Contractual and post-contractual non-compete obligations - when does an employee's obligation to refrain from competition end?

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During the term of the employment relationship, employees are legally obliged to refrain from competition; this obligation ends when the employment relationship ends. If a post-contractual non-competition clause has not been agreed, an employee may prepare to set up their own company or join a competitor company before the end of the employment relationship. A claim for injunctive relief only arises if the former employee has engaged in unfair business practices and this remains an ongoing risk. This was decided by the Mecklenburg-Vorpommern Regional Labour Court (LAG) on 27 June 2023 (case no. 2 Sa 17/23).

 

The case

The plaintiff employer operates an assisted living facility. The two defendant employees were employed as facility managers. After the relationship between the employer and the defendant employees deteriorated, the defendant employees concluded a partnership agreement to establish their own care facility and subsequently terminated their employment relationship with the employer. At the same time, 13 other employees terminated their employment with the employer. 73 care relationship agreements with the employer's clients were terminated by letters from the defendant employees' lawyers and transferred uniformly to the employees' new care facility. The employer then filed a lawsuit and claimed, among other things, an injunction against anti-competitive behaviour and a declaration of liability for damages.

 

The decision

The LAG dismissed the employer's claim.

During the employment relationship, employees are legally obliged to refrain from competition and may not compete with their employer. The plaintiff employer did not succeed in demonstrating that the defendant employees had poached its employees and clients in an anti-competitive and planned manner during the term of their employment relationship.

With the end of the employment relationship of the defendant employees, their obligation to refrain from competition ended. As a post-contractual non-competition clause was not agreed with the defendant employees, the defendant employees were able to compete with their former employer. In principle, employees can use the experience they have acquired during their employment relationship and can also contact the employer's customer base.

A claim to cease and desist competition could therefore only have been made in accordance with the general statutory provisions for protection against unfair competition. Such a claim presupposes that unfair means are used (eg an induced breach of contract). However, the LAG was unable to establish that the defendant employees had engaged in unfair business practices and that there was a risk of any such practices being repeated. Poaching a competitor's employees is generally permitted as part of free competition.

 

Practical advice

With its decision, the LAG has confirmed previous case law: During the employment relationship, there is a statutory duty to refrain from competition. This obligation ends at the end of the employment relationship, although employees can also take preparatory steps during the employment relationship.

The decision of the LAG shows that employers - without additional contractual agreement - cannot effectively prevent former employees from engaging in authorised poaching. If employers want to comprehensively protect themselves against acts of competition even after the end of the employment relationship, post-contractual non-solicitation and non-competition clauses must be agreed.

Post-contractual non-competition covenants are essential, particularly in the case of employment relationships with employees who have special operational knowledge or close customer relationships.

A post-contractual non-compete clause is subject to strict legal requirements under German law. For example, the employer and employee must provide for the payment of compensation for non-competition that is at least half of the employee's last monthly contractual remuneration for the duration of the non-competition clause. The post-contractual non-competition clause must also be limited to a maximum of two years.

In practice, employers should carefully examine whether a post-contractual non-compete clause is necessary in individual cases, taking into account the financial burden, and how it should be structured for the purpose of legal enforceability. Alternatives to consider are post-contractual non-solicitation clauses without compensation or extended notice periods.