Competition and Enticement
What is a Non Competition Agreement?
Non compete clauses are fairly standard entries into modern employment contracts yet the multitude of applicable laws surrounding non compete agreements make their applicability and legality a very complicated subject indeed. Their function is to prevent an employee who is leaving the company from harming their soon to be ex employer by taking company secrets, contacts and/or clients to another company, who may be in direct competition. The employer will be required to offer incentives to the employee, to prevent said employee from taking employment with a competitor or starting their own enterprise in this field. In Germany, the standard amount of reimbursement is 50% of the gross salary, with the contract not being able to run for longer than a 24 month period.
If all aspects of the non compete clause are agreed upon and satisfy the requirements of both parties, then the agreement will run smoothly. Quite often, however, the two parties find themselves in dispute over the terms of the non compete clause. This can range from disagreements over the fine print of the non compete clause to larger scale disagreements, such as unreasonable terms or being tricked into signing. If both parties find themselves at an impasse regarding the terms, the case may proceed to litigation. ZELLER & SEYFERT specialize in such litigation.
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Disputes over non-competition agreements
Disputes over non-compete agreements are usually highly complex cases. In addition to the provisions of the employment contract (as an expat in Germany, managerial employee, executive, director, officer or board member) there is generally always a further statutory German Law which can play a crucial role: Take on the one hand the German Commercial Code (Handelsgesetzbuch – HGB), the German Limited Liability Companies Act (GmbH-Gesetz – GmbHG), the German Stock Corporation Act (Aktiengesetz – AktG), the German Cooperative Act (Genossenschaftsgesetz – GenG). On the other hand, there is statutory law against Unfair Competition (UWG) which can also affect the dispute.
Contractual non competition agreements
In general, two types of disputes over noncompetition agreements can be distinguished under German Employment Law: Those relating to an ongoing employment and those that arise after an employment contract has ended. In the former case, the dispute will frequently also cover the question whether the competition related violation may be a valid cause for a termination of the employment contract. The employing business will usually demand cease and desist and will further claim damages for the violation. Further, the business may also claim to take over the competitive contract in its own name.
Post-contractual non competition agreements
The latter case refers to post-contractual non-competition clauses, on which it is often agreed on in a separate agreement concluded together with the employment contract. The crucial aspect with such non-competition agreements is their effectiveness: Where there is no waiting allowance of at least 50 % of the last remuneration for up to two years, the agreement is not binding for the employee. In addition, there are several other compulsory conditions for the effectiveness of a non-competition agreement under German Employment Law. Surprisingly, one or more of them are often not adhered to in the treaty practice and thus can provide a reason to take action against the agreement. In many cases, this leaves the employee with the free option, to either keep the agreement (and earn the allowance) or to cancel the non compete agreement and enter into competition with his former employer.
As mentioned above, non competiton agreements in employment contracts are a tricky area to navigate. Should you feel that any area of your non compete agreement is invalid or non binding, it is important to get independent legal advice from experts in this field. We at ZELLER & SEYFERT would welcome the opportunity to assist.
Enticement of customers and remedies
Where the employee either wants to earn the allowance or wants freedom from the competition restriction, the perspective of the employer is under German Law as follows: He does not want to (permanently) lose his former customers. Further, he wants to eliminate the new competitors or at least impede their market presence as much as is possible. An oft trodden path, therefore, is to use all measures of German Employment and Competition Law within reach combined: This means action on the basis of the contractual agreement in connection with the HGB, GmbHG, AktG or eG – directed to cease and desist orders and damages. Simultaneously, the violation can be warned and then pursued with interim relief and, later, in the main proceedings on the basis of competition law (UWG). Calculations behind such an approach are that – even if the measures taken are not entirely successful – the new competitor will be very “busy” with the defense, as well as having to face substantial financial risks. This will often reduce the actual competitiveness of the new competitor significantly.
Employment Lawyer in Germany
Our Employment Lawyers will take care of your German Employment Law affairs. They are experienced in enforcing a non-compete agreement for your business or defending you against cease and desist claims and damage claims from opponent parties. At the overlaps of German Employment Law and Corporate Law, Attorney Dr. Christian Zeller will provide you with vigilant and persistent courtroom representation – before all Employment Courts throughout Germany.
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