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Post-contractual non-compete obligation must not cover all activities for a competitor

In an indicative ruling dated August 02, 2018, the Higher Regional Court Munich (docket number 7 U 2107/18) has found that a post-contractual restraint which prohibited a managing director from working for a competitor in any way was invalid due to the lack of legitimate interests of the company. The managing director was therefore able to legitimately claim the invalidity of the non-compete obligation in the form of a preliminary injunction.

The indicative ruling is based on the following facts: The claimant worked for several years as managing director of the defendant. Following the termination of the contract by the defendant, the claimant started working for a competitor, also as managing director. His service contract contained a post-contractual non-compete obligation for one year following the termination of the contract, prohibiting any activity for a competitor, without being limited to senior roles. The claimant applied for a preliminary injunction arguing the invalidity of the post-contractual non-compete obligation.

The Higher Regional Court of Munich stated that the company’s legitimate interest in preventing a managing director from working for a competitor is proportional to the former managing director’s new position at the competitor. The lower the new position, the lower the company’s interests in preventing the activity for the competitor. Consequently, a post-contractual non-compete obligation must not cover any activity for a competitor, but only those activities where the company’s interest in preventing the activity outweighs the managing director’s interest in having a free choice of occupation.

In the present case, as the post-contractual non-compete obligation covered any activity for a competitor, it was deemed too broad and therefore ineffective in its entirety. The Higher Regional Court of Munich also denied a finding of partial validity, arguing such a decision would exceed the judicial scope of judgment.

The indicative ruling results in higher protection for managing directors compared to regular employees with regard to post-contractual non-compete obligations. For regular employees, § 74 para. 1 Commercial Code (HGB) enables a restraint to be found to be partially valid while the Higher Regional Court of Munich has now excluded such partial validity if the post-contractual non-compete obligation is agreed with a managing director.