Post-contractual non-compete clauses for employees - what should be considered?

In the modern working world, post-contractual non-compete clauses are a frequently used means of protecting companies from the exploitation of confidential information and customer relationships by former employees. These clauses, which are often part of employment contracts, are intended to prevent employees from competing directly with their former employer after leaving the company. But how must such non-compete clauses be structured in order to be legally effective? The Federal Court of Justice recently clarified the requirements for the effectiveness of such prohibitions (for managing directors) in its ruling of April 23, 2024 (case reference: II ZR 99/22). Due to the topicality of the case, in the first part of this two-part series of articles we will take a look at the legal requirements for post-contractual non-compete covenants for employees, and in the second part at the requirements for such covenants for managing directors.

Requirements for an effective post-contractual non-compete clause for employees

• Written form: The post-contractual non-compete clause must be in writing and signed by both parties (Section 74 HGB). An email is not sufficient.
• Compensation for non-competition: The employee must be paid appropriate compensation for the duration of the non-competition clause. This so-called compensation for non-competition generally amounts to at least 50% of the last contractual benefits received (Section 74 (2) HGB).
• Maximum duration: A post-contractual non-competition clause may be agreed for a maximum of two years after termination of the employment relationship. Longer periods are invalid.
• Transparency: The non-competition clause must be formulated clearly and comprehensibly. It must clearly specify the geographical areas (e.g. countries) and business sectors (e.g. industries) in which the non-compete clause applies. Clauses that are unclear or too broad can easily be challenged.

Practical tips

In practice, post-contractual non-compete clauses are often a sensitive issue, particularly in the context of termination agreements. They carry enormous economic weight and can have considerable financial consequences for both the employer and the employee.

An alternative strategy, which can prove more beneficial in many cases, is to agree a longer notice period. For example, notice periods of three or six months to the end of the month or even to the end of the quarter can be agreed. As a result, this option can often be more favorable than a 12- or 24-month post-contractual non-compete clause.