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Germany

Germany: Valid precontract on non-compete – no right of choice for employee

Post-contractual non-competes under German law require a non-compete compensation of 50% of the previous total compensation to be effective. Therefore such non-competes can be financially attractive for employees who do not plan to join a competitor. For employers on the other hand, they can be very expensive if it turns out that they do not need the non-compete after all.

If non-compete clauses in a contract do not comply with very strict legal requirements on scope and wording, the employee may have a right to choose whether they wish to comply or not.

The employer does not have any such right of choice and will usually be bound by the non-compete clause once it has been contractually agreed. In particular it should be noted that employers cannot easily or unilaterally waive a non-compete to avoid payment of the non-compete compensation but will need to comply with a one year notice period for a waiver. Therefore, some employers choose to have only a precontract rather than an actual contractual agreement. Such precontract gives them the option to decide at a later point in time whether they indeed need the non-compete for a specific employee.

The Federal Labour Court held in December that in the event of a valid precontract the employee does not have a right to choose to comply with the non-compete against payment of the non-compete compensation if the employer has decided against enforcement. In the case decided, the precontract had provided a right of the employer to decide to enforce the non-compete before notice of termination by either party. The employer had dismissed the employee without enforcing the non-compete. Upon termination, the employee raised a claim for non-compete compensation.

The Court rejected such claim as the precontract had been valid and had in particular not unfairly disadvantaged the employee, as the employer had to notify them of wanting to enforce the non-compete at the latest simultaneously with a notice of termination. The Court confirmed that an employee‘s right to choose will only apply if the precontract is not valid or if its conditions unfairly hinder the employee’s future career.

In practice, a precontract may be the employer‘s method of choice to avoid a non-compete that may not be needed after all. However, it has to be noted that the precontract not only has to clearly provide enforcement conditions (ie by when the employer has to decide on enforcement) but also will have to include the exact and valid restrictive covenants that shall apply in case of enforcement.