Non-Compete Clauses – What are your options?

In our many years of practising law here at ZELLER & SEYFERT, we have represented clients covering many facets of Employment Law and one such facet of which are regularly asked to fight on behalf of our clients is in disputes over non-compete or non-competition clauses. Such clauses are common in the modern corporate world but the details and laws governing their implementation in any given scenario are not always clear. We would like to take this opportunity to provide some insight into non-compete clauses here in Germany and how they may be applied to your situation.

Non-Compete clauses in Germany

As is the case as in the rest of the world, the purpose of a non-compete clause in Germany is to prevent an employee from taking the knowledge or contacts they have made in a certain role or industry and using them to either join another competing firm or to start their own enterprise in direct competition to their former employers. The wording of the clauses will vary from case to case but, generally, they will define the scope of what the employer considers to be the competition, the details of the remuneration and the penalties involved, should the employee breach the agreement.

The governing laws surrounding non-compete clauses will, of course, vary from country to country but here in Germany, there are several basic tenants which will apply to most, if not all, agreements. These tenants are as follows:

• An agreement must be confirmed in writing, with both parties providing their consent by means of a signed document. This agreement should provide as much detail as is possible or necessary.

• The agreement shall not last for a period longer than 24 months, with agreement taking effect as soon as their employment agreement has been dissolved or ended.
• The employee shall be entitled to 50% of their gross pay (usually calculated from the employee’s average recent salary) for the above period, inclusive of additions such as bonuses or commissions. This payment is referred to in German as the Karenzentschädigung.

The above covenants may seem relatively straight forward, but they are also highly important to make clear. We at ZELLER & SEYFERT deal extensively with queries from high level clients in the Expat community here in Germany and many companies, especially those based in foreign countries, fail to offer their employees the above financial and/or time based conditions when crafting their non-compete agreements. Sometimes this is done with malicious forethought, other times simply due to ignorance of the laws, but, in either case, the former employee’s rights are being infringed.

What happens in case of my breaching of the non-compete clause?

This, as you would expect, is highly inadvisable. As above, penalties are usually predefined in the terms of the agreement and, if the employee breaches the set stipulations of the contract, they will generally be liable for the penalties. More than that, the employer would then not be liable for the period of the violation, meaning you may forfeit the Karenzentschädigung payments, as well as pay whatever penalties were introduced. A better idea is to attempt to break or change the agreement before violation.

Can I get out of my non-compete clause?

The million-dollar question, sometimes even higher, and difficult to answer with a simple yes or no. As ever, any decision made by the courts will depend on the individual circumstance of the case. Generally, the option to break a non-compete covenant with an employer will revolve around the scope or the agreement and whether the agreement limits the future working opportunities of the employee.

Regarding the scope of the agreement, there are a couple of important aspects to take into consideration. The first is that there must be a legitimate business interest for the employer to for the non-compete to be valid. According to a Federal Labour Court judgement (BAG of 07.07.2015, case no.: 10 AZR 260/14), the mere restriction of trade is not considered a good enough reason to enforce a non-compete clause, the employee must have specific “insider information” or very specific specialist knowledge regarding the company they are leaving,to justify its implementation.

Additionally,to quote an earlier judgement (BAG of 21.04.2010, case no.: 10 AZR 288/09 – margin no.16) regarding the same topic “There must be a connection between the content and scope of the prohibition and the employee’s previous function or activity”. Essentially, the employer would be required to make and prove a connection between the knowledge of the employee and the possible detrimental effect on their business.

The idea that an employer must have legitimate and specific reasons for enforcing a non-compete clause is further highlighted in relation to the German Commerce Code. Should the employer insist on a broadly worded and unspecific non-compete agreement, it could be seen as simply attempting to remove this employee from the talent pool, therefore limiting their future employment opportunities. Once again, a non-compete agreement should be there to protect a business’ interest relating to specific knowledge and practises and not to simply remove the possibility of an employee working in the same industry again for a 24-month period.

You may, of course, be reading the above and be thinking ‘This is quite subjective’ and you would be correct. As mentioned previously, the validity of a non-compete clause will depend pretty much entirely on the circumstances. An expert opinion on your specific scenario is a must and we at ZELLER & SEYFERT would love to the ones to provide it.

I feel like my non-compete clause is invalid. What are my options?

Should you feel that the non-compete is no longer valid, is restricting you unnecessarily in the job market or has simply run its time, there are a few options open to you.

The first is to contact the employer to get their views. It could be that they actually agree with you and are willing to rescind the agreement. At this stage, another agreement would be drawn up, signed by both parties and consigned to history.

Should the employer refuse to this request, it would be highly advisable to seek an expert opinion, to see exactly what options are available to you. Our Employment and Labor Law specialist Atty. Dr Christian Zeller has successfully handled many such cases in front of all competent German Labor Courts and would love the opportunity to fight your corner. He can be reached by telephone on (+49 (0) 30 40 36 785 80) or by email at mail@zellerseyfert.com. Our complete contact form can be found here.