Employees joining the services of a competitor after having terminated their contract are a fear for many companies. The loss of knowledge ,contacts and ultimately business often is real. Thus it is understandable that employers want to protect themselves. German employment law however contains a number of pitfalls employers should avoid when agreeing a post contractual non compete.
1. DON'T FORGET TO SIGN THE AGREEMENT
The post contractual non-compete must be executed in writing, signed by both parties and handed over to the employee. Verbal agreements or electronic communication is not sufficient and renders the clause non-binding. This is especially important in case of offer-letters and (extensions of) limited term contracts.
2. BE CAREFUL ABOUT RESERVATIONS
The reservation to later conclude a restrictive covenant at the choice of the employer (especially in an offer letter) is invalid, but it is possible to agree on an initial (probation) period, during which the non-compete is not in force.
3. BE REALISTIC WHEN ASSESSING YOUR MARKET POSITION
A non-compete is only enforceable, if and as far as it is protecting legitimate business interests of the employer. The clause must take into account both the market position of the employer (region of activity, actual competitors, products/services) and the actual scope of work of the individual employee (area of responsibility). Thus non-compete clauses must be individualized, otherwise employers might have to pay compensation while the former employee works with a competitor.
4. DON'T FORGET THE COMPENSATION
A non-compete clause without compensation payment is null and void. But even a wrong calculation of the compensation in the clause might lead to a non-binding agreement. This means, that the employee has the choice to either refrain from competition and claim the (full) compensation or to walk away to work with a competitor immediately.
5. A WAIVER BY THE EMPLOYER MUST BE DONE TIMELY
A waiver of a valid non-compete can regularly be declared (in writing) at any time, but only during the lifetime of the employment agreement (until the end of the notice period). The waiver is immediately valid for the employee, who remains – however – entitled to the compensation for the duration for one year. Therefore careful anticipatory planning is needed.