The highest German Civil Court, Bundesgerichtshof (BGH), has taken the opportunity to publish a landmark decision on non-solicitation clauses between companies as far as employees are concerned (Bundesgerichtshof, Decision of April 30, 2014; Az.: 1 ZR/245/12).

The case dealt with a contract clause between two companies that had been agreed within the context of cooperation agreement. The clause stated that it was not permitted for either party to directly or indirectly solicit an employee of the other party during the lifetime of the agreement and three years after. In case of any violation the penalty payable amounted to two gross annual salaries of each concerned employee.

Two and a half years after the end of the cooperation agreement two employees gave notice to the claimant and were hired by the defendant. The claimant subsequently demanded a damage payment of approximately € 350.000,00. While the court of first instance rejected the claim the appeal was successful. The BGH now overturned this decision and took the opportunity to make some general comments.

The focus of the dispute is the interpretation of article 75f, Commercial Code, which basically states that an agreement between employees that restricts the right for either party to hire an employee of the other party shall not be enforceable. This wording includes contractual penalties. There was – however – no prior court decision on the validity of such contract clause between companies.

First of all, the BGH stated that non-solicitation only covers cases where a company actively approaches the employee of another company in order to encourage him to change his job. When the employee himself take the initiative and asks for a job offer there is no violation of a non-solicitation clause in the first place.

Further the BGH pointed out that it is a constitutionally guaranteed right of any employee to choose his place of work in a free market economy. The same applies to any employer, who may approach employees of another company (even competitors) in order to find new employees. An employer intending to prevent an immediate move of an employee to a competitor must use a non-compete clause (with mandatory compensation payment).

Regardless of the aforesaid the BGH acknowledged that in certain situations the interest of a company to protect its legitimate interests might justify a restriction to hire employees from another company. This applies e.g. to unfair competition cases, where the solicitation of employees is a strategy to undermine business of a competitor.

Further it might be permitted to protect own interests, if a non-solicitation clause is not the main subject of a contract, but merely an annex to prevent a disloyal use of company secrets. As an example the court referred to NDA-clauses in a due diligence process or the situation of a demerger of group companies. As regards the cooperation agreement in question, the BGH as well acknowledged a legitimate interest of claimant to protect its business interests.

Anyhow the claim was not successful since the court drew an analogy to the laws governing non competes, where a two year limitation is the maximum that can be agreed. A two year period is in the opinion of the BGH sufficient to protect an employer against the loss of knowhow by enticing away employees, even in case of a prior contractual cooperation.

Practical conclusion:

In certain situations a non-solicitation clause concerning employees between companies is permitted. It needs – however – a thorough analysis of the interests of all parties concerned and a careful drafting of the respective clause in order to be able to enforce an agreed contractual penalty. This will be relevant especially in due diligence projects and in all cases of a close cooperation between companies, where crucial information is shared or exchanged.