Financial compensation entitlement for post-contractual non-compete based on standard saving clause

In German law, a post-contractual non-competition agreement with an employee is only effective if it provides the employee with appropriate financial compensation. The financial compensation must amount to at least 50% of the previous income. If no such compensation is provided, the post-contractual non-competition clause is, by force of law, invalid.


Nevertheless, the Hamm Labour Court (Landesarbeitsgericht Hamm, LAG) decided on 5 June 2015 that an employee could claim financial compensation from her former employer even though the post-contractual non-competition clause did not provide financial compensation to the employee. This decision was based on the fact that the employment contract contained a saving clause, as well as a confidentiality clause and a penalty clause in case of non-compliance.


The post-contractual competition prohibition clause itself was invalid as it did not provide financial compensation to the employee. However, it was assumed by the Hamm Labour Court that the saving clause replaced the effective post-contractual competition prohibition. Usually, in German law, a saving clause reverses the rule that the partial ineffectiveness of a clause induces its general ineffectiveness. A saving clause in itself may be insufficient to indicate the will of the employer to agree on an effective post-contractual non-competition clause. However, a penalty clause in case of non-compliance is an additional strong indicator that the employer actually wanted a binding agreement on a post-contractual non-competition clause. In the case in question this assumption was further backed up by the confidentiality clause.


The decision of the Hamm Labour Court is a turning point in the jurisdiction around post-contractual non-competition clauses. Whether the Federal Labour Court supports this decision remains to be seen. However, it becomes clear that contractual errors with regards to post-contractual non-competition clauses can have serious consequences for employers. They risk an obligation to pay financial compensation to their employee even if they are no longer interested in enforcing post-contractual non-competition. In any case, employers are well-advised to consider with whom they agree on a post-contractual non-competition clause (usually the financial expense is only advisable for key employees), and to reassess on a regular basis whether the post-contractual non-competition is still necessary from their point of view.