Penalty clause unenforceable where non-compete obligation is invalid

If a post-contractual non-compete obligation is invalid and therefore non-binding, a penalty clause intended to protect this clause is unenforceable (judgment of the Solingen labour court dated 20 June 2017, docket number 3 Ca 153/17).

The employee worked for a travel agent and had mainly sold cruises. The employee’s contract included a post-contractual non-compete obligation for the duration of three months post-termination.  After leaving the company, she joined another travel agent.

Under statutory law, a non-compete obligation is not binding insofar as it does not protect the employer’s legitimate interests. A legitimate interest can exist if the non-compete aims to protect business secrets or if it serves to protect clients. However, the mere interest of limiting competition is not protected.

In this case, the employer could not demonstrate a legitimate interest in the post-contractual non-compete. While it argued that clients in the cruise business required trusted advisors and were also attached to their respective advisors, it also stated that a three month limit was sufficient as clients would then look for other advisors. Based on this inconsistency, the court could not find that there was a legitimate interest. It even held that, typically, a short non-compete obligation may indicate that its primary goal is to limit competition rather than protect legitimate business interests.