DraftKings v. Hermalyn — Trade Secrets

The First Circuit enforced a Massachusetts noncompete against an executive who fled to California, holding that moving to a noncompete-banning state does not automatically defeat another state's law.

For years, the conventional wisdom among departing executives was simple: if your noncompete is a problem, move to California, where noncompetes are largely void, and let the Golden State’s policy shield you. DraftKings Inc. v. Hermalyn, 118 F.4th 416 (1st Cir. 2024), complicates that escape plan. When a senior DraftKings executive resigned, signed on with a California-based rival, and argued that California’s noncompete ban freed him, the First Circuit was unmoved. It affirmed a preliminary injunction enforcing his Massachusetts noncompete—nationwide, California included—holding that relocating to a noncompete-hostile state does not automatically dissolve another state’s competing interest in enforcing the bargain an employee struck.

At a glance

Case: DraftKings Inc. v. Hermalyn, No. 24-1443, 118 F.4th 416 (1st Cir. Sept. 26, 2024).
Court: U.S. Court of Appeals for the First Circuit; panel of Judges Kayatta, Thompson, and Montecalvo.
Posture: Interlocutory appeal from a preliminary injunction entered by the U.S. District Court for the District of Massachusetts.
Holding: Massachusetts law governed the noncompete under the parties’ choice-of-law clause; California’s policy did not override it because Hermalyn failed to show California had a “materially greater” interest, and the injunction—reaching California—was properly entered.
Significance: Confirms that moving to California does not mechanically defeat an out-of-state noncompete; the choice-of-law inquiry is functional and fact-driven.

The facts: a high-value defection to a rival

Michael Hermalyn was a senior executive at DraftKings, the Boston-headquartered sports-betting company. His employment agreements contained noncompete and confidentiality covenants and a Massachusetts choice-of-law provision. Hermalyn left to join a California-based subsidiary of rival Fanatics, relocating to Los Angeles to take a leadership role in the competitor’s sports-betting business. Before and around his departure, DraftKings alleged, he accessed sensitive confidential materials.

DraftKings sued in Massachusetts federal court and won a preliminary injunction enforcing the one-year noncompete. Hermalyn appealed on two theories. First, he argued the district court was wrong to apply Massachusetts law instead of California’s, which would have voided the noncompete outright. Second, he argued that even if Massachusetts law governed, the injunction should have carved out California, where the restriction is unenforceable as a matter of state policy. The First Circuit rejected both.

The choice-of-law framework: a functional, three-part test

The court applied a functional analysis to decide whether the parties’ Massachusetts choice could be displaced by California’s policy. The decisive question was whether California’s interest in voiding the noncompete was “materially greater” than Massachusetts’s interest in enforcing it, and whether honoring the Massachusetts choice would contravene a fundamental California policy that would otherwise control.

The panel concluded Hermalyn had not carried that burden. Both states have spoken on noncompetes through legislation, and a court is not in the business of ranking which state’s policy is more “fundamental” or “compelling.” Massachusetts, the court noted, enacted its 2018 Noncompetition Agreement Act, a deliberate reform narrowing—but not abolishing—enforceable noncompetes. That reform signaled a considered state policy in favor of enforcing reasonable restrictions, narrowing the gap between Massachusetts and California rather than leaving Massachusetts as an outlier. Against that backdrop, California’s contrary rule did not reflect a materially greater interest sufficient to override the parties’ bargained-for choice of Massachusetts law.

Why the injunction reached into California

Having upheld Massachusetts law as the governing rule, the court turned to geography. Hermalyn urged that the injunction at least exclude California, so he could compete there even if barred elsewhere. The panel refused. The whole point of the one-year restriction was to keep Hermalyn from using DraftKings’s relationships and confidential knowledge to benefit a direct competitor; given his customer-facing and relationship-driven duties, carving out California—precisely where his new employer was based and where he intended to operate—would have gutted the remedy. A noncompete riddled with a hole at the defendant’s chosen location protects nothing. The court therefore affirmed the injunction’s broader scope as a reasonable exercise of the district court’s equitable discretion.

The result is not that California’s ban is meaningless. It is that the ban operates through a choice-of-law analysis that a relocating employee must actually win, not invoke by reflex. Where a valid out-of-state choice-of-law clause exists and the home state has its own legitimate enforcement interest, simply landing in California will not flip the switch.

Open questions

How far does this extend beyond Massachusetts? The court leaned on Massachusetts’s 2018 statute as evidence of a serious enforcement policy; states without comparable legislation might fare differently in the “materially greater interest” weighing.
Would a California-filed suit change the outcome? Hermalyn litigated in Massachusetts federal court. Whether a California court applying its own conflict rules and public-policy statutes would reach the same result remains untested here.
Does the preliminary posture limit the holding? The ruling came on a preliminary injunction reviewed for abuse of discretion; a full merits record could sharpen or shift the analysis.

Implications

Choice-of-law clauses have teeth. A well-drafted Massachusetts (or other home-state) choice-of-law provision can survive an employee’s relocation to a noncompete-banning state.
Relocation is not a magic bullet. Moving to California does not automatically void an out-of-state noncompete; the employee must prevail on a functional, multi-factor analysis.
Reform statutes cut both ways. Massachusetts’s 2018 Act, by legitimizing reasonable noncompetes, strengthened the state’s claim that its enforcement policy deserves respect.
Scope follows purpose. Courts will resist carve-outs that would let a defendant compete precisely where the restriction matters most, including the rival’s home turf.
Forum and timing matter. This was a Massachusetts-forum, preliminary-injunction decision; employers and employees should weigh where suit is filed and how early the fight occurs.

Frequently asked questions

Did moving to California free Hermalyn from his noncompete? No. The First Circuit affirmed a preliminary injunction applying Massachusetts law and enforcing the noncompete, including in California. The court held that Hermalyn failed to show California’s policy against noncompetes was a “materially greater” interest than Massachusetts’s interest in enforcing the agreement he signed.

Why did Massachusetts law govern instead of California’s noncompete ban? The parties’ contract chose Massachusetts law. Under the functional choice-of-law analysis, California’s ban could override that choice only if California had a materially greater interest and applying Massachusetts law would offend a fundamental California policy. The court found that test was not met on this record.

Does this mean California’s noncompete ban can always be avoided? No. The ruling is fact-specific and arose at the preliminary-injunction stage. California has a strong policy against noncompetes, and a different employee, contract, or set of facts could produce a different result. The case shows the analysis is functional, not automatic.