Employee can't get out from under a Massachusetts noncompete clause just by taking a job in California, which generally bars them, court rules

A New Jersey man who quit a job with Boston-based DraftKings to move to Los Angeles for a job with one of its online-betting archrivals, only to get sued by his former employers under the Massachusetts noncompete law, will have to make his case under Massachusetts law rather than California law, a federal court ruled yesterday.

The ruling is significant in the case because while California frowns on employee noncompete agreements, Massachusetts finds them acceptable for most employees - as noted in the contract Michael Hermalyn agreed to when he took what the court concluded was "a plum job" with DraftKings, before quitting for a presumably even plummier job in Los Angeles with DraftKings rival Fanatics.

According to the court summary, after Hermalyn jumped to Fanatics, DraftKings sued him in federal court, citing his contract, which not only states he is banned from working for a rival for a year after quitting but that in the event of any legal action, Massachusetts law would apply. Hermalyn then appealed the issue of which state's non-compete law would apply. As the US Court of Appeals for the First Circuit noted in its summary of the case:

Everyone seems to agree (at least for present purposes) that if the noncompete is enforceable, Hermalyn breached it by joining Fanatics. Not surprisingly then, DraftKings asked the district judge to use Massachusetts law and Hermalyn asked her to use California law. Siding with DraftKings, the judge - after using Massachusetts law - ruled the noncompete enforceable and preliminarily enjoined Hermalyn from competing against DraftKings in the United States for one year (she did reject DraftKings's request for a worldwide injunction, however).

In its ruling, the appeals court agreed with the lower-court judge's ruling, saying the suit involves his relationship with the company before he moved to California. And while he lived in New Jersey, "he traveled to Massachusetts for work at least 25 times during a 2 1/2-year stretch before leaving for Fanatics" and never spent any time working in California.

The court noted the nearly decade-long debate in Massachusetts that ended in 2018 with the passage of a new law that, rather than mimicking California's approach, simply tightened some restrictions on noncompetes here, such as banning them for workers who were laid off or under 18 and limiting the length of any such contract clauses to one year.

Given this tableau - involving (among other features) two states passing laws reflecting different but careful balances of conflicting forces in the noncompete area (after the usual push- and-pull of politics), with Massachusetts opting not to mimic California's ban and instead generally allowing noncompetes for higher-level employees like Hermalyn (who unlike lower-level employees often have business-sensitive info and deep ties with company customers) - we can't say that Hermalyn has shown (as he was required to do) that California's "interest" in pursuing its policy is not just "greater" than Massachusetts's, but is "materially" so.