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Global employment briefing: Germany, June 2018

  • Germany
  • Employment law

12-06-2018

Case law provides guidance on revoking post-contractual restrictive covenants

In Germany, any post-contractual restrictive covenants come at a cost. Statutory laws oblige employers who would like to restrict an employee’s ability to join a competitor after termination or resignation should think twice whether they need to impose this type of restriction. The legislation requires a payment of at least 50 % of the individual’s last income (total compensation, i.e. base salary plus any car allowance or bonus) on a pro-rated basis for the total duration of the post contractual restriction.

These kind of restrictions are frequently found in German employment contracts. However, it appears that employers, also frequently, regret having entered into them when they consider the price tag of restrictive covenants.

German law allows a waiver of the restriction at any point in time during the employment relationship, but this also may come at a price. Based on mandatory laws, a waiver declaration triggers a 12 month period during which the employer remains obliged to pay the restrictive covenant compensation. This may only be covered and partially consumed during the notice period by the notice pay. To waive a restrictive covenant and avoid resulting waiver payments, the employer has to declare the waiver at least 12 months before the termination date.

In a recent decision by the Federal Labour Court, the employer did not pay the non-compete compensation after termination, with the result that the individual declared that he would step back from the non-compete restriction. At the same time, the employee, concerned that he could not validly walk away from the restriction despite his declaration, continued to claim the non-compete compensation and stated that he had, in fact, complied with the restrictive covenant.

The employee lost his claim because the Court found his declaration of stepping back from the restrictive covenant to be sufficient in order to release the employer from the obligation of making the respective covenant payment – despite the employee’s unwillingness to act in this way.

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