During your employment, you may not compete with your employer. That follows from the law, without any clause. After the employment ends, you are generally free to work for a competitor or start your own business, unless you have agreed a post-contractual non-compete clause (nachvertragliches Wettbewerbsverbot).
Such a clause is only valid under strict conditions (Sections 74 and following of the Commercial Code). Above all, the employer must pay compensation for the restriction. Many clauses in standard contracts, especially in international companies, do not meet these requirements.
The Requirements
A post-contractual non-compete clause is only valid if:
- Written form. It is agreed in writing and signed, and you received a signed copy.
- Compensation (Karenzentschädigung). The employer undertakes to pay at least 50 percent of your last contractual remuneration for each year of the restriction, including variable pay and benefits in kind.
- Maximum duration. No more than two years after the end of the employment.
- Legitimate interest. The clause protects a legitimate business interest of the employer, such as customer relationships or trade secrets, and does not unreasonably hinder your career in terms of place, time and subject matter.
Void or Not Binding?
| Situation | Consequence |
|---|---|
| No compensation agreed | Void. You are free, and you receive nothing. |
| Compensation below 50 percent | Not binding. You choose: comply and receive the agreed compensation, or work for a competitor. |
| Too broad in scope or time | Not binding to the extent it goes too far. |
| More than two years | Valid for two years only. |
If the clause is not binding, you must make your choice at the start of the restriction period and stick to it.
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Compensation and Other Income
The compensation is paid monthly at the end of each month. Income you earn from a new job during the restriction period is offset if, together with the compensation, it exceeds 110 percent of your previous pay, or 125 percent if you had to move because of the clause. Unemployment benefit can also be taken into account.
Getting Out of a Non-Compete
- Employer waiver. Before the employment ends, the employer can waive the clause in writing. You are then free immediately, but the employer must pay compensation for one year after the waiver.
- Dismissal for serious misconduct by the employer. If you resign without notice because of the employer's serious misconduct, you can declare within one month that you do not consider yourself bound.
- Dismissal by the employer. If the employer dismisses you without a reason in your person, you can free yourself from the clause, unless the employer offers full pay for the restriction period.
- Termination agreement or settlement. The clause can be cancelled, kept or replaced by agreement. A general settlement clause can also cancel it, which can be good or bad for you. See termination agreements.
Leaving your employer and bound by a non-compete clause? Have the clause checked before you sign your next contract.
Get Your Free Case Review →Points for Expats
- Foreign contracts. If you work in Germany, the German rules usually apply even if your contract is governed by another law. Clauses without compensation that are common in some countries are void here.
- Managing directors. The rules for employees do not apply directly to managing directors of a GmbH. Their non-compete clauses are assessed under general principles and do not always require compensation.
- International scope. A worldwide restriction is often too broad and therefore not binding.
Frequently Asked Questions
Can my employer stop me from working for a competitor during garden leave?
Yes. During garden leave, your employment continues, and you may not compete. See garden leave.
Do I have to tell my employer about my new job?
If you receive compensation, you must provide information about your earnings so that the offset can be calculated.
What if I breach a valid non-compete?
You lose the compensation for the period of the breach, and the employer can claim damages or an agreed contractual penalty.
Is a clause banning me from poaching clients a non-compete?
Customer protection clauses can be treated like non-compete clauses and then also require compensation.
