On April 30 2014 the Federal Court of Justice(1) overruled a Hamburg Court of Appeal judgment(2) concerning a non-solicitation agreement between two competitors. The Federal Court of Justice held for the first time that Section 75f of the Commercial Code is applicable to non-solicitation agreements and that such agreements are enforceable only in exceptional cases. However, even in exceptional cases, the duration of a (post-contractual) non-solicitation agreement should not exceed two years.
Two competitors had entered into a sales and distribution cooperation. They had also agreed not to poach the other party's employees for the duration of the cooperation and for three years after its termination. The non-solicitation clause provided for a contractual penalty in case of violation. Two-and-a-half years after the sales and distribution cooperation ended, one party enticed two employees away from the other party. The lawsuit which followed concerned whether the party in breach of the non-solicitation agreement was obliged to pay the contractual penalty. The first-instance court dismissed the action, but the appeal court sided with the claimant.
The Federal Court of Justice quashed the Hamburg Court of Appeal judgment and decided that Section 75f is, in principle, applicable to non-solicitation agreements. Section 75f stipulates that agreements between employers not to hire the employees of the other party are not enforceable. However, until now the Federal Court of Justice had not decided whether Section 75f also applied to non-solicitation agreements. The judgment clarified the court's stance on this issue.
The court acknowledged that in exceptional circumstances (ie, when the employers' interests override the employees' interests), it might be warranted to construe Section 75f narrowly and to consider non-solicitation agreements as enforceable. The court gave the following examples as to when these exceptional circumstances might prevail:
- The enticement violates the Act against Unfair Competition; or
- The non-solicitation clause is not the main purpose of an agreement but only an ancillary provision, which takes into account a particular relationship of trust between the parties or a special need of protection of one of the parties.
As to the latter category, the court stated explicitly that a party cannot be disloyally exploited by the other party as a result of their contractual relationship, particularly when the disloyal behaviour was made possible only as a result of the contract. According to the court, such scenarios might apply when parties have agreed on a non-solicitation agreement in the context of:
- M&A due diligence;
- the sale of a company; or
- a sale and distribution cooperation.
In such cases, the non-solicitation clause might therefore be enforceable. However, the court made clear that even in such exceptional cases, the duration of a post-contractual non-solicitation clause should not exceed two years. Thus, the court dismissed the claimant's action since the solicitation occurred two-and-a-half years after the termination of the sales and distribution agreement.
The Federal Court of Justice clarified that non-solicitation agreements are, in principle, within the scope of Section 75f and are therefore unenforceable. However, it also acknowledged that exceptions should apply to this strict rule, especially when the poaching party exploits knowledge that it obtained in the course of its contractual relationship with the other party. In any event, it appears from the court's ruling that even when exceptions are warranted, the maximum (post-contractual) duration of a non-solicitation clause is two years.
For further information on this topic please contact Christoff Soltau at CMS Hasche Sigle by telephone (+49 40 37 63 00), fax (+49 40 37 63 040 600) or email (firstname.lastname@example.org). The CMS Hasche Sigle website can be accessed at www.cms-hs.com.
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