The effectiveness of confidentiality clauses in employment contracts

Which information qualifies as a trade secret?

Posluschny: The Federal Labour Court’s decision on 17 October 2024 (file no. 8 AZR 172/23) highlights that employers are only protected under the German Trade Secrets Act (Geschäftsgeheimnisgesetz – GeschGehG) if a trade secret, as defined in section 2 (1), actually exists. A trade secret is defined as business information that is, firstly, information that is not generally known or easily accessible and, secondly, whose confidentiality is economically significant for the legitimate holder.

Rübel: The third key element is that the information holder must have taken reasonable steps to keep the information secret and have a legitimate interest in keeping it secret. The type of confidentiality measures which are considered adequate depends on the nature of the trade secret in question and its specific use. Only when these three conditions are met can the employer assert claims for the removal of the infringement or injunctive relief under section 6 German Trade Secrets Act.

When are confidentiality measures considered adequate?

Rübel: In practice, this is a vague legal concept leaving room for interpretation. Confidentiality measures are considered adequate if the information holder has done everything necessary and reasonable in advance to prevent the respective information from becoming public knowledge. This means that employers need a process that is specifically tailored to individual secrets which includes technical, organisational and contractual measures. According to the Federal Labour Court ruling referred to above, general statements about technical security or IT security are not sufficient to determine the adequacy of confidentiality protection. Depending on the circumstances, additional measures may be required. An overall evaluation must be made in such cases. While various protection measures may result in an adequate level of protection, a “data leak” may indicate that the adequate level of protection no longer exists (Higher Regional Court of Stuttgart, 19 November 2020 – 2 U 575/19).

Posluschny: The focus on tangible, specifically defined trade secrets means that employees must have knowledge of their obligation to keep this specific information confidential (Higher Regional Court of Stuttgart, 19 November 2020 – 2 U 575/19). Confidentiality clauses in employment contracts must therefore refer to specific business information, and a corresponding control system must have been put in place.

Are confidentiality clauses in employment contracts still relevant?

Posluschny: Confidentiality clauses are relevant and necessary. To protect the economic value of a secret and make it effective for the employer, confidentiality clauses must comply with legal requirements. In the Federal Labour Court decision, there was a standard contractual clause that required the employee to maintain confidentiality “regarding all trade and business secrets and all other matters and processes that come to his knowledge in the course of his work” and even after termination of his employment. The Federal Labour Court found this very broad and indefinite clause (known as a “catch-all clause”) to be an unreasonable disadvantage for the employee and declared it invalid. In the Court's view, the clause severely restricted the employee's occupational freedom, as provided for in Article 12 German Basic Law (Grundgesetz – GG), as it prevented the employee from using the knowledge he had acquired at a new employer. The clause therefore amounted to an impermissible post-contractual non-competition clause. Considering the interests of the parties involved, the employer would have been better advised to agree an effective post-contractual non-competition clause in accordance with sections 74 et seq. German Commercial Code (Handelsgesetzbuch – HGB) and pay a waiting allowance. As a result, there was held to be no effective contractual clause in place, meaning that the German Trade Secrets Act’s scope did not apply.

Are there any legal alternatives?

Rübel: Where particularly sensitive information is involved, it is advisable to consider including a post-contractual non-competition clause. Business information is complex and evolves during the course of employment. Once it is determined that information should be categorised as a sensitive trade secret, it must be clearly specified and classified as confidential. It is crucial that a post-contractual non-competition clause is drafted in a legally correct and appropriate manner. This is because such clauses are only enforceable where they protect the employer’s legitimate business interests and do not unreasonably restrict the employee's professional development. Courts impose strict requirements on the drafting of post-contractual non-competition clauses (e.g. Higher Regional Court of Cologne, 1 June 2023 – 18 U 29/23).

What should employers do now?

Rübel: Trade secrets, concrete protection measures and comprehensive protection schemes should be regularly monitored and adapted, according to factors such as their current economic value or their classification as trade secrets. In particular, employers should regularly update technical protection measures and authorisation schemes so that, under the need-to-know principle, only individuals who actually require access to that information are granted access. Additionally, any measures taken should be carefully documented, preferably in writing.

Posluschny: Employment contracts, particularly those involving key knowledge holders, should also be reviewed regularly and amended if they contain catch-all clauses. This applies to both standard model contracts and existing agreements with employees as well as, third parties, where applicable. For employees to clearly see which information is considered a trade secret under the employment contract, the respective trade secrets could be listed in an annex to the contract.

Rübel: To prevent the disclosure of trade secrets, employers should consider imposing contractual penalties for any breaches. This approach would create an additional deterrent for employees and provide employers with additional recourse in the event of damage or disputes.

Does trade secret protection also extend to labour court proceedings?

Rübel: Until now, trade secret protection was confined to “trade secret disputes”. The German legislator has recognised a gap in the protection available and, with effect from 1 April 2025, has extended the scope of protection to include labour court proceedings. Pursuant to section 273a of the German Code of Civil Procedure (Zivilprozessordnung - ZPO), a court may, at the request of either party, classify the information in dispute as confidential in whole or in part if it constitutes a trade secret pursuant to section 2 German Trade Secrets Act. This means that the various escalation stages provided for under sections 16 to 20 German Trade Secrets Act now apply to labour court proceedings as well.

Posluschny: This means that, if the court determines that the information is confidential pursuant to section 273a of the German Trade Secrets Act, the protected information cannot be used or disclosed outside the court proceedings. This obligation to keep information confidential applies even after the proceedings have ended. Breaches may result in a fine of up to EUR 100,000 or up to six months' imprisonment. Additionally, the court may restrict access to the hearing or to certain documents.

Rübel: The new regulations provide employers with additional procedural options and, more importantly, with greater legal certainty. However, it is important to note that there is no definite protection of confidentiality in court. Therefore, it is crucial for employers and litigators to have a comprehensive and well-thought-out litigation strategy in place to protect intellectual property.