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18.01.2017
Arrangement options under employment law for the protection of company know-how – an overview
In more than 70% of the cases of the outflow of know-how, the company’s own employees are involved; often, they lack an awareness of wrongdoing. This requires protection strategies in line with employment law.
It is not possible to effectively agree to rule out ordinary termination on the part of the know-how carrier. At a minimum, arrangement options can provide notice periods for ordinary terminations. The employer may agree to notice periods that are longer for both parties than the statutory basic notice period, and to different effective dates (for example, the end of the quarter rather than the end of the month). The existence of the employment relationship during the notice period at least ensures that the duty of allegiance remains valid; among other things, by means of an interim injunction, the employer may enforce a cease-and-desist claim to prohibit an employee from otherwise working for a competitor during the notice period. In addition, an agreement may provide for a contractual penalty if the know-how carrier does not comply with the notice period.
Effective restrictions on competition, which also apply after the end of the employment relationship, represent more favorable alternatives. There are strict statutory requirements for post-contractual prohibitions on competition (§ 110. p. 2 of the German Trade, Commerce and Industry Regulation Act (Gewerbeordnung, “GewO”), § 74 et seq. of the German Commercial Code (Handelsgesetzbuch, “HGB”)). Among other things, the agreement must be in written form, and the maximum term is two years (§ 74a of the HGB, § 74, para. 1 of the HGB). The employer guarantees a compensation payment for the employee’s obligation to refrain from competing. The company should consider whether an activity-based prohibition on competition, which prohibits working in the area in which the employee previously worked, or a company-based prohibition on competition is preferred. In any case, a compensation payment for observing the competition restriction of at least 50% of the contractual benefits must be agreed (§ 110 of the GewO, § 74, para. 2 of the HGB). This includes not only the fixed salary, but all compensation components, such as profit-sharing payments, bonuses and even benefits in kind, such as a company car for private use. Moreover, the agreement of a contractual penalty in the case of misconduct is recommended. In general, without an equivalent compensation payment for observing the competition restriction, non-solicitation agreements and customer protection clauses are of limited value and usually fall short of more effective post-contractual non-competition clauses.
Employers often want to temporarily commit know-how carriers through so-called “repayment clauses”, if the know-how of the employee has been built up through investments in initial and advanced training. In the first step, the employee must have acquired knowledge and skills that he can also exploit and use to move up the career ladder outside of the business of the training company. The second step is to differentiate between the grounds for termination. The across-the-board focus on the termination of the employee as grounds for the repayment of the initial or advanced training costs is not sufficient. In the third step, the employer has to determine in detail and quantify the amount of advanced training costs to be incurred. The repayment amount must be correspondingly reduced on a pro rata temporis basis, for instance for each month of having been in the employment relationship.
The employee’s confidentiality obligation is of fundamental importance for the protection of company know-how. The crux in this regard is whether an employment relationship exists, or whether it has already ended. The existing employment relationship includes a confidentiality obligation for the employee. This also covers those facts that do not represent business or commercial secrets, but that the employer designates as confidential for legitimate operational interests in individual cases or that must be recognized as confidential by the nature of the matter. This may concern, for example, confidentiality regarding the personal circumstances or behavior of other employees. Independent of the legal necessity, it is recommended for practice purposes to expressly set up rules regarding confidentiality obligations. An express arrangement is ultimately an important contribution for creating among employees a real awareness of the existence and scope of their obligations. In the formation of a contractual provision to this effect, the requirement of transparency and the requirement of reasonableness of the check of the General Terms and Conditions of Business must be observed; in particular, a certain level of detail is necessary. As such, the frequently used clauses to maintain confidentiality regarding all business matters (so-called “omnibus clauses”) are ineffective. Group companies affiliated with the employer within the meaning of §15 et seq. of the German Stock Corporation Act (Aktiengesetz) may be included in the confidentiality obligation if there is a legitimate operational interest for it.
According to prevailing opinion, upon termination of the employment relationship, an employee is still obligated to maintain confidentiality over business and commercial secrets, even without an express agreement. However, business and commercial secrets, or even gained experiences, may be used by the employee for his own benefit. Only transfers are prohibited. The use of business and commercial secrets for an employee’s own benefit is permitted if the employee uses the information from his memory. If, however, during the employment relationship, the employee makes notes or even copies of data in electronic or paper form - for example, copies of customer lists - and then uses them, this constitutes an unauthorized provision of business and commercial secrets. This is even subject to criminal punishment under § 17, para. 2, no. 2 of the German Act against Unfair Competition (Gesetz gegen unlauteren Wettbewerb).
Employees are seldom aware of the existence or the scope of the confidentiality obligation. In the interests of effective know-how protection, appropriate training of employees offers a good method of raising awareness. If a training course is restricted to providing the basis for the protection of know-how under employment law, such a training course is subject to the co-determination right of the works council pursuant to § 98, para. 6 of the Works Council Constitution Act (Betriebsverfassungsgesetz, “BetrVG”). However, if – as is certainly recommended for practice – employees are not only informed of the legal situation, but are also given instruction in complying with requirements under employment law, observing any guidelines of the employee and implementing such guidelines in the workplace, this constitutes information within the meaning of § 81, para. 1 of the BetrVG, which, according to prevailing opinion, is not subject to co-determination.
Know-how protection must be holistic. The more pronounced the employer’s technical protection standard, the lesser the risk that employees might inadvertently or intentionally steal know-how. However, no employer could dispense with monitoring measures. In employing such measures, its interests in protection, which it may wish to enforce through surveillance measures, always collide with the right of personality of the employee and its expression in data protection. According to the current discussion, a legally sound basis for control measures can be achieved primarily in conjunction with the works council. Otherwise, it appears that the elevated requirements for effective control mechanisms would be even more difficult to manage.
Instruments of employment law cannot completely prevent an unwanted outflow of company know-how. However, they can be an important building block as part of an effective overall concept. For this reason, it is particularly important to make use of the available arrangement options. It is at least as important to ensure that employees are properly aware of this issue.
Süßwarenindustrie Spezial – Jahresrückblick 2016
Effective restrictions on competition, which also apply after the end of the employment relationship, represent more favorable alternatives. There are strict statutory requirements for post-contractual prohibitions on competition (§ 110. p. 2 of the German Trade, Commerce and Industry Regulation Act (Gewerbeordnung, “GewO”), § 74 et seq. of the German Commercial Code (Handelsgesetzbuch, “HGB”)). Among other things, the agreement must be in written form, and the maximum term is two years (§ 74a of the HGB, § 74, para. 1 of the HGB). The employer guarantees a compensation payment for the employee’s obligation to refrain from competing. The company should consider whether an activity-based prohibition on competition, which prohibits working in the area in which the employee previously worked, or a company-based prohibition on competition is preferred. In any case, a compensation payment for observing the competition restriction of at least 50% of the contractual benefits must be agreed (§ 110 of the GewO, § 74, para. 2 of the HGB). This includes not only the fixed salary, but all compensation components, such as profit-sharing payments, bonuses and even benefits in kind, such as a company car for private use. Moreover, the agreement of a contractual penalty in the case of misconduct is recommended. In general, without an equivalent compensation payment for observing the competition restriction, non-solicitation agreements and customer protection clauses are of limited value and usually fall short of more effective post-contractual non-competition clauses.
Employers often want to temporarily commit know-how carriers through so-called “repayment clauses”, if the know-how of the employee has been built up through investments in initial and advanced training. In the first step, the employee must have acquired knowledge and skills that he can also exploit and use to move up the career ladder outside of the business of the training company. The second step is to differentiate between the grounds for termination. The across-the-board focus on the termination of the employee as grounds for the repayment of the initial or advanced training costs is not sufficient. In the third step, the employer has to determine in detail and quantify the amount of advanced training costs to be incurred. The repayment amount must be correspondingly reduced on a pro rata temporis basis, for instance for each month of having been in the employment relationship.
The employee’s confidentiality obligation is of fundamental importance for the protection of company know-how. The crux in this regard is whether an employment relationship exists, or whether it has already ended. The existing employment relationship includes a confidentiality obligation for the employee. This also covers those facts that do not represent business or commercial secrets, but that the employer designates as confidential for legitimate operational interests in individual cases or that must be recognized as confidential by the nature of the matter. This may concern, for example, confidentiality regarding the personal circumstances or behavior of other employees. Independent of the legal necessity, it is recommended for practice purposes to expressly set up rules regarding confidentiality obligations. An express arrangement is ultimately an important contribution for creating among employees a real awareness of the existence and scope of their obligations. In the formation of a contractual provision to this effect, the requirement of transparency and the requirement of reasonableness of the check of the General Terms and Conditions of Business must be observed; in particular, a certain level of detail is necessary. As such, the frequently used clauses to maintain confidentiality regarding all business matters (so-called “omnibus clauses”) are ineffective. Group companies affiliated with the employer within the meaning of §15 et seq. of the German Stock Corporation Act (Aktiengesetz) may be included in the confidentiality obligation if there is a legitimate operational interest for it.
According to prevailing opinion, upon termination of the employment relationship, an employee is still obligated to maintain confidentiality over business and commercial secrets, even without an express agreement. However, business and commercial secrets, or even gained experiences, may be used by the employee for his own benefit. Only transfers are prohibited. The use of business and commercial secrets for an employee’s own benefit is permitted if the employee uses the information from his memory. If, however, during the employment relationship, the employee makes notes or even copies of data in electronic or paper form - for example, copies of customer lists - and then uses them, this constitutes an unauthorized provision of business and commercial secrets. This is even subject to criminal punishment under § 17, para. 2, no. 2 of the German Act against Unfair Competition (Gesetz gegen unlauteren Wettbewerb).
Employees are seldom aware of the existence or the scope of the confidentiality obligation. In the interests of effective know-how protection, appropriate training of employees offers a good method of raising awareness. If a training course is restricted to providing the basis for the protection of know-how under employment law, such a training course is subject to the co-determination right of the works council pursuant to § 98, para. 6 of the Works Council Constitution Act (Betriebsverfassungsgesetz, “BetrVG”). However, if – as is certainly recommended for practice – employees are not only informed of the legal situation, but are also given instruction in complying with requirements under employment law, observing any guidelines of the employee and implementing such guidelines in the workplace, this constitutes information within the meaning of § 81, para. 1 of the BetrVG, which, according to prevailing opinion, is not subject to co-determination.
Know-how protection must be holistic. The more pronounced the employer’s technical protection standard, the lesser the risk that employees might inadvertently or intentionally steal know-how. However, no employer could dispense with monitoring measures. In employing such measures, its interests in protection, which it may wish to enforce through surveillance measures, always collide with the right of personality of the employee and its expression in data protection. According to the current discussion, a legally sound basis for control measures can be achieved primarily in conjunction with the works council. Otherwise, it appears that the elevated requirements for effective control mechanisms would be even more difficult to manage.
Instruments of employment law cannot completely prevent an unwanted outflow of company know-how. However, they can be an important building block as part of an effective overall concept. For this reason, it is particularly important to make use of the available arrangement options. It is at least as important to ensure that employees are properly aware of this issue.
Süßwarenindustrie Spezial – Jahresrückblick 2016
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