Post-termination non-compete: what employees need to know

After an employment contract ends in Germany, any existing ban on joining a competitor disappears. After all, the constitution guarantees your freedom to choose your next job. However, a post-termination non-compete can change that. It restricts an employee’s job options after leaving a company – but only if strict legal conditions are met. In return, the employer must pay financial compensation (Karenzentschädigung). This article explains when such clauses are valid, how long they apply, what compensation is owed, and how employees can avoid signing away their career freedom unnecessarily.

Key takeaways

• A post-termination non-compete blocks employees from joining a competitor after leaving a job – but only if all legal requirements are met.
• Employers must pay at least 50% of the last contractual earnings as compensation for the restriction.
• The clause is only valid if it is reasonable in duration, geography, and scope – and must be in writing.
• The maximum legal duration is two years after employment ends.
• If the clause is invalid, the employee is free to work anywhere – and still owes nothing back.

Non-compete during employment

While the employment contract is active, every employee owes a certain “duty of loyalty”. This means they may not work for, invest in, or otherwise support a direct competitor. This applies to all employees, not only senior staff. Even without an explicit clause in the contract, the duty exists under German commercial law and a breach may justify dismissal.

Switching to a competitor after termination is allowed

Once the employment relationship ends, the default rule changes: employees are generally free to move to any competitor or start their own competing business. After all, the constitution guarantees your freedom to choose your next job (“Berufsfreiheit”). Even poaching former customers or colleagues is normally lawful, unless very fishy methods are used.

Exception: post-termination non-compete agreement

There is an exemption to this rule. Because employers may have a legitimate interest in stopping former employees from joining the competition straight away – for example, to protect software, intangibles, business contacts, trade secrets or key strategies. In that case, the parties may agree on a post-termination non-compete, but the law imposes strict limits.

Requirements for a valid post-termination non-compete

A valid non-compete (often called a “Konkurrenzklausel”) must meet all of the following conditions:

• Legitimate business interest: e.g., protection of confidential know-how or customer relationships.
• Reasonable scope: limited in geography, industry, and tasks.
• Written agreement: oral promises are void.
• Maximum duration of two years: anything longer is invalid.
• Mandatory compensation: the employer must pay at least 50% of the last contractual earnings (Karenzentschädigung).

Special rules for managing directors

Managing directors are not protected by German labor courts. Their disputes are decided before civil courts and follow the case law of the Federal Court of Justice (BGH), which applies slightly different principles. As a result, managing directors often face broader and more enforceable non-competes than regular employees.

When is a non-compete invalid?

Employees who receive an attractive offer from a competitor often ask whether the clause can be ignored. The answer depends on whether the agreement meets all legal requirements. If any element is missing – e.g., no compensation, excessive duration, unreasonable territorial scope – the clause becomes unenforceable.

Non-compete without compensation

A post-termination non-compete without compensation is always void, even if the contract contains a “savings clause.” The compensation must amount to at least 50% of the last regular earnings, including variable pay. However, the presence of compensation alone does not make the clause valid – all other conditions must still be met.

Validity of a non-compete after different types of termination

• Ordinary dismissal by employer: employee may choose to comply (and receive compensation) or ignore the clause.
• Valid immediate dismissal by employer: employer alone may decide whether the clause remains binding.
• Ordinary resignation by employee: employee must comply with the clause.
• Valid immediate resignation by employee: the clause becomes non-binding; the employee may choose whether to comply and collect compensation.

Non-compete in a separation agreement

Many non-competes are added later in a termination or settlement agreement. The same strict rules apply. Because such clauses can severely limit future career options, employees should seek legal advice before signing.

Contractual penalties can be (mostly) legal 

Employers sometimes secure compliance with a contractual penalty. Enforcing such a penalty requires close review under German standard-term rules. Employees should not assume a penalty clause is automatically valid; specialised legal advice is strongly recommended.

Frequently asked questions (FAQ)