First Circuit Court Enforces DraftKings Non-Compete Clause Despite California Relocation

Legal battles within the gambling industry often hinge on nuanced contractual disputes, and the recent case involving DraftKings and its former executive Michael Hermalyn is a prime example. The US Court of Appeals for the First Circuit recently upheld the enforcement of a non-compete clause against Hermalyn, despite his relocation to California—a state that generally prohibits such agreements. In a determined effort to prevent Hermalyn from joining Fanatics Sportsbook, a direct competitor, DraftKings invoked the Massachusetts law specified in their contract, which allows for non-compete clauses under certain conditions. Hermalyn argued that California’s laws should apply due to his residence, emphasizing the state’s strong stance against restrictive covenants. However, the district court sided with DraftKings, narrowing the non-compete to cover the US instead of globally. Hermalyn’s appeal was ultimately quashed, reaffirming Massachusetts’ right to uphold its contract laws.

This ruling underscores the importance of well-crafted contractual terms and choice-of-law clauses, particularly in industries as competitive as online gambling. The First Circuit’s decision emphasized that Massachusetts’ interest in enforcing its own contract laws outweighed California’s policy against non-competes. The judges noted that Hermalyn’s work for DraftKings was not based in California and

This ruling underscores the importance of well-crafted contractual terms and choice-of-law clauses, particularly in industries as competitive as online gambling. The First Circuit’s decision emphasized that Massachusetts’ interest in enforcing its own contract laws outweighed California’s policy against non-competes. The judges noted that Hermalyn’s work for DraftKings was not based in California and that any potential contractual breach would impact Massachusetts. Despite Hermalyn’s ongoing legal battle in California, where a local judge hinted at possible success in invalidating the agreement, the First Circuit’s decision remains effective nationwide. Both parties have paused the federal case with an eye towards a potential settlement, signifying a possible end to an expensive and drawn-out legal conflict.

With this enforcement, the gambling industry gets a clear message on the significance of jurisdiction in non-compete agreements. By respecting the terms of their original contract, the court has set a precedent that could influence similar disputes in the future. This has broader implications for how companies like DraftKings can protect their interests when executives decide to jump ship to competitors. Given this context, it’s more important than ever for industry leaders to ensure their contracts are meticulously drafted, with a keen understanding of the laws governing different states.

On the flip side, for executives