Considerations in Challenging a Potentially Invalid Non-Compete Agreement

In the government contracts arena in the D.C. metropolitan area, agencies can change contractors and staff in a way that disrupts the plans of companies and their personnel.   Individuals often find themselves cut off from a project while still bound by non-competes and other contractual restrictions on their mobility. Nevertheless, employees can often, if careful, successfully navigate these situations through the legal process. If the non-compete is too restrictive and broad, it can be challenged in court if the company refuses to release the worker from the agreement. Among other things, a declaratory judgment action can be filed to determine the non-compete’s enforceability.

In a recent case before the Washington DC Federal District Court, a contractor, Denis Mittakarin, sought to leave his company, InfoTran Systems, Inc. to work directly for the US Citizenship and Immigration Services (USCIS), despite a non-compete agreement between himself and InfoTran. Mittakarin v. InfoTran Systems, Inc., et al. 2012 U.S. Dist. LEXIS 4793 (D. D.C. January 17, 2012).

Mittakarin worked for InfoTran under an Independent Contractor Agreement from April 20, 2009 until November 16, 2010 when Computer Sciences Corporation terminated InfoTran’s contract on USCIS projects, therefore cutting Mittakarin off from continuing work. When Mittakarin learned of this, he sent several emails to InfoTran’s president asking that he be released from the non-compete, which the president refused to do. Mittakarin then filed a declaratory judgment action arguing that since InfoTran had been cut off from the USCIS contract, the non-compete with Mittakarin was no longer necessary to protect InfoTran’s business or goodwill, thus rendering it legally invalid. He also claimed the InfoTran’s efforts to enforce the agreement were unlawful, entitling him to damages.

InfoTran opposed the declaratory judgment action, and both parties filed summary judgment motions, which the judge denied. However, before the case could go to trial, the time-limit of Mittakarin’s non-compete was set to expire, thus rendering any judgment moot. Accordingly, Mittakarin moved for dismissal of his claims, which the court granted.

In so doing, Mittakarin effectively protected himself from exposure to legal liability under the non-compete.  This strategy was not without risk, as the court could have required him to pay InfoTran’s legal expenses under Federal Rule of Civil Procedure 41(a)(2) if it had found that Mittakarin had caused InfoTran to unnecessarily incur the cost of defending the lawsuit. Courts frequently grant defendants fees and costs in voluntary dismissals. However, the court found an absence of bad faith, and that Mittakarin had reasonably sought judgment on the legality of a non-compete that was preventing him from finding employment in his field of expertise. InfoTran was not granted its attorneys’ fees.  This case demonstrates the potential benefit to employees of seeking a declaratory judgment action instead of proceeding with competition while waiting for their non-competes to expire.