Competition clause: dangerous territory?

The goals of the Work and Security Act (WWZ) are simplification of the dismissal law and more employees on permanent contracts. However, there is much criticism of the WWZ. For example, employers are said to be less likely to offer their employees a permanent contract and dismissal law has been anything but simplified. The introduction of the WWZ has also brought changes with regard to the non-competition clause, making it much more difficult to include a legally valid non-competition clause in a fixed-term employment contract. Such a clause is now only permitted in a fixed-term employment contract if it is necessary due to the existence of "compelling business and service interests. These interests must be explicitly motivated in the employment contract and, in addition, the employer must be able to prove that the employee actually has competition-sensitive information.

So far, judges have shown that they judge severely. In most cases, the non-competition clause is annulled for lack of full and specific justification of the necessity of that clause. Recently there have been two rulings in which the non-competition clause did stand.

The first case involved a swimming pool mechanic, with whom a two-year non-compete clause had been agreed upon. In the second case, an employee in the package shop industry wanted to transfer to a competitor. In both cases, the employers had given detailed and specific reasons for the non-competition clause. In any case, it had been made clear that the employees possessed competitively sensitive information:

1. they had extensive knowledge of internal financial and/or commercial data (these data were itemized);
2. this knowledge is critical to the success of the enterprise, and;
3. If direct competitors obtain this knowledge, it could cause great harm to the company.

The judge did limit the duration of the clause in both cases. According to the judge, given the relatively short duration of the employment contracts and the mutual interests of the parties, it was unreasonable to maintain the non-competition clause for the agreed duration.

With these first WWZ rulings in which the non-competition clause in fixed-term employment contracts passes the test, it appears that drafting it is tailor-made. After all, the compelling business and service interests must be able to be determined on the basis of that justification. This means that an employer must describe the interests to be protected very concretely and make a clear connection between those interests on the one hand and the knowledge/skills of the employee in question on the other. If that is done correctly and completely and a reasonable time frame is used, then the non-competition clause can be upheld by the court.