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Non-competition clause employment contract
Everything about non-competition clauses and compensation in employment contracts.
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what non-competition clauses under employment law are
when you are entitled to compensation
what you can do against non-compete clauses
1. Non-competition clause in the employment contract
2. Compensation for non-competition clause
3. Circumvention of the non-competition clause
4. FAQ
5. Conclusion
1. Non-competition clause in the employment contract
The non-compete clause under labor law is an important consideration for many employees when terminating an employment relationship – especially if they work in a specialized industry or in a management position. The basic rule is: During the ongoing employment relationship, the employee is subject to a statutory non-compete clause . This means that they may not compete with their employer, in particular, they may not take up their own employment or work for a company that is in direct competition with their employer (analogous to Section 60 of the German Commercial Code (HGB)).
However, this topic becomes particularly relevant with regard to the so-called post-contractual non-competition clause ( Section 110 of the German Trade Code (GewO )). According to the post-contractual non-competition clause, the employee may not compete with the employer for several months even after the employment relationship has ended. However, the post-contractual non-competition clause must be expressly stipulated in writing in the employment contract or in a separate agreement (Section 74 of the German Commercial Code (HGB). Without such a clause, there is generally no obligation to restrict oneself under competition law after the employment relationship has ended.
2. Compensation for non-competition clause
Compensation for non-competition is a key prerequisite for the effectiveness of a post-contractual non-competition agreement. Without the promise of appropriate financial compensation, the agreement is generally invalid . The amount of compensation for non-competition must be at least 50 percent of the employee's last contractually agreed benefits (Section 74 (2) of the German Commercial Code (HGB). This includes not only the fixed salary, but also any non-cash benefits and variable compensation components, provided these were regularly paid.
Employees should consider whether the agreed compensation complies with legal requirements and whether the non-compete clause unreasonably restricts their professional development. In many cases, it is possible to opt out of the post-contractual non-compete clause by declaring this to the employer, but this is subject to a time limit and should be carefully considered.
3. Circumvention of the non-competition clause
If you are unintentionally bound by a non-compete clause, this does not mean that you must remain completely inactive. Employees are permitted to prepare for future competitive activity while still employed. As part of this preparation, they may, for example, establish a company, register an internet domain, rent business premises, or conclude employment contracts without violating the non-compete clause . A violation of the non-compete clause only occurs if the non-compete is influenced externally by advertising on the market.
It should also be noted that the validity of the non-competition clause requires that the employer actually pays the compensation . The employer cannot demand compliance with an agreed post-contractual non-competition clause if it itself violates its contractual obligations. A breach of good faith occurs, for example, if the employer demands compliance with the non-competition clause but simultaneously fails to pay the contractually owed compensation for several months (Mecklenburg-Vorpommern Regional Labor Court, judgment of August 4, 2014 – 2 SaGA 3/14, BeckRS 2014, 72301).
4. FAQ
What is a non-compete clause in employment law?
During the employment relationship, there is a statutory prohibition on competition: employees may not compete with the employer, e.g. by working for a rival company or through their own competing business activities (analogous to Section 60 of the German Commercial Code (HGB)).
When does a post-contractual non-competition clause apply?
A post-contractual non-competition clause only applies if it has been agreed upon in writing (Section 74 of the German Commercial Code). It prohibits the employee from working in the same market segment for a certain period of time after the end of the employment relationship. Without a written agreement, there is no obligation to refrain from competition.
What is a waiting period compensation and when am I entitled to it?
For an effective post-contractual non-competition clause, the employer must pay compensation amounting to at least 50% of the last salary (Section 74 (2) of the German Commercial Code (HGB)).
What can I prepare despite the non-compete clause?
Employees are permitted to make preparations for future self-employment, such as establishing a company, renting business premises, or registering domains. However, any advertising or marketing activity is prohibited during the ban period.
What happens if the employer does not pay the waiting period compensation?
If the employer fails to pay the compensation on time or does not pay it at all, it cannot demand compliance with the non-competition clause. Such behavior violates the principle of good faith (see Mecklenburg-Western Pomerania Labor Court, judgment of August 4, 2014 – 2 SaGA 3/14).
5. Conclusion
The non-compete clause protects employers from competition from (former) employees. It is legally valid during the employment relationship; after the end of the contract, it only applies if there is a written agreement with compensation. This must be at least 50% of the last salary. Preparations for future competition are permitted as long as there is no market participation. Without payment of compensation, the employer cannot enforce the non-compete clause.
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Further Information
List of Sources (Paywall)
[1] Thüsing in MüKoHGB | HGB § 74 | 6th edition 2025 (Contractual non-competition clause; paid maternity leave)
[2] Roth in Hopt, HGB § 74, 44th edition 2025
[3] For the distinction between non-competition clauses and permissible preparatory acts, see BAG, judgment of 24 February 2021, 10 AZR 8/19
[4] Commercial Code in the revised version published in the Federal Law Gazette Part III, section number 4100-1, last amended by Article 1 of the Act of 28 February 2025 (Federal Law Gazette 2025 I No. 69)