Post-contractual non-compete clauses - What applies to managing directors?

After leaving the company, managing directors are generally under no significant obligation to avoid disadvantages for the company. Post-contractual non-compete covenants are therefore highly relevant for the protection of special knowledge and insights into the company's business secrets. In the second part of our series of articles on post-contractual non-compete covenants, we therefore look at the requirements for such covenants in the case of managing directors. In the absence of statutory provisions, non-compete covenants vis-à-vis board members (= managing directors) are subject to strict requirements and case law maintains a narrow scope of application. In view of the ruling by the Federal Court of Justice on April 23, 2024 (case reference: II ZR 99/22), the requirements have become more specific. New findings have emerged, particularly with regard to the obligation to promise compensation for non-competition.

Requirements for an effective post-contractual non-competition clause for managing directors

• Important: The catalog of §§ 74 ff. HGB does not originally apply to managing directors. Managing directors as board members are not as worthy of protection as employees.
• Written form: There is therefore no written form requirement. Nevertheless, it is advisable to record subsequent non-competition clauses in writing in the employment contract.
• Duration: As a rule, up to two years is appropriate. Longer periods must be justified by a special interest.
• Scope of application: A geographical scope of application must be defined which is limited to the company's activities. This also includes the area to which the company intends to extend.
• Subject matter: Not every activity for competing companies may be prohibited. Rather, the agreement must be limited to the relevant business activity.
• Compensation for non-competition: Non-competition covenants without compensation are not unfair per se and, above all, are not immoral. The amount can be freely agreed (freedom of design).
• Retroactive termination in the event of a breach: Agreements that lead to the retroactive termination of non-compete compensation in the event of a breach of the non-compete clause are effective and do not constitute an unfair burden.

Practical tips

In summary, there are also a number of hurdles for companies with regard to post-contractual non-compete clauses for managing directors. Above all, the focus should be on drafting the prohibition in a transparent and careful manner.

Despite the lack of an obligation, compensation for non-competition generally serves to compensate for significant disadvantages and can extend the limits of fairness. The more intensively the post-contractual non-competition clause interferes with the interests of the managing director, the more difficult it is to justify it without compensation. Particularly in the case of a longer duration of the prohibition, appropriate compensation may even be necessary in order to be able to safely assume an effective post-contractual non-competition clause.

Co-Author: Hafssa Achourak