Are non-compete clauses also applicable during unfair dismissal proceedings?
Non-competition clauses spanning at least the duration of the employment contract are common provisions in employment contracts for positions in which employees may handle know-how or have the opportunity to poach customers.
But does a non-competition clause also apply if an employee initiates unfair dismissal proceedings against termination (without notice)?
It might. If the court rules that the termination without notice was invalid, then the termination (without notice) did not end the employment relationship. Consequently, the employment contract remained effective without interruption.
Dispute over non-competition clause
In the case before the Düsseldorf State Labor Court, an employer and an employee disputed a non-competition clause which had been agreed for the duration of the employment relationship. The law firm employing the tax consultant had terminated the employment relationship without notice and released from his duties. He then took the law firm to court. He demanded the outstanding wages and continued employment if the termination was declared invalid.
During the unfair dismissal proceedings, he already began to work independently with clients. In the process, he took on former clients, violating the non-competition clause. At least that is what his employer claimed and demanded they cease activities via an injunction: The former employee was to refrain from actively competing in certain areas and soliciting clients. An interest in prohibiting the competition arose out of the “abstract risk of impairment of its market area”.
Non-compete clause in unfair dismissal proceedings?
In line with the case law of the German Federal Labor Court, the Düsseldorf State Labor Court also ruled that the contractual non-competition clause applies for the entire duration of the employment relationship.
Therefore, an employee is required to comply with the non-competition clause if they initiate legal proceedings against their termination.
If an employee fails to comply with the non-competition clause during the unfair dismissal proceedings, the employer may take action and demand that the competition cease. Applying for a temporary injunction is one solution in this regard.
Contradictory procedures?
It may appear contradictory for an employer to terminate an employment relationship without notice and then prohibit the employee from performing certain activities by way of an injunction. In doing so, the employer indirectly assumes that the termination (without notice) could be invalid. The behavior of the employee who initiates unfair dismissal proceedings yet simultaneously enters into competition with their former employer is equally contradictorily.
Consideration of the individual case
However, the State Labor Court does not regard this as a fundamental problem: If an employee who is subject to a non-competition clause actively competes with their employee during ongoing unfair dismissal proceedings, this can create circumstances which cannot be ignored.
Yet, at the same time, the court also clearly stated that the interests of the employer and the employee in enforcing the non-competition clause must be weighed against each other when issuing a temporary injunction in such a case.
Does violating the non-competition clause during the unfair dismissal proceedings cause the (former) employer to suffer relevant “damage” (Sec. 12, Sec. 14 of the Basic Law (GG))? To what extent would prohibiting professional activity (Sec. 12 of the Basic Law (GG)) during the period of protection against dismissal affect the former employee in establishing their self-employment, for example? The decision then has to be made on the basis of the prevailing legal interests.
In the case before the Düsseldorf State Labor Court, the employer’s application for a temporary injunction requiring the employee to cease their competition during the ongoing unfair dismissal proceedings failed.
Summary of the key facts:
- A non-competition clause may also be effective during ongoing unfair dismissal proceedings.
- As a rule, employers may apply for an interim injunction to enforce the non-competition clause.
- When deciding on the preliminary injunction, the court shall weigh the interests of the employer and the employee against each other, taking into consideration the non-competition clause in the specific case.
