Client Takeover and Position Changes

If you are changing your professional position and wish to transfer your client relationships to a new role, there are several important steps to consider. The following information is of a general nature and does not replace individual legal advice. Therefore, no liability can be assumed.

Client Transfer

You wish to take over clients from your old position to your new one?

1. Review of Contractual Situation Regarding Client Transfer

It must be examined whether the transfer violates the contracts concluded with your former employer. Many clauses that oppose the takeover are legally challengeable.

2. Legal Assessment of Client Transfer

a) Clauses and Legal Evaluation

It is necessary to clarify which clauses in the contracts are relevant.

A distinction must be made between client protection clauses and client takeover clauses. The former protect the employer from losing clients, while the latter regulate compensation for the takeover. The latter are only measured against the limits of immorality (§ 138 para. 1 BGB) and are permissible if they serve to protect a legitimate business interest of the employer and do not unreasonably impede the employee's professional advancement (BAG 11.12.2013 – 10 AZR 286/13, NZA 2014, 433 (435)). Most clauses in practice are labelled as client protection clauses but are actually client takeover clauses. The lack of transparency or the surprising character of general terms and conditions can also be argued on the basis of misleading headings (BGH, NJW 1977, 195) – thus, these clauses can often be challenged solely because of the incorrect designation.

b) Conditions of Client Takeover Clauses

Furthermore, the exact conditions of the client takeover clause must be examined to assess its validity.

A so-called client takeover clause, which permits a tax assistant to take over clients from her former employer after leaving, but simultaneously obligates her to pay an appropriate share of the revenue from these clients to the former employer as compensation, is generally permissible according to case law; however, it must not exceed a binding period of two years. The contractual obligation of a tax assistant to pay 20% of annual revenue for five years from clients she has taken over from her employer constitutes a concealed client protection clause and an evasion within the meaning of § 75d sentence 2 HGB. The former employer can therefore not derive any claims from such an agreement (BAG, judgment of 7.8.2002 – 10 AZR 586/01, NZA 2002, 1282). In legal literature, a maximum of 25% is still considered permissible (Bauer/Diller, Wettbewerbsverbote, 2006, para. 173; BeckOK Arbeitsrecht, as of 01.03.2023, § 74 HGB paras. 15-17).

c) Client Takeover Clause in Relation to the Type of Activity

A client takeover clause should only apply to a subsequent self-employed activity and not to a future dependent employment of the employee with a third party. Such client takeover clauses would – insofar as they are agreed without compensation in circumvention of §§ 74 et seq. HGB – be impermissible and classified as concealed client protection clauses (BAG 11.12.2013 – 10 AZR 286/13, NZA 2014, 433 (436)). Depending on the situation, one could consider initially starting the new position as an employee to avoid the client takeover clause and retain the clients. In that case, one would not be self-employed and could rely on the cited court decision. A transition to a position equivalent to self-employment as a shareholder and managing director after an appropriate period could already be contractually agreed and secured at the time of the change.

3. Judgment of the Leipzig Labour Court (Judgment of 5.1.2012 – 7 Ca 2046/11)

The claimant in this case was a nationally active auditing and tax consulting firm; the defendant was an attorney and tax advisor there and later became a partner at a competing firm. This is the disputed client takeover clause:

"If, after your departure, you engage in a self-employed or employed capacity in one of the aforementioned professions, and if you or a new employer or a partnership or company you have joined takes over clients of the Company who, in connection with your departure from the Company, have terminated or not renewed their ongoing or long-standing recurring contractual relationship with the Company, you are obligated to pay the Company an amount of 20% of the due fees (excluding VAT) from such engagements for a period of two years; in the case of dependent employment, the annual payments are limited to half of your last annual remuneration received from the Company."

The Leipzig Labour Court found the wording in the client takeover clause to be so imprecise that it did not even recognise the claim: "With regard to motion no. 6, it remains entirely unclear what the claimant means by 'clients who have terminated or not renewed their ongoing or long-standing recurring contractual relationship with the Company'" (Leipzig Labour Court, judgment of 5.1.2012 – 7 Ca 2046/11, p. 11).

"Even more unclear is the wording 'in connection with your departure from the Company' – that is, the reference to the termination of the defendant's contractual relationship with the Company. Whether this is merely intended to indicate a temporal connection, such that the clients must have terminated their contractual relationship with the Company at the same time as the defendant on 31.03.2010, or whether a factual connection is meant, which requires the defendant's departure from the Company to have been the cause of the termination of the client contracts, is in no way discernible, let alone whether in the latter case the defendant must also have culpably – at least through active conduct – brought about the client change" (Leipzig Labour Court, judgment of 5.1.2012 – 7 Ca 2046/11, p. 14).

A connection is difficult to trace. Ultimately, every transferred client relationship is connected to the departure, because without the departure, the former employee would not have been able to take over any clients at all. But even with a narrower view, the required causal connection remains unclear. Is it sufficient, for example, if the client switches one, two, or three years after the departure because they were annoyed by the successor, because they heard about the meanwhile established good reputation of the departed, and because they remembered that the departed was formerly "their" case handler?

"Furthermore, the clause is also invalid insofar as it obliges the defendant, completely regardless of whether a profit remains from the fees generated before or after the 20% deduction, or whether a loss is recorded, to pay 20% of the fees" (Leipzig Labour Court, judgment of 5.1.2012 – 7 Ca 2046/11, p. 15).

4. Review Under Standard Terms Law

A scholarly article goes partly even further than the judgment of the Leipzig Labour Court. The question of the permissible level of a participation rate is, contrary to widespread assumption, not settled (Meier, NZA 2013, 253, 254).

As a preliminary matter, it should be noted for completeness that former employees are consumers within the meaning of § 310 para. III BGB, which means that the multiple use of the employment contract (§ 305 para. I sentence 1 BGB) is irrelevant, unless the clause was introduced by the employee or the employee was unable to influence its content due to the pre-formulation (§ 310 para. III no. 2 BGB), whereby the burden of presentation and proof that the employee exercised such influence lies with the employer (e.g. LAG Rhineland-Palatinate, judgment of 14.9.2012, 9 Sa 254/12, BeckRS 2012, 75943).

An unreasonable disadvantage may arise from the fact that the provision is not clear and comprehensible (§ 307 para. I BGB) or does not sufficiently exclude situations that would lead to an unreasonable disadvantage for the employee. In this case, an interpretation of the clause in the sense of excluding unreasonable disadvantages would amount to an impermissible preservation-reducing interpretation and is therefore equally impermissible, because the aim of the law is to promote appropriate content of the standard terms used in practice. The contractual partner of the user should be given the opportunity for adequate information about the rights and obligations arising from the pre-formulated contract. This aim cannot be achieved if any user of standard terms could initially exceed the limits of what they could still reasonably agree to their advantage. If this were considered permissible, the contractual partners of the user would be confronted with excessive clauses in contractual practice. Only in court proceedings could they then reliably ascertain the extent of their rights and obligations. The transparency requirement of § 307 para. II sentence 2 BGB would largely be rendered meaningless (Meier, NZA 2013, 253, 254).

The invalidity due to economic disproportionality also applies because the clause leads to a 100% payment of all income in certain scenarios it encompasses. This is based on the inclusion of partnerships and other companies. If, for example, five members of a team leave who together managed a client, they join together and serve the same client within the framework of the new company, each of them owes 20% of the fee income from this client relationship – in the absence of ordered joint and several liability – all of them together therefore 100% of the fee income, an obviously unreasonable consequence. Since the clause contains no restrictions in this regard, it unreasonably disadvantages the defendant (Meier, NZA 2013, 253, 256).

Finally, it must be considered that the payment obligation is to exist regardless of who caused or even initiated the termination of the employment relationship. Even if the reason for the departure lay in a free decision of the employer (probation period dismissal, expiry of a fixed term, redundancy dismissal) or the employee resigned but at the instigation of the employer (unreasonable conduct, salary arrears), this does not change the payment obligation according to the wording of the clause, which is why it is also invalid for this reason (BAG, NZA 2006, 1042), because it can lead to the employer not only depriving the employee of their salary income through a dismissal, but also – without any contribution of their own – impairing future income in deviation from Art. 12 of the German Basic Law.

Although a scholarly article does not initially enjoy the authority of a court judgment, the arguments speak for themselves.