Post-contractual non-compete clauses: German regulations in an international context

In today's globalised and digitally networked working world, post-contractual non-compete covenants are an important instrument for companies to protect themselves, even temporarily, against the loss of trade secrets, contacts and know-how. Such agreements are particularly widespread for managers and technical staff with dual (or multiple) reporting lines, often referred to as 'matrix managers'. A central question arises: what happens when employers have international employees or German employees working abroad? The answer is complex and can have considerable practical implications.

The German legal framework

With sections 74 et seq. of the German Commercial Code (HGB), the German legislature has created a comparatively strict and detailed system for post-contractual non-compete clauses. These regulations arose from the realisation that the employer as the stronger party could bind its employees to an unacceptably high degree. The law therefore establishes mandatory minimum standards that cannot be undercut. 

The formal requirements are particularly strict. Any non-compete clause must be signed in person. Additionally, according to prevailing legal opinion, a purely electronic signature is not sufficient. The original document, signed by the employer, must be handed to the employee. In legal proceedings, the employer bears the burden of proving that the original document was handed over to the employee. The non-compete clause is often included in the employment contract to satisfy this formal requirement. 

These seemingly bureaucratic requirements have a purpose: they are intended to ensure that both parties are aware of the scope of the agreement. 

In substantive terms, the compensation requirement for the duration of the non-compete is the distinguishing feature of the German system. For the duration of the non-compete period, the employee must receive at least half of the most recently received contractual benefits—including all special benefits such as company cars, bonuses or gratuities. This is intended to provide fair compensation for the restrictions on the employee's occupational freedom, which is protected by the German constitution. The duration of the non-compete period is limited to a maximum of two years and may only extend as far as the employer has a legitimate interest in terms of the subject matter and location.

The legal consequences of breaches of these requirements are varied and complex. Depending on the type of breach, violations lead to the non-compete clause being null and void, or non-binding. If the non-compete is not binding, the employee has the right to choose: they can comply with the non-compete restriction and receive the agreed compensation; or they can ignore the non-compete restriction and waive their right to compensation. This flexibility for the employee is unique to the German system.

Mastering international challenges

As soon as cross-border elements come into play, the legal situation becomes considerably more complex. The crux is which law governs the non-compete clause and in which jurisdiction can it be enforced (in court if necessary)?

For employment relationships within the European Union, Article 8 of the Rome I Regulation determines the applicable law according to a clear tiered system. Firstly, according to Article 8, para. 1, first sentence, in conjunction with Article 3, para. 1 of the Rome I Regulation, the parties are free to choose the applicable law. 

This choice of law may be expressly agreed in the employment contract or a corresponding agreement on the non-compete clause or may be implied from the circumstances. However, there is a restriction: mandatory employee protection regulations of the country in which the employee mainly works cannot be circumvented by a choice of law in accordance with Article 8, para. 1, second sentence of the Rome I Regulation. This means that if an employee's main place of work is in Germany, the German protection provisions apply even if the parties have chosen Swiss law, for example.

If there is no choice of law, the law of the habitual place of work applies in accordance with Article 8, para. 2 of the Rome I Regulation. For an office administrator in Hamburg, this is evidently German law. The situation is more difficult for employees who regularly work in different countries. According to Article 8, para. 3 of the Rome I Regulation the law of the employer's place of business may apply if no clear habitual place of work can be determined.

Are German regulations internationally mandatory?

In practice, it is often debated whether the German provisions of sections 74 et seq. HGB are deemed to be overriding mandatory provisions within the meaning of Article 9 of the Rome I Regulation. 

Overriding mandatory provisions are provisions that are so critical for the public interest of a state that they must be applied regardless of the chosen legal system. If the German non-compete rules were classified as overriding mandatory provisions, they would apply even where the parties have chosen Swiss or US law. In Belgium, for example, the Supreme Court has characterised such Belgian rules as overriding mandatory provisions. The answer to this question has not yet been decided by the German Federal Labour Court. 

However, considering the standards for classifying a provision as an overriding mandatory provision, the answer is quite clear: sections 74 et seq. HGB are not overriding mandatory provisions within the meaning of Article 9 of the Rome I Regulation. They primarily serve to balance private interests between employer and employee, not to protect overriding public interests. Unlike recognised overriding mandatory provisions such as the Minimum Wage Act (MiLoG), the Posted Workers Act (AEntG) or the maternity protection regulations (MuSchG), sections 74 et seq. HGB involve no state authorities and do not concern the protection of social security systems or the labour market. This assessment is confirmed by examining the case law on other labour law regulations. 

The Federal Labour Court, for example, has recognised the Minimum Wage Act as an intervention standard because it serves to secure the livelihood of all employees in Germany and protects the social security systems from being overburdened. The position is similar with the provisions on maternity protection or the law on severely disabled persons, where public law enforcement mechanisms apply. Sections 74 et seq. HGB do not fulfil these criteria.

Practical Implications for German Companies

The above categorisation has far-reaching practical implications for German companies with international interests. 

Firstly, it means that German companies have considerable flexibility when drafting non-compete clauses. They can depart from the strict German requirements by making a specific choice of law in favour of a more employer-friendly legal system. Swiss law, for example, does not require compensation for non-compete clauses, but allows non-compete clauses of up to three years. Austrian law limits non-compete clauses to one year but also does not require compensation. It can therefore be attractive for German employers to make a corresponding choice of law in international arrangements.

However, this flexibility also carries risks. Anyone who chooses a different legal system must be fully aware of its specific requirements. Legal frameworks can also change quickly, as the USA currently shows. In 2024, the Federal Trade Commission issued a regulation that categorises non-compete agreements as an unfair method of competition. Although this regulation is currently being challenged in court, it demonstrates the dynamics of international legal developments.

Enforcement in practice

The enforcement of non-compete obligations in international situations poses additional challenges. The recognition and enforcement of German judgements abroad can be difficult and time-consuming. Within the European Union, the Brussels I Regulation governs jurisdiction. Accordingly, an employer can generally only sue its former employee in the employee's country of residence; for example, an employee residing in France may be sued in French courts.

Interim legal protection is particularly problematic. Non-compete clauses usually only have a short term of one to two years. If court proceedings last several months or even longer, the protection sought can be rendered ineffective by the time a judgement is obtained. In international cases, proceedings are often considerably longer because the courts are required to determine and apply foreign law. This can result in employers being defenceless despite an effectively agreed non-compete clause.

Strategic considerations and recommendations for action

For companies in Germany, this legal situation gives rise to various strategic options. In domestic German cases, the well-known strict requirements of sections 74 et seq. HGB remain applicable. Companies should therefore pay particular attention to ensuring the correct formal structure and calculating realistic compensation.

In international cases, on the other hand, there is greater room for manoeuvre. Companies can opt for more favourable legal systems through a conscious choice of law. However, they should pay attention not only to the requirements, but also to local enforceability. An agreement governed by Swiss law is of little use if it cannot be enforced before German courts. The complexity of international issues requires comprehensive legal advice to be obtained at an early stage in order to recognise and assess all risks. Consideration should be given not only to labour law aspects, but also to tax and social security issues.

Companies must remain cognisant of the constantly evolving international legal framework. Contractual provisions must be reviewed and adapted on a regular basis. Consideration should also be given to the deployment of parallel or alternative protection mechanisms, such as confidentiality undertakings or employee non-solicitation provisions, which may prove more readily enforceable. The increasing globalisation of the world of work necessitates a more sophisticated and flexible approach to post-contractual non-compete restrictions.

For a comprehensive global overview of non-compete regulations in various jurisdictions, please refer to our global guide available at twobirds.com/en/insights/2023/global-guide-on-confidential-information.

A more in-depth analysis of the legal issues addressed here can be found in our article "Agreement and enforcement of post-contractual non-compete clauses in an international context?" (with Mona Bracht), in: Neue Zeitschrift für Arbeitsrecht (NZA) of 8 August 2025, No. 04, pp. 1055-1062.