Employees in Germany are subject to a number of obligations towards their employer. In particular, employees are obliged to be loyal to their employer and to refrain from disclosing certain information to third parties. Also, employees are generally bound by a non-compete covenant during the term of the employment relationship. To a certain degree, employees remain bound by some loyalty obligation even beyond the employment relationship.

Non-compete obligations

During the period 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 at all. On the other hand, employees can engage in competitive activities right away after the employment relationship has ceased to exist unless a post-contractual non-compete covenant has explicitly been agreed.

If employees breach their loyalty obligations the employer can consider terminating the employment relationship, even for good cause (without observing a notice period). The employer could also claim for an injunctive relief, if need be, by means of a preliminary injunction. In addition, it is also possible to claim damages if the employer suffered any damage due to the employee's misconduct. Finally, if the employee's behaviour can be qualified as being anti-competitive in the sense of the German Act against Unfair Competition this could also establish a criminal offence in certain specific cases.

However, after one party has given notice of termination, 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 organizational measures like establishing and registering a company, leasing and furnishing of business space and even hiring workforce.

A post-contractual non-compete covenant is only enforceable if the statutory rules of the German Commercial Code are observed. In particular, a post-contractual non-compete agreement is only valid and enforceable if it serves to protect a legitimate business interest and does not constitute an unreasonable interference with the employee’s career. A post-contractual non-compete covenant must not extend more than two years after the end of the employment relationship and has to be compensated by at least half of the most recent contractual monthly remuneration received by the employee per month of non-compete.

Confidentiality obligations

During the term of the employment relationship, employees are obliged not to disclose any confidential information to third parties.

As a rule, an employee is basically free to use the skills and knowledge acquired during the employment relationship even in a competitive function after the termination of the employment. In contrast to that, employees remain obliged to keep trade and business secrets (Betriebs-und Geschäftsgeheminsse) confidential even after the termination of employment – regardless of whether or not there is an explicit provision included in the employment contract.

It needs to be noted, though, that not all business information can be qualified as trade or business secrets. Only facts which are directly connected with the business and are only known to a limited group of people fulfil the legal requirements, provided that the employer has clearly indicated that these facts are to be regarded as trade and business secrets.