Trade Secrets in Employment Relationships in Germany

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Carsten Domke LL.M. CMS Hasche Sigle provided under statutory law. However, the requirements for more extensive agreements are stringent. "All-encompassing confidentiality clauses" subject all business events of which an employee becomes aware while employed to the duty of confidentiality and thus exceed statutory confidentiality obligations, particularly those contained in §17 and §18 of the Unfair Competition Act. The employees are thus not allowed to make professional use of the knowledge they have acquired in the sector. Such a provision is thus to be treated like a non-compete clause within the meaning of §74 ff. of the German Commercial Code (Handelsgesetzbuch, HGB), with the consequence that it will be binding only if a compensation payment for the employee in question was agreed upon at the same time. According to case law of the Federal Labor Court, such confidentiality clauses without a stipulation of compensation are invalid owing to their intensity. 8 When trade secrets are less important, the term of the post-contractual confidentiality duty should also be reduced. For trade secrets of extreme importance, this term can exceed two years in exceptional cases. According to §310(4), second sentence, of the Civil Code, an invalid contractual clause that is significantly detrimental to an employee cannot be reduced to preserve its validity. "Restricted confidentiality clauses" are allowed as long as they restrict the trade secrets in terms of subject matter to those that are of particular importance for the company, so that the company has a legitimate interest in keeping them secret. If this is done, it is generally assumed that the company's interest in confidentiality outweighs the employee's interest in professional advancement. 9 The explosive nature of a trade secret is thus determinative for the assumption of a legitimate interest in secrecy. Trade secrets should be specified precisely. With regard to the temporal scope of confidentiality clauses in employment contracts, it must be considered whether and to what extent the employee has to rely on use of acquired knowledge for professional advancement. When weighing the conflicting interests, the extent to which the employee was involved in the creation of the secret is relevant, because otherwise the employee's use of professional knowledge based on experience might be impermissibly restricted. In any case, if an employee's interest in freedom of occupation outweighs the company's interest in secrecy, it is impermissible to permanently forbid him to make use of a secret. If the company-specific issues cannot affect the employee's freedom of occupation, the Federal Labor Court considers the boundary for a post-contractual non-compete clause to be overstepped, and a confidentiality obligation can be validly agreed upon only by way of post-contractual non-compete clause with compensation and for a maximum term of two years. The maximum term will also be assumed if an employee is forbidden to make any use whatsoever of professional knowledge based on experience. 8 BAG decision of 16 March 1982, 3 AZR 83, 79. 9 Gaul, NZA 1988, 230; Kunz, DB 1993, 2482; Mes, GRUR 1979, 583. L:\JOBS\42179 ABA LEL\42179_Book vol 1\WIP files\Papers\125_Domke.doc 4
Carsten Domke LL.M. CMS Hasche Sigle Example of a Confidentiality Clause in an Employment Agreement: "For the duration of his/her employment, the Employee undertakes to hold in confidence all business and trade secrets and business events of which he/she becomes aware during the term of this Agreement. This confidentiality obligation shall continue to apply after the termination of employment with regard to the following business and trade secrets: […] This confidentiality obligation shall not extend to such knowledge that is generally accessible or to knowledge the disclosure of which is clearly not detrimental to the company. In the case of doubt, the Employee shall be obligated to obtain a directive from management on whether a specific fact is to be held in confidence." 10 V. Protection of Trade Secrets Under Criminal Law Trade secrets that are targets of industrial espionage are protected under criminal law, primarily by §17 of the Unfair Competition Act and §266 of the German Criminal Code (Strafgesetzbuch, StGB) and further by §18 and §19 of the Unfair Competition Act, and also by §202a, §203 and §204 of the Criminal Code. The key statute in practice is §17 of the Unfair Competition Act. Under subsection 1 of this statute, a betrayal of trade secrets by a person employed by the affected company during the term of employment carries a penalty. The offender can thus only be an employee of the company. Section 17 of the Unfair Competition Act reads as follows: "(1) A prison sentence not exceeding three years of a fine shall be imposed on any employee, workman or apprentice of a business enterprise who during the term of his employment, without authorization, communicates to a third party a trade or industrial secret that has been confided to him or made available to him by virtue of his employment, if he does so for purposes of competition, for personal gain, for the benefit of a third party or with the intention of damaging the proprietor of the business. (2) The same punishment shall be imposed on anyone who, for purposes of competition, for personal gain, for the benefit of a third party or with the intention of damaging the proprietor of the business, 1. obtains or secures a trade or industrial secret without authorization through a. the use of technical means, b. the creation of an embodied reproduction of the secret, or c. the removal of an item in which the secret is embodied, or 10 Arbeitsrechtliches Formular- und Verfahrungshandbuch, 9 th ed. 2998, §2 Arbeitsverträge für Angestellte, Margin No. 25. L:\JOBS\42179 ABA LEL\42179_Book vol 1\WIP files\Papers\125_Domke.doc 5
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