Post-contractual noncompetition agreements – both a blessing and a curse
By Prof Dr Renate Dendorfer-Ditges, DITGES PartGmbB
Clients frequently ask for legal advice regarding post-contractual noncompetition agreements included in employment contracts. There are strict regulations which must be considered according to German law.
In general, an employee has no duty to refrain from any competition vis-à-vis the former employer. In order to create such duty, a post-contractual non-competition agreement must be reached in accordance with Sec. 74 et seq. of the German Commercial Code (Handelsgesetzbuch; HGB).
The statutory requirements are as follows:
(i) Such agreement must be in writing (Sec. 74 para. 1 HGB)
(ii) The agreement may not last longer than two years, calculated from the end of the employment contract (Sec. 74a para. 1 HGB)
(iii) The extent of the prohibition to compete vis-à-vis the former employer must explicitly be described.
(iv) The employer must pay mandatory compensation in the amount of at least 50% of the last average salary. The compensation has to be paid monthly – like salary – for the duration of the non-competition period. Further income has to be considered under certain circumstances.
The employer can waive the postcontractual non-competition agreement until the last day of the employment relationship. However, the duty for compensation is maintained for one year following expiration of the employer’s waiver.
If the employment ends during this period, the employer has to pay compensation although there is no obligation not to compete.
Non-competition agreements are a blessing for employers, because the undesirable transfer of expertise and sensitive information can be stopped for a certain time period after the end of employment, but also a curse because they are often used by employees as an argument for increasing the settlement compensation after termination of the employment relationship.
Prof Dr Renate Dendorfer-DitgesDITGES PartGmbB Rechtsanwälte Wirtschaftsprüfer Steuerberater, Bonn, Germany
T: +49 228 6046010
Prof Dr Renate Dendorfer-Ditges is partner at DITGES PartGmbB, admitted to the German and New York bars. Her expertise covers all areas of dispute resolution, especially arbitration and mediation.
DITGES is a well-established law firm in Bonn. DITGES offers strong expertise in the areas of bank law, tax law, corporate law, labour and employment as well as for all methods of dispute resolution.
Published: October 2016 l Photo: Robert Kneschke - Fotolia.com