Act of defiance or effective waiver of rights?

Due to the compulsory compensation payments, post-contractual non-competes are only common in Germany with regard to key employees with significant knowledge of the employer’s business or close client relationships. However, they are quite often the subject matter of legal disputes. Just recently the Federal Labour Court (Bundesarbeitsgericht, BAG) has ruled on the question of the effective revocation of a non-compete (31 January 2018; docket number: 10 AZR 392/17).
In the case at hand, the plaintiff had been with the defendant since February 2014. The employment contract provided for a non-compete of three months following the end of employment. In return, the plaintiff was entitled to a compensation payment of 50 percent of his last received monthly average remuneration. After the employment had ended on 31 January 2017, the plaintiff claimed compensation for February 2016 and set a deadline of 4 March 2016. Nevertheless, the defendant did not pay any compensation by this date and therefore on 8 March 2016 the plaintiff informed the defendant by email that he no longer felt obliged to adhere to the non-compete. The plaintiff then sued the defendant for compensation for the whole term of three months. The defendant argued that, by sending the email, the plaintiff had effectively revoked the post-contractual non-compete and therefore had waived his right to compensation.
While the Labour Court (Arbeitsgericht, ArbG) found in favour of the plaintiff, the Regional Labour Court Nuremberg (Landesarbeitsgericht, LAG) as well as the Federal Labour Court eventually granted compensation only for the time between 1 February and 8 March 2016. In conformity with its settled case law, the Federal Labour Court reasoned that post-contractual non-competes are reciprocal contracts and therefore subject to the general statutory provisions on revocation as set out in sec. 323 et. seq. German Civil Code (Bürgerliches Gesetzbuch, BGB). Compensation payment is only paid in return for refraining from competitive activities. Since the defendant did not grant such compensation, the plaintiff was entitled to revoke the non-compete. The Federal Labour Court did not object to the fact that the Labour Court considered the plaintiff’s email dated 8 March 2016 an effective revocation. Due to the ex-nunc effect of such a revocation, the plaintiff was therefore not entitled to any compensation as of 9 March 2016.

As a result of the compulsory compensation payments, post-contractual non-compete clauses can become a significant financial burden for employers. Therefore, this ruling is a sensible and welcome decision.