As the race to develop cutting-edge AI chips intensifies against a backdrop of geopolitical tension, the once-fluid movement of talent in the technology sector has become a focal point for legal disputes. What was previously a straightforward exchange of expertise now frequently ends in litigation, elevating the drafting of employment contracts to a matter of strategic corporate importance.
California’s Non-Compete Stance: A New Legal Frontier
California has long distinguished itself in its approach to non-compete agreements. While the Federal Trade Commission recently retreated from a nationwide ban, California pressed forward with Senate Bill 699, effective from January 2024 (“SB 699”). This legislation renders non-compete clauses unenforceable, irrespective of where or when the contract was signed. Crucially, SB 699 prohibits employers from attempting to uphold such agreements, “regardless of whether the contract was signed and the employment was maintained outside of California.” In essence, the measure aims to invalidate non-compete provisions that might otherwise be enforceable elsewhere, once an employee establishes residency in California.
DraftKings Inc. v. Hermalyn: A Case Study in Jurisdictional Complexity
The recent case of DraftKings Inc. v. Hermalyn illustrates the complexities at play. DraftKings, headquartered in Boston, sought to enforce a non-compete agreement against a senior executive whose responsibilities spanned New York and Massachusetts. Anticipating legal challenges, the executive relocated to California - a state known for its hostility to non-competes, now reinforced by SB 699. DraftKings, however, relied on a Massachusetts choice-of-law clause in the employment contract, which included a one-year non-compete provision.
The dispute reached the United States Court of Appeals for the First Circuit, which reaffirmed Massachusetts’ general respect for contractual choice-of-law provisions, except where they conflict with the fundamental policy of a state with a materially greater interest. In this instance, the court found that Massachusetts’ interest in protecting corporate assets outweighed California’s policy favouring employee mobility.
California Exceptionalism and Contractual Strategy
California’s prohibition on non-competes is rooted in the belief that employee mobility drives innovation. Courts in the state have consistently invalidated restrictive covenants, and SB 699 now empowers employees to seek damages and attorney’s fees when such provisions are contested.
Nevertheless, the DraftKings outcome demonstrates that careful contractual drafting can limit the reach of California’s legislative ambitions. By anchoring the agreement in Massachusetts law, DraftKings circumvented California’s statutory ban, securing enforcement outside the state. The ruling highlights both the boundaries of California’s extraterritorial influence and the enduring power of choice-of-law clauses in cross-border disputes.
Implications for the Technology Sector
The technology industry thrives on global movement of talent. Engineers relocate from Taiwan to Silicon Valley, executives shift from Europe to Asia, and developers circulate across continents. This mobility generates tension between employers, who seek to protect trade secrets and competitive advantage, and employees, who value the freedom to work, especially in jurisdictions that prioritise mobility.
For multinational companies, the choice‑of‑law clause is no longer a mere standard contractual provision; it is a strategic lever that determines the enforceability of restrictive covenants as talent moves across borders.
Fortior Law’s Expertise in Cross-Border Litigation, Arbitration and Compliance
At Fortior Law, we specialise in cross-border litigation, arbitration and compliance. Our lawyers speak English, French, Georgian, Korean, Mandarin and Russian. To have an initial discussion about your case free of charge, reach out to [email protected] or [email protected].
