As a rule, companies with limited liability (GmbH) have a fundamental interest in their managing directors not supporting competing companies. This interest applies in particular for the period of activity of the managing director. But even after the task of organ position, a former managing director can potentially support competing companies, e.g. with his know-how or his network. For this reason, competition bans for GmbH managing directors are widespread in the business world.

For the assessment of non-compete clauses used by a GmbH, it is first necessary to distinguish who is affected by the non-compete clause. Depending on the addressee or agreement partner, there are different conditions and legal consequences. This article deals exclusively with non-compete clauses directed at managing directors. The following statements are therefore not directly applicable to non-compete clauses for sole shareholders or employees of a GmbH.

Furthermore, a distinction must be made as to whether the non-compete clause applies during the activity as Managing Director or should apply after termination of the activity as Managing Director. Both constellations are explained in more detail in the following embodiments.

2nd non-competition during management activities

During the activity as managing director, competition with the GmbH in which the position of organ is exercised is prohibited. This prohibition of competition is derived, in the absence of a legal basis, from the general duty of fidelity under company law. It is based directly on the position of the managing director and therefore does not require a separate contractual basis. The prohibition of competition serves to protect the legitimate interests of the GmbH, in particular within the business sector. In particular, it is generally forbidden for the managing director to become entrepreneurially active in the GmbH business area for his own account. In terms of content, this also includes the obligation of the managing director to maintain the advantages of the GmbH and to take advantage of business opportunities for the GmbH instead of personally or for third parties.

If, however, no legitimate interests of the GmbH in this sense are affected by the conduct of the managing director, the conduct is not covered by a non-compete clause. According to recent jurisprudence of the OLG Stuttgart[1], a minority shareholding of the managing director in a competing company is not sufficient to impair the interests, as far as the shareholding does not give the managing director any influence. The GmbH can in principle waive the prohibition of competition in favour of the managing director. Whether the approval of all shareholders is necessary for this purpose or a majority decision is sufficient is controversial in the specialist literature. Subject to appropriate conditions, a subsequent approval of competing activities of the managing director by the GmbH is possible at any time. If neither the GmbH waives the prohibition of competition nor a violation of the Managing Director is subsequently approved, the Managing Director of the GmbH is in principle obliged to compensate the damage incurred. The prohibition of competition for managing directors, derived from corporate fiduciary duty, ends with the termination of the position of director.

In contrast to the non-compete clause, a post-contractual non-compete clause only applies after termination of the activity as managing director due to the general duty of fidelity under company law (2.). The purpose of the post-contractual non-compete clause is primarily to prevent direct support of competing companies by the former managing director after termination of the cooperation. This form of non-competition exists exclusively on the basis of an express contractual agreement between the GmbH and the Managing Director. In practice, a corresponding contractual clause is usually to be found in the service contracts concluded between GmbH and Managing Director. The inclusion of such prohibition clauses is permissible in principle according to settled supreme court case law. However, the drafting of the contract with regard to a post-contractual non-compete clause is by no means simple. The legal effectiveness of such a prohibition clause is often difficult to assess due to the sometimes unclear jurisprudence and lack of special legal regulations. It is therefore questionable in particular on the basis of which criterion the effectiveness of a post-contractual non-compete clause is to be measured.

3.1. Applicability of §§ 74 ff. HGB

§§ 74 et seq. of the Commercial Code (HGB) contain statutory provisions for non-compete clauses concerning “agents and trainees”. Via the reference in § 110 GewO, these legal standards also apply to non-competition clauses affecting employees. According to settled case law of the Federal Court of Justice (BGH), §§ 74 ff. However, HGB does not apply to corporate bodies. Accordingly, the GmbH Managing Director does not fall within the scope of this legislation. This inapplicability of §§ 74 ff. HGB on GmbH Managing Director is criticized due to evaluation contradictions to employees of parts of the specialist literature.

3.2. The nullity of the non-compete clause according to § 138 BGB

The effectiveness of the non-compete clause is therefore primarily to be measured against the criterion of nullity according to § 138 BGB. According to the relevant case law, a post-contractual non-compete clause is legally effective if it serves the legitimate interests of the GmbH and does not unreasonably complicate the professional exercise and economic activity of the managing director according to place, time and object. If the contractual clause violates these requirements, the prohibition of competition is in principle null and void and therefore ineffective.

3.2.1. Local boundaries

The non-compete clause should in principle be based on the (relevant) business area of the GmbH in spatial terms. Depending on the individual case, the ban can be extended to a specific region or even internationally to different countries. However, an appropriate choice of the local application of the non-compete clause must ensure that over-regulation is avoided.

3.2.2. Time limits

A time-unlimited non-compete clause is in principle inappropriate and a violation within the meaning of § 138 BGB. However, the specific determination of an appropriate time limitation of the non-compete clause depends on the specific facts in the individual case. As a rule, a time restriction of up to two years is legal. However, there may be special circumstances which require a shorter time limit in order to prevent the non-compete clause from being null and void.

3.2.3. The present boundaries

The present limits of the non-compete clause standardize which activities of the Managing Director are prohibited by post-contract. On the one hand, the prohibition clause must regulate to which undertakings or branches of business the non-compete clause should refer. On the other hand, the clause should specify in detail the fields of activity that the managing director should be prohibited (managing director, employee, self-employed, shareholder, etc.). However, particular attention must be paid to the definition of the limits of the non-compete clause. According to a resolution of the Munich Higher Regional Court[2], a non-compete clause is already inappropriate if it prohibits the managing director from any activity for a competing company, even those without reference to the previous activity of the managing director.

3.2.4. The effective reduction

Whether a reduction of an inappropriately designed non-compete clause to an appropriate level is permissible cannot be assessed in a uniform manner. In any case, it is recognized by case law that the provisions of § 74a para. 1 HGB standardized reduction is not applicable to managing directors (cf. 3.1.). Furthermore, the case-law assumes that a non-compete clause which is excessive in terms of time can in principle be reduced to a quantitatively appropriate level. The legal validity of the prohibition clause can thus be maintained for the appropriate substance. However, according to the case-law, such a maintenance of an appropriate level of non-compete is not permissible with regard to the scope of the present application. Whether the validity-preserving reduction can be applied to a crossing of the local borders has not yet been conclusively clarified, but is required by parts of the specialist literature with regard to the case law regarding the time limits.

3.2.5. The Salvatory Clause

Whether a salvatory clause, i.e. a contractual clause which limits the scope of a contract to the legally valid part in order to prevent complete nullity, can maintain an unreasonable non-compete clause with its appropriate part has also not yet been uniformly decided by the case-law. As a rule, however, it makes sense to include one as a supplement to a competition ban. As an alternative comes a contractually agreed applicability of § 74a Abs. 1 HGB under consideration.

3.3 Consequences of a null non-compete clause

Is the contractually agreed non-compete clause according to the above criteria acc. § 138 BGB void, it is completely ineffective. It shall have no effect or legal binding effect on the Parties.

3.4. Unilateral waiver of the prohibition of competition by the GmbH

According to the case law of the BGH, the GmbH is allowed to unilaterally waive a previously contractually agreed non-compete clause during the activity of the managing director for the GmbH. However, the consequences of such a unilateral waiver are not clear. In particular, the fate of an agreed financial compensation of the managing director is questionable. This question is currently only to be answered separately for each specific individual case. In any case, a unilateral waiver by the GmbH should only be possible by applying a reasonable period (during which an agreed compensation is to be paid by the GmbH despite waiver), during which the managing director can adjust to the new circumstances.