Trade Secrets in Employment Relationships in Germany

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Carsten Domke LL.M. CMS Hasche Sigle III. Protection of Trade Secrets A company can protect its confidential information by way of intellectual property rights, such as patents or copyrights, by way of general non-disclosure clauses in employment contracts, or by way of separate agreements. As a rule, employees are obligated to hold trade secrets in confidence and not to disclose them to third parties. With regard to time, however, a distinction must be made between non-disclosure obligations during a term of employment and pre- or post-contractual obligations. 1. Non-Disclosure Obligation During Employment: An employee's duty to hold trade secrets in confidence arises from the employment contract itself. Based on their contractual duty to show consideration for the business interests of their employers, employees are obligated to keep trade secrets, even without any special provision. This also arises as a result of the principle of good faith. Special agreements concerning the protection of secrets are often also included in written employment contracts. When such confidentiality agreements exceed the statutory scope by leading to an excessive contractual obligation for employees without this being justifiable owing to special company interests, they are invalid pursuant to §134 and §138 of the German Civil Code (BGB) (statutory prohibition, in violation of moral principles) (see IV. Requirements for Confidentiality Clauses in Employment Agreements). An employee's immanent contractual obligation to show consideration for the employer's interests is not limited to trade secrets, but includes all processes and facts with which the employee becomes acquainted in connection with his or her position in the business establishment and which it is in the employer's interest to keep secret. 2. Non-Disclosure Obligation Prior to Employment: Confidentiality obligations, so-called "pre-contractual confidentiality duties", can already be established in the course of hiring negotiations. During negotiations concerning an employment contract, however, there is only a limited confidentiality duty, and evidence must be presented showing that the future party to the contract has culpably breached it. 3. Non-Disclosure Obligation After the End of Employment: Especially after the end of employment, there are confidentiality obligations for employees. According to case law of the Federal Labor Court, employees are obligated to hold trade secrets in confidence after termination of their employment even without any special agreement to that effect solely on the basis of general fiduciary obligations having retroactive effect or on the basis of secondary obligations arising from the employment relationship. 3 The Federal Labor Court deems such conduct to be in 3 BAG decision of 16 August 1990, NZA 1991, 141. L:\JOBS\42179 ABA LEL\42179_Book vol 1\WIP files\Papers\125_Domke.doc 2
Carsten Domke LL.M. CMS Hasche Sigle breach of trust under §1 of the German Unfair Competition Act (Gesetz gegen den unlauteren Wettbewerb, UWG) and §823 and §826 of the Civil Code (concerning tortious acts and intentional unethical damage). 4 It is possible to agree on a more extensive confidentiality obligation for a specified period following the end of employment already in employment contracts or by way of a separate post-contractual protection of secrets. Court Ruling In a decision rendered on 27 April 2006, the German Federal Court of Justice (BGH) dealt with misappropriation of a customer list and use of it after the end of employment. The employee had obtained the list of customer data in the course of his employment. The Federal Court of Justice ruled that, although it is true that employees may make use of knowledge acquired during their term of employment without restrictions later as long as they are not under obligation not to compete with their former employers, this right concerns only information that employees retain in their memories. The right to make use of acquired knowledge after termination of employment, even to the detriment of the former employer, does not, however, apply to information to which a former employee has access only because he is able to draw on written documents from his term of employment. Such information, for example, in private, written records or in the form of a file saved on a private notebook, are deemed trade secrets and are thus protected. 5 4. Other Special Non-Disclosure Obligations There are other confidentiality obligations that apply to works council members 6 and to trainees 7 . No special rules apply to managing directors because of their positions as members of the board. The principles that apply to employees apply to them; however, the special relationship of trust is to be taken into account. IV. Requirements for Non-Disclosure Clauses in Employment Agreements The parties to employment agreements may validly stipulate that an employee may not use or share specified trade secrets of which he gains knowledge as a result of his work either while still employed or after termination of employment. Confidentiality clauses may be declaratory or substantiate law in terms of the scope of their subject matter with the consequence that they do not have independent substance and are merely descriptive of the protection of secrets that is already 4 BAG decision of 15 June 1993, NZA 94, 502. 5 BGH decision of 27 April 2006 – I ZR 126/03. 6 under §79 and §99(1), third sentence, of the German Works Constitution Act (Betriebsverfassungsgesetz, BetrVG) 7 under §9 No. 6 of the Federal Academic Training and Assistance Act (Bundesausbildungsgesetz, BBiG) L:\JOBS\42179 ABA LEL\42179_Book vol 1\WIP files\Papers\125_Domke.doc 3
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Trade Secrets in Employment Relationships in Germany

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