claimed that his move to California should protect him from his noncompete.

As is often the case with enforcement of non-competes, the controversy also involved allegations of theft of trade secrets. DraftKings said that, starting on the day after his first contact with the CEO of Fanatics, Hermalyn began accessing and downloading a number of highly confidential documents, including one spreadsheet that detailed the compensation of thousands of DraftKings employees and another than described DraftKings’ contracts and hundreds of its current and former business partners.

In addition to the allegation of trade secrets theft, DrafKings alleged that Hermalyn solicited two DraftKings employees and one customer of DraftKings in violation of his employment agreement.

In April 2024, the Federal District Court for the District of Massachusetts considered whether to issue a preliminary injunction forbidding Hermalyn from working for Fanatics. The question of which law applies – that of Massachusetts or of California -- was a threshold issue.

In its memorandum and order, The Court wasted little time concluding the Massachusetts law should apply. Its analysis started with the fact that the lawsuit was brought in Massachusetts, so that state’s conflict of laws principles should apply. Massachusetts conflict of laws principles required the court to consider which state has a greater interest in the litigation. The court found that Massachusetts held a greater interest in this case than California, in part because of Hermalyn’s very brief residency in California before starting work with Fanatics. The court said that it would have applied Massachusetts law even if the employment contract had been silent about the applicable law, which it was not.

Mr. Hermalyn argued that the non-compete was unenforceable under Massachusetts law because it was overlay broad and its world-wide scope was too expansive. His arguments were partially successful: the court agreed that the worldwide scope was too broad, and that it should only be enforceable in the United States.

In considering an application for a preliminary injunction, a court must consider whether the plaintiff is likely to succeed on the merits of its claim. The Court ruled that DraftKings was likely to prevail on its allegations regarding the alleged breach of Hermalyn’s contractual obligations regarding non-competition, non-solicitation of employees and protection of confidential information; and on its allegations of violation of the Defense of Trade Secrets Act. As a result, the Court issued an order of preliminary injunction granting a preliminary injunction forbidding Hermalyn from working for Fanatics or any other competitor of DraftKings for the 12-month period beginning on the date of his resignation from DraftKings; from soliciting any employees of DraftKings to go to work elsewhere for 12 months; and from breaching his nondisclosure agreement with DraftKings.

Mr. Hermalyn has appealed the decision to the First Circuit Court of Appeals. Oral argument was held on July 22, 2024, at which at least one appeals court judge seemed skeptical of Mr. Hermalyn’s argument that California law should apply to his case.

This ruling reinforces the enforcement of non-competition agreements in Massachusetts. It is not clear, however, that the same result will apply in California. In fact, Mr. Hermalyn beat DraftKings to the punch by filing a lawsuit in California state court on February 1, 2024. DraftKings has taken the position that the California courts lack jurisdiction over it. The trial court disagreed and scheduled a trial for late August. However, the trial court proceeding is temporarily stayed while a California appeals court considers the question of whether DraftKings is subject to the jurisdiction of the California courts.

While the final outcome of this litigation is unknown, the uncertainty underscores the importance of Massachusetts employers acting quickly in seeking to enforce non-competes against employees who go to work for competitors in other states.

Special thanks to Erica Nordquist, a summer associate who helped with the research for this article.