Judgment of the BGH dated 23.04.2024 – Case No. II ZR 99/22
A post-contractual non-compete clause for managing directors of a GmbH (German limited liability company) can remain valid even if a violation results in the retroactive forfeiture of the non-compete compensation. This was ruled by the Federal Court of Justice (BGH) on April 23, 2024, strengthening the position of companies (Case No.: II ZR 99/22).
During an ongoing contract, managing directors are generally subject to a non-compete obligation. Since this obligation is already imposed by law, it does not need to be contractually stipulated. However, the situation is different with a post-contractual non-compete clause, which must be explicitly agreed upon by the parties in the contract. Strict legal requirements must be met. A violation of these regulations can render the post-contractual non-compete clause invalid, according to the business law firm MTR Legal Rechtsanwälte, which advises in corporate law, among other areas.
Dispute over Non-Compete Compensation
In the proceedings before the BGH, a GmbH and its former managing director disputed the payment of non-compete compensation. The plaintiff was a company that operates health and rehabilitation clinics as well as senior and nursing homes. The employment contract signed in 2005 with the former managing director included a two-year post-contractual non-compete clause for the managing director. It was also contractually agreed that all companies engaged in or capable of engaging in the plaintiff’s business sector would be considered competitors.
In return, the former managing director was to receive compensation amounting to 50% of his last monthly salary for adhering to the non-compete clause. Additionally, it was stipulated that in the event of a violation of the non-compete clause, the claim to the compensation would be forfeited and all amounts already received would have to be repaid to the company.
Violation of the Post-Contractual Non-Compete Clause
In May 2012, the defendant was dismissed from his position as managing director by the company, and the employment relationship was terminated. A little over a year later, in June 2013, the defendant took a position as managing director at a consulting firm. This firm’s clients included companies in the healthcare and senior care sectors, such as clinics, rehabilitation centers, and senior care facilities.
The former employer saw this new role as a violation of the two-year non-compete clause. Thus, the parties disputed the payment of the non-compete compensation.
Berlin Higher Regional Court Considers Agreement Disproportionate
The managing director had been entitled to non-compete compensation amounting to approximately €48,000 until he started his new position. However, the company refused to pay this amount. While the Berlin Higher Regional Court confirmed that the former managing director had violated the post-contractual non-compete clause, it held that the provision, which allowed for the retroactive forfeiture of the non-compete compensation in the event of a violation, was disproportionate. Therefore, the managing director was entitled to the non-compete compensation until the start of his new role.
However, the BGH reached a different conclusion in the appeal. According to the Karlsruhe judges, the defendant’s claim to non-compete compensation was forfeited because he had violated the contractually agreed non-compete clause.
A post-contractual non-compete clause is only justified if it is necessary to protect one party from the disloyal exploitation of its achievements by the other party. Such clauses are only valid if they do not exceed the necessary scope in terms of geographic, material, and temporal limitations, the BGH explained.
BGH Confirms Retroactive Forfeiture of Non-Compete Compensation
In this case, it was undisputed that the non-compete clause was validly agreed upon. If this were not the case, there would be no entitlement to non-compete compensation from the outset. The BGH also held that the clause stipulating the retroactive forfeiture of the non-compete compensation was not unreasonable. The court reasoned that when agreeing on a post-contractual non-compete clause, there is no requirement to promise non-compete compensation. The contractual parties are free to agree whether and to what extent such compensation is paid. Accordingly, they can also contractually stipulate the retroactive forfeiture of the non-compete compensation.
The BGH ruling facilitates the enforcement of post-contractual non-compete clauses. This allows companies to effectively protect their trade secrets from competitors. Managing directors, on the other hand, should carefully examine the terms of any post-contractual non-compete agreements to safeguard their interests.
MTR Legal Rechtsanwälte advises on non-compete clauses and other corporate law matters.
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