Cost ex­plo­sion in the post-con­trac­tual non-com­pe­ti­tion clause? This does not have to be!

August 2022 · Estimated read time: mins

Encouraging news from the Federal Labor Court (ruling dated August 25, 2022 - 8 AZR 453/21)

If the parties to the employment contract have agreed on a post-contractual non-competition clause, the value of additional "benefits" granted solely by another Group company does not have to be included into the calculation of a compensation for the period of non-competition.


RSUs / Equity Incentives / LTIs / Shares

Particularly in international companies, employees often not only receive a compensation package from their (local) employer, but also participate in stock (option) programs from the parent company.


Post-contractual non-competition clause

If the (local) employer and the employee agree on a so-called "post-contractual non-competition clause" and the employee terminates the employment relationship, he may not compete with his former employer for the agreed period of time.


Non-competition clause - calculation?

The employer must pay the employee a so-called "compensation for non-competition" for the period of the post-contractual non-competition agreement. This must amount to at least 50% of the "contractual remuneration", i.e. the remuneration agreed between the employer and the employee.


Consider benefits from third parties?

The German Federal Labor Court has now clarified that the value of additional stock (option) programs granted by the parent company is not to be taken into account when calculating the compensation for non-competition.

Important: This only applies if the local employer has not taken over any (co-)obligation for the participation in the stock (option) program.


What can companies do?

Separate! A distinction must be made between the employee´s participation in the parent company's stock (options) program and the employment contract with the "local" employer. If the parent company wants to have employees of the subsidiaries participate in the stock (options) programs, a separate agreement on this should be concluded with the parent company alone.


Companies should proceed carefully when implementing stock (option) programs in order to avoid incalculable cost explosions.

In the Federal Labor Court case, the employee had received a monthly waiting allowance of approximately EUR 5,350.00 and demanded a further EUR 8,900.00 per month (!). The costs can therefore be significant.

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