1. Types of Restrictive Covenants
a. Non-compete Clauses
An employee may enter into an obligation towards the employer to refrain from any competitive activity after termination of the employment relationship. A post-termination noncompetition clause is binding only if the employment relationship gives the employee access to customer data, manufacturing secrets, or business secrets, and if the use of such knowledge could significantly damage the employer.
The noncompetition clause has to be in written form (noncompetition clauses in general employment conditions are therefore not enforceable) and must be reasonably limited in terms of geographic market, time, and products/services in order to preclude an unreasonable impairment of the employee’s economic prospects. The maximum duration of a post-termination noncompetition clause is three years.
b. Non-solicitation of customers
Generally speaking, it is very difficult to prohibit an employee from soliciting any clients and customers of an employer because in most cases the damage potential is not high enough. However, a non-solicitation of clients covenant is often valid (i) if the employee had access either to them or to their customer data or (ii) if such clients were clients/customers for products and services for which the employee was responsible.
c. Non-solicitation of employees
During employment, the duty of loyalty does not allow employees to solicit employees. For the time after employment, the question arises whether non-solicitation covenants are subject to the same restrictions as noncompetition covenants. If this were the case, as argued by some scholars, restrictions would in most cases not be enforceable, because there is no direct competition on the end market for the products and services of the employer.
However, the majority of scholars are of the opinion that non-solicitation covenants regarding employees are not subject to the same restrictions as general post-contractual noncompetition covenants because such covenants do not restrict employees in their professional development.
2. Enforcement of Restrictive Covenants
Without including such a specific enforcement clause, the employer can claim only damages, but not compliance with the noncompetition covenant. In practice, the burden of proof for damages requires real factual evidence of damage, which makes it very difficult for an employer to claim damages. Hence, without an agreed penalty, a noncompetition undertaking is rather toothless. Consequently, it is very important to define an adequate penalty for breach, and the courts tend to reduce stipulated penalties. Penalties are quite often based on the duration of non-compliance, for example, on a daily, weekly, or monthly basis. Further, the remedy of specific performance requires an express written agreement.
3. Use and Limitations of Garden Leave
Generally, employers are obligated to let employees work unless (i) there is a clear agreement to the contrary in their employment agreements, or (ii) there are exceptional circumstances, which justify a temporary release from duties (such as a reasonable suspicion about substantial breach of loyalty duties including acts of crime against the employer). Hence, a full release from duties during employment can constitute a breach of obligation by the employer. Once notice of termination of employment has been issued, case law permits release from duties (garden leave), subject to the employee’s personal rights.