Employees in Germany are obliged to be loyal to their employer during the employment relationship, whilst they are free to engage in competitive actions once the employment has ceased to exist.
During the term of the employment relationship the obligation not to compete with the employer is part of the employee’s duties of loyalty. As a result, employees must not engage in competitive activities or solicit away colleagues and/or customers of the employer.
On the other hand, employees are allowed to undertake preparative actions during their notice period in order to set up their own business (which can start immediately after the end of the employment relationship). These "preparative actions" can include organisational measures such as establishing and registering a company; leasing and furnishing of business space and even hiring the workforce. However, (dismissed) employees must not actively entice away employees and/or intrude into existing customer or supplier relationships.
If employees breach their loyalty obligations the employer can consider terminating the employment relationship, in some circumstances for good cause (without observing a notice period). The employer might also claim for an injunctive relief, if necessary, by means of a preliminary injunction. In addition, it is also possible to claim damages if the employer suffered any loss due to the employee's misconduct. Finally, if the employee's behaviour can be qualified as being anti-competitive under the German Act against Unfair Competition this could also constitute a criminal offence in certain specific cases.
In practice, it is often difficult to discover and prove a breach of the loyalty obligations. It is therefore usually more effective to take preventing measures such as stopping the employee's contact with other employees, customers and/or suppliers.
After the employment relationship has ceased, employees can engage in competitive activities straight away. This can only be avoided if a non-compete and non-solicitation covenant has been agreed.
A post-contractual non-compete covenant is only enforceable if the statutory rules of the German Commercial Code are observed. In particular, it is only valid and enforceable if it serves to protect a legitimate business interest of the employer and does not constitute an unreasonable interference with the employee’s career. It has to be in writing and must not exceed a maximum period of two years after the end of the employment relationship. The covenant must state the precise activities the employee has to refrain from; the geographical area covered; and to what extent and for which companies the employee is not allowed to work during this period. In addition, the (former) employer has to pay compensation equal to at least half the most recent contractual remuneration received by the employee.
If no post-contractual non-compete covenant is agreed, the (former) employer still has to observe German Act against Unfair Competition. So any solicitation of employees for the sole purpose of obstructing the competitor is unlawful. Soliciting employees can also be deemed unlawful if the employees are being misled or put under pressure. If an employee breaches any post-contractual obligations and/or acts anti-competitively, the sanctions are the same as mentioned above.