Germany: Immediate termination due to participation in a competing company

In Germany, notice periods in cases of ordinary termination can be very long (eg, seven months to the end of a calendar month). Until expiry of the notice period, an employee is prohibited by law from carrying out competing activities. If an employee infringes this prohibition, this can (on a case-by-case basis) justify a termination for cause with immediate effect. Under certain conditions, holding shares of a competing company can also be considered a competing activity.

In its judicial decision dated 12 April 2017 (case number 3 Sa 202/16), the Higher Regional Labour Court of Schleswig Holstein confirmed the validity of a termination with immediate effect during the term of the notice period because of a participation in a competing company.

In this case, the employee had been holding 50% of the shares in the competing company and the resolutions by the shareholders’ meeting required a simple majority of the votes. The employee’s participation gave him a blocking right and for each decision in relation to the company’s business an agreement with the employee was required. Such participation and the blocking rights were considered to be a competing activity which justified a termination with immediate effect.

As the employee is prohibited by law from carrying out competing activities during their notice period, it is advisable to monitor compliance. This in particular applies to senior executives and sales staff who leave the company and were responsible for important customer relationships.