Under German statutory law, a post-contractual non-compete clause is enforceable only if it provides for adequate compensation. Such compensation must be at least 50 percent of the employee's total remuneration.
Non-compete clauses in the United Kingdom or United States do not typically provide for compensation.
In Germany, once validly agreed (with at least 50 percent compensation provided for), the employer cannot simply waive the post-contractual non-compete obligation with immediate effect. Instead, the employer is released from the duty to pay the agreed compensation only after one year following the written waiver.
In this case decided by the Federal Labor Court, the plaintiff had a post-contractual non-compete clause in her contract which did not provide for any compensation. It did, however, contain a severability clause according to which any unenforceable contractual provision should be deemed replaced by a valid and enforceable one.
The employee observed the post-contractual non-compete obligation and claimed payment of a non-compete compensation in the amount of 50 percent of her last contractual remuneration. She won in the first two instances.
In the final instance, the Federal Labor Court reversed the outcome and decided in the employer's favor—a non-compete clause not providing for any compensation is void and cannot be saved by a severability clause. The employee was denied the compensation.
This decision is certainly good news for those employers who do not pay compensation on purpose in the hope that the employee will abide by the post-contractual non-compete obligation (accepting it would not be enforceable in light of the lack of compensation).
Gender Pay Gap Law Implemented Summer 2017
Germany has implemented a new law targeting pay inequality between men and women. The Pay Transparency Act (Entgelttransparenzgesetz or "PTA") prohibits differences due to gender in pay for equal work or work of equal value. Any person who is discriminated against can claim the same salary as a comparable employee of the other gender.
Female and male employees do work of "equal value" if they can be considered to be in a comparable situation regarding their work. The type of work, the qualification requirements for the job and work conditions must be comparable.
The essential new feature of the PTA is the ability to request information—in operations with more than 200 employees, individual employees will be entitled to request information about the criteria and the procedure by which the employer determines salaries, with respect to both their own salary as well as the salary of members of the other gender working in a comparable job.
The ability to claim information exists only if there are at least six employees of the other gender working in a comparable position.
Employers should carefully prepare any response to such information requests. The main consequence of not providing an answer is that the burden of proof switches to the employer if the employee files a lawsuit claiming equal salary. A proper response can avoid this procedural disadvantage for the employer.
With this new law, Germany for the first time has introduced a statutory disclosure obligation with regard to pay differences based on gender. This is especially important because Germany otherwise does not permit discovery and pre-trial disclosure. Companies will have to think strategically about proactive or reactive disclosure and will have to review their compensation models.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.