Poor performance, Facebook opinion statements, and the elimination of non-compete compensation for GmbH managing directors (MDs) – 3 employer-favoring rulings that draw attention.
There is a persistent myth in German labor law since ages. The myth claims that employees who have secured a permanent employment contract are practically not dismissable. However, 3 new judgements illustrate that it is different.
This is now impressively demonstrated by two recent court rulings: one from Bremen, involving the immediate dismissal of two service employees due to poor performance, and another from Berlin, where the labor court once again highlighted the limits of free expression on Facebook and social media. Consequently, the court deemed the employer’s conduct-related and thus regular termination as valid.
Last but not least, a ruling from Karlsruhe that provides supreme court-level clarity. If the managing director’s employment contract includes a clause stipulating the elimination of non-compete compensation in the event of a breach of a post-contractual non-compete clause, such a clause is fundamentally permissible, and the legal consequence of forfeiting the payment claim is valid. This serves as an unequivocal affirmation of the contractual principle of pacta sunt servanda.
Decisions of the Labor Court Bremen-Bremerhaven dated December 14, 2023 (2 Ca 2206/23 and 2 Ca 2207/23)
a) What happened?
The Labor Court Bremen-Bremerhaven dismissed the lawsuits filed by two service employees of the Bremen Citizen Hotline against their immediate terminations. The dismissals were based on extremely low phone usage times (between 16% and 35% instead of the expected 60% of working hours), which the court deemed as a deliberate neglect of work duties.
Although the admissibility of analyzing phone behavior data was disputed between the employer and the dismissed employees, the court deemed it permissible. This was partly due to procedural reasons, as the staff council had approved the measure. The court found no connection between the dismissals and potential union membership of the plaintiffs. Additionally, when considering the exclusion of evidence, courts regularly conduct a case-by-case assessment: Which interests and rights of the parties involved carry greater weight? It would be an abuse of rights if information that does not fundamentally belong to the private sphere were always deemed inadmissible in court. This is the classic "where-would-we-end-up-otherwise" argument that courts often use in weighing legal questions to reach a decision.
b) What should you pay attention to?
As an employer, define Key Performance Indicators (KPIs) and document them carefully (establish processes and assign this task to a specific employee). This documentation should be added as a supplement to the job description in the employment contract. KPIs serve both as performance incentives and as clearly defined performance benchmarks, which are practical and legally permissible for inclusion in employment contracts. This is particularly relevant for roles that are less subject to social oversight and direct observation by the employer and are therefore more difficult to measure. While this is less applicable in areas such as sales and procurement, it is especially important in departments like customer service and customer experience, which are less easily quantifiable.
Labor Court Berlin, Judgment of October 7, 2024 (59 Ca 8733/24 and 59 Ca 11420/24)
a) What happened?
The Berlin Labor Court recently upheld the termination of a BVG employee who had posted a controversial image in a Facebook group with over 1,000 members. The photomontage depicted a kneeling man with a ver.di logo, with a gun pointed at his head, captioned "VER.DI DOESN'T HEAR THE WARNING SHOT!"
Seven union officials felt threatened and filed a complaint. The court ruled that the post exceeded the limits of permissible free speech, constituted a specific threat to union members, and significantly disrupted workplace harmony. Although the immediate termination was rejected, the court upheld the regular termination, emphasizing that employees’ freedom of expression on social media is limited, particularly when statements can be perceived as threatening.
b) What should you pay attention to?
As an employer, formulate or expand your Code of Conduct to establish absolute no-go behaviors. These no-go areas or red flags should include actions that are fundamentally incompatible with your company’s values. Why should you do this? It provides you with a stronger foundation—not just citing an ethical or moral breach of common decency but addressing a tangible violation of contractual obligations. This allows you to take legally secure and enforceable actions against excessive expressions of opinion.
Federal Court of Justice ruling of April 23, 2024 (Case No. II ZR 99/22)
a) What happened?
The Federal Court of Justice (BGH) has issued a significant ruling on non-compete compensation for GmbH managing directors. The court upheld the validity of contractual clauses providing for the retroactive elimination of non-compete compensation in cases of violations of the non-compete agreement. The BGH clarified that, unlike employees, GmbH managing directors are not entitled to mandatory non-compete compensation. If such compensation is agreed upon, the parties are free to determine its amount and conditions. The court did not consider this arrangement to impose an unreasonable burden on the managing director. This decision strengthens the position of companies in enforcing non-compete agreements against former managing directors and provides legal certainty regarding the drafting of such contractual clauses.
b) What should you pay attention to?
For both parties—the GmbH and the managing director—it is crucial to pay special attention to the legal consequences of the stipulated post-contractual non-compete agreement in a managing director's employment contract governed by German law, up until the last day of the non-compete period. The Federal Court of Justice (BGH) emphasizes that the principle of "contracts must be honored" applies, and that clauses should be interpreted literally in case of doubt.
All the decisions illustrated in this blog post share one fundamental insight: they highlight the importance of crafting employment contracts wisely, complemented by supplementary contractual documents that proactively anticipate all possible scenarios—including worst-case scenarios—and establish binding regulations for the future.
An effective tool for employers to counter the phenomenon of time fraud, alongside contract design, is the formulation of KPIs. To effectively prevent a lack of recourse in cases of defamatory statements, employers are advised to introduce or, if already in place, adjust a Code of Conduct. Codes of Conduct, as an extension of employees' contractual ancillary obligations, can provide employers with better leverage to address potentially toxic employees, potentially enabling extraordinary or, at the very least, regular termination.
Finally, the Federal Court of Justice ruling on the elimination of non-compete compensation provides employers with legal certainty and clarity regarding the conditions under which the payment claim may be forfeited. In this context, the prudent drafting of managing director service contracts is of paramount importance, especially given their significant economic implications.
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