Non-competition clauses without compensation are void

A post-contractual non-competition clause is void if, contrary to section 110 GewO in conjunction with section 74 (2) HGB, the agreement does not include an entitlement of the employee to compensation for waiting. Neither employer nor employee can derive rights from such an agreement. A severability clause contained in general terms and conditions does not - even unilaterally in favour of the employee - lead to the validity of the non-competition clause.

The plaintiff was employed by the defendant as an industrial clerk from May 2008 to December 2013. The employment relationship ended through the plaintiff's ordinary notice of termination. The employment contract contains a non-competition clause which prohibits the plaintiff from working in an independent, dependent or other manner for a company which is in direct or indirect competition with the defendant for a period of two years after the termination of the contract. A contractual penalty of 10,000.00 euros is provided for each case of infringement. The employment contract does not provide for any compensation. The "ancillary provisions" of the employment contract contain a so-called severability clause, according to which the rest of the contract shall remain unaffected if a provision is void or ineffective. Instead of the void or ineffective provision, an appropriate provision shall apply which, as far as legally possible, comes as close as possible to what the parties to the contract intended or would have intended according to the sense and purpose of this contract if they had considered the voidness or ineffectiveness when concluding the contract.

In her action, the plaintiff, who had complied with the non-competition clause, claimed a monthly gross compensation of 604.69 Euros for the period from January 2014 to December 2015. The Labour Court and the Regional Labour Court upheld the action.

The defendant's appeal was successful before the Tenth Senate of the Federal Labour Court. Non-competition agreements that do not provide for compensation for waiting are null and void. Neither can the employer demand the refraining from competition on the basis of such an agreement, nor is the employee entitled to compensation for waiting if the non-competition clause is complied with. A severability clause contained in general terms and conditions cannot cure such a violation of Section 74 (2) HGB and does not - even unilaterally in favour of the employee - lead to the validity of the non-competition clause. Due to the necessity to take a decision on the compliance with the non-competition clause at the latest immediately after the termination of the employment relationship, the (in)effectiveness must result from the agreement. This is lacking in the case of a severability clause according to which it has to be decided in an evaluative manner whether the contracting parties would have concluded a valid agreement in knowledge of the invalidity of the agreement and what the content of the promise of compensation would have been.

Federal Labour Court, Judgment of 22 March 2017 - 10 AZR 448/15

Previous instance: Regional Labour Court HammJudgement of 5 June 2015 - 10 Sa 67/15


Source: Press release of the Federal Labour Court


Goldberg Attorneys at Law 2017

Attorney at Law Michael Ullrich, LL.M. (Information Law)

Specialist lawyer for information technology law