Germany: A possible withdrawal from a post-contractual non-compete obligation releases the employer from his obligation to pay a compensation.

The employment contract of the plaintiff contained a post-contractual non-compete clause for a period of three months after the termination of the employment. The employee was entitled to compensation in the amount of 50 % of his last monthly gross salary. The employee terminated the employment having effect as of 31 January 2016. On 1 March 2016 he unsuccessfully demanded payment of the compensation for February 2016 setting a deadline until 4 March 2016. On 8 March 2016 he informed the employer that he no longer considered himself bound to the non-compete obligation.

He brought an action before the Labor Court claiming compensation for the whole contractually agreed post-contractual period of three months. He won in first instance, but the State Labor Court ruled that the employee’s claim to compensation exists only for the period from 1 February 2016 until 8 March 2016. The Federal Labor Court confirmed that ruling.

The Federal Labor Court ruled that a post-contractual prohibition of competition is a mutual contract to which the general civil law rules regarding the withdrawal from a contract apply. The payment of the compensation is the employer’s counter obligation in return for the employee refraining from competition. If one party does not perform its contractual duties, the other party may withdraw from the contract, provided that the statutory requirements are met. As of the declaration of withdrawal the reciprocal obligations cease to exist.

As the employer did not pay the compensation, the employee was entitled to withdraw from the post-contractual non-compete which he validly declared towards the employer. Therefore, as of 9 March 2016 he was no longer entitled to compensation.