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GmbH managing director: ineffectiveness of a post-contractual non-compete clause

Company law

GmbH managing director: ineffectiveness of a post-contractual non-compete clause

In its decision of 1.6.2023 (18 U 29/23), the Higher Regional Court of Cologne clarified the relevance of structuring post-contractual non-compete covenants in managing director contracts in a way that is in line with the interests of the parties. Such agreements are very relevant in practice, but the principles of case law outlined here must be observed in order to avoid any risks of ineffectiveness. This applies all the more as a reduction in the validity of the agreement is excluded in principle.

In the above proceedings, the parties disputed the validity of a post-contractual non-compete clause. The managing director of a German company with limited liability (GmbH) had agreed a post-contractual non-compete clause in her employment contract with the GmbH, which prohibited the managing director from working directly or indirectly for another company as a member of the management, employee, consultant, representative or in any other way, from carrying out competitive activities and from directly or indirectly carrying out business activities that competed with the business activities of the company in the area of activity on the day of termination.

After termination of the contractual relationship, the managing director asserted by way of a temporary injunction that the agreed post-contractual non-compete clause was invalid and did not prevent her from taking up a position as managing director of another company.

The Cologne Regional Court held that the post-contractual non-compete clause was invalid and ruled in favor of the managing director. The Higher Regional Court confirmed this decision and stated that the non-compete clauses agreed by a GmbH with its managing directors are not subject to § 74 et seq. of the German Commercial Code (HGB), as managing directors are not agents but members of executive bodies. Instead, the German Civil Code (BGB) is to be applied here. Such non-compete clauses are only permissible if and to the extent that they serve to protect a legitimate interest of the company and do not unreasonably impede the professional practice and economic activity of the managing director in terms of place, time and object.

When weighing up interests, a case-by-case assessment is decisive. In particular, the purpose pursued with the non-compete clause. The restriction of competition is only justified if the interest of the freedom to exercise a profession is not merely unreasonably restricted or abused.

Applying these principles, the non-compete clause in question is ineffective overall. Such a deliberately chosen imprecise formulation also impermissibly excludes a large number of areas of activity that have no connection to the previous activity of the plaintiff in the injunction for the defendant. In the present case, the content of the non-compete clause merely serves to completely eliminate the plaintiff in the injunction as a potential competitor and is therefore immoral and invalid. The compensation for non-competition amounting to 75% of the last remuneration received is not sufficient to compensate for this.