In employment contracts, contractual penalties are generally possible in the event of a breach of the contract. Contractual penalties are often provided for violations of an agreed non-competition or non-disclosure clause. As soon as a contractual penalty in the employment contract has the character of security or damages, its admissibility is questionable.
In such cases, the contractual penalty must not lead to an increase in liability on the part of the employee. In principle, the employee is only liable for damages caused intentionally or by gross negligence. According to recent case law of the Federal Supreme Court, contractual penalties that increase this liability are null and void. Moreover, contractual penalties may not be agreed independently of any damage caused to the employer by the employee. Whether the agreement of a contractual penalty in the employment contract is permissible and reasonable must always be assessed on a case-by-case basis.
If a contractual penalty is to be agreed, it must always be ensured that the provisions for administrative penalties pursuant to Art. 38 (1) of the Labor Code are complied with. The contractual penalty must be proportionate and the conditions for the penalty must be clearly defined.
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