Non-disclosure agreements (NDAs) typically contain liquidated damages clauses to ensure compliance with confidentiality obligations. A recent decision by the Cologne Regional Labor Court (LAG) dated January 29, 2026 (Case No.: 6 SLa 17/25, available here) underscores the need for particular care when drafting such provisions. The court ruled that a contractual penalty clause contained in an employment contract is invalid due to insufficient specificity and the inapplicability of Section 5 GeschGehG. This assessment can be applied to NDAs.
Background of the Decision
The plaintiff is the community of heirs of a deceased employee. It is claiming a bonus payment from the defendant, the employer, arising from a terminated employment relationship, as well as, in a counterclaim, payment of a contractual penalty. Section 9 of the employment contract contained a confidentiality obligation with the following wording (insofar as relevant here):
Ҥ 9 Confidentiality Obligation
[…]
The following, in particular, are subject to confidentiality
- technical know-how,
- sources of supply
- operating methods
- customer data and customer lists
- price calculation
The confidentiality obligation also applies to the content of this contract. The employee must keep all documents relating to the employer’s interests and those of its customers under lock and key, separate from his or her private documents. Upon request, and no later than the end of the contract, the employee must return to the employer all documents, tools, equipment, catalogs, and other items in his or her possession. The employee has no right of retention. Any copies of documents and files that may have been made must be destroyed or deleted by the employee. Until this is done, the employer may withhold the final salary payment.”
In addition, Section 14 of the employment contract contained a provision regarding contractual penalties with the following stipulation:
A contractual penalty in the amount of one month’s gross salary is agreed upon for the following cases and for each individual violation, without prejudice to the right to claim further damages:
- the employee terminates the employment relationship without just cause and without observing the notice period or fails to commence employment. During the probationary period, the contractual penalty is payable only in the amount of half a gross monthly salary;
- the employee causes the employer to terminate the employment relationship without notice through intentional or grossly negligent harm to the employer or gross disregard for statutory and company regulations;
- The employee breaches his or her contractual duty of confidentiality, or the employee engages in prohibited competitive activity: If this involves a continuing legal relationship, the contractual penalty is incurred anew in each calendar month.
The former employee had filed a lawsuit before the Cologne Labor Court seeking bonus payments.
After the defendant disputed that the bonus targets had been met, the former employee submitted sales figures and a list of accounts receivable during the proceedings. The defendant then filed a counterclaim for payment of a contractual penalty, arguing that the former employee had breached the contractual duty of confidentiality by disclosing the sales figures. The Cologne Local Court granted the claim and dismissed the counterclaim. It found that the disclosure of the sales figures served the purpose of protecting legitimate procedural interests and could not be waived by contract.
The defendant filed an appeal against this decision. He argued that the former employee had misappropriated trade secrets within the meaning of Section 2 GeschGehG and had violated his contractual obligations of confidentiality and data deletion. In his view, there was no legitimate interest within the meaning of Section 5 GeschGehG.
Decision of the Cologne Regional Labor Court
The Cologne Regional Labor Court dismissed the appeal and upheld the claim for the bonus. The court dismissed the counterclaim for payment of the contractual penalty.
1. Invalidity of the Contractual Penalty Clause
The court denied a claim for payment of the contractual penalty under Section 14 of the employment contract, as the clause was invalid. It unreasonably disadvantaged the employee and lacked transparency.
An unreasonable disadvantage within the meaning of Section 307 (1), sentence 1 of the German Civil Code (BGB) existed – regardless of the amount of the contractual penalty – simply because the clause in the first bullet point was too vague. The forfeiture resulting from termination without notice due to “intentional or grossly negligent harm to the employer or gross disregard of statutory and company regulations” is not clear and understandable because the breaches of duty are not sufficiently specified. A valid contractual penalty provision must specify both the sanction and the triggering breaches of duty with sufficient precision to enable the employee to align his or her conduct accordingly. Broad penalty provisions intended to cover all obligations under the employment contract are invalid due to a violation of the requirement of specificity.
Of greater interest to us is the explicit finding that, for these reasons, the portion of the contractual penalty clause providing for forfeiture in the event of a breach of the “contractual duty of confidentiality” is also invalid. The underlying duty of confidentiality is too broadly defined, as it does not provide for any exceptions that correspond to the legal principle of Section 5 GeschGehG (“for the protection of a legitimate interest”). In this regard, the court refers to the landmark decision of the Federal Labor Court (BAG) on the invalidity of “catch-all” clauses dated October 17, 2024 (Case No.: 8 AZR 172/23).
2. Abusive reliance on the clause
Regardless of the clause’s invalidity, the defendant is prohibited, under the principles of good faith, from invoking the contractual penalty clause. In the opinion of the Cologne Regional Labor Court, the defendant is acting inconsistently by first presenting false facts and then seeking to sanction the former employee’s exposure of this falsehood through the contractual penalty clause. It was only by accessing the accounts receivable list that the former employee was able to substantively refute the defendant’s inaccurate allegations. Invoking the contractual penalty clause thus clearly serves to penalize the exposure of these allegations and consequently constitutes contradictory conduct.
Classification: NDA, Contractual Penalty, and Section 5 GeschGehG
Even though the decision at first glance concerns only an employment contract, the Regional Labor Court’s reference to the provisions of Section 5 GeschGehG has significant implications for the drafting of NDAs:
Under Section 5 GeschGehG, the acquisition, use, or disclosure of a trade secret does not fall under the prohibitions on certain actions set forth in Section 4 GeschGehG if it is done to protect a legitimate interest. If such an interest exists, there is no legal violation; claims by the trade secret owner under Sections 6 et seqq. GeschGehG are precluded.
1. “Legitimate Interest”: Including the Enforcement and Defense of Rights
Section 5 GeschGehG lists three categories of legitimate interests: freedom of expression and information, whistleblowing, and disclosure to employee representatives. However, this list is not exhaustive (“in particular”).
According to the legislative rationale for Section 5 GeschGehG, a legitimate interest can be any interest approved by the legal system. It also encompasses interests of an economic or non-material nature, provided they are approved by the legal system. Among other things, this includes one’s own interests, such as the enforcement of claims or the defense against infringements. Legitimate interests include, in particular, fundamental rights that conflict with the protection of trade secrets.
In the present case, a legitimate interest in the use of the sales figures through their disclosure in the proceedings arises from the fact that the parties in a court proceeding must be able to use all information necessary for the conduct of the litigation. This follows from the right to a fair trial under Art. 6 (1) of the ECHR in conjunction with Art. 47 of the Charter of Fundamental Rights of the European Union. As an essential element of a fair trial, case law has established the principle of equality of arms between the parties, according to which it must be ensured that the parties to the proceedings have equal access to the case materials and can influence the proceedings in the same manner. This encompasses, on the one hand, access to the facts relevant to the decision and, on the other hand, the opportunity to review and comment on the material introduced into the proceedings.
In civil proceedings, the principle of equality of arms ensures that the disputing parties are not placed at a disadvantage in their prospects of success due to differences in resources. Of course, this principle is also recognized in German constitutional law. Within the framework of the rules of procedure, the parties to the proceedings must be granted equal opportunity to present all matters relevant to the court’s decision and to independently assert all procedural defenses necessary to counter the opposing party’s claims.
Thus, the disclosure of trade secrets in court proceedings to enforce one’s own claims may also constitute a legitimate interest within the meaning of Section 5 GeschGehG.
2. Contractual waivability
The question remains whether Section 5 GeschGehG can be waived, for example, in a confidentiality agreement. If this were the case, then actions that would otherwise be covered by the provision could be regarded as a breach of confidentiality.
Under the principle of contractual freedom, the parties may generally enter into agreements that deviate from the law, whether in individual contracts or through general terms and conditions. However, this is only possible provided that the matter does not involve mandatory law. Provisions constitute mandatory law if, for example, strict compliance with them is necessary in the public interest and outweighs the principle of freedom of contract. In addition, provisions designed to protect weaker contracting parties may be regarded as mandatory law. The GeschGehG itself contains no provision that legally prohibits a contractual waiver of Section 5 GeschGehG, so the provision (presumably) is not to be classified as mandatory law.
However, a contractual deviation is only valid if it does not unreasonably disadvantage the other party and withstands the substantive review under Section 307 BGB. This applies to clauses that constitute general terms and conditions; for individual agreements, Sections 134, 138 BGB must be observed instead. Pursuant to Section 307 (2)(1) BGB, an unreasonable disadvantage is presumed in cases of doubt if the provision is incompatible with the fundamental principles of the statutory provision from which it deviates.
With Section 5 GeschGehG, the legislature has established a legally intended balance between confidentiality interests on the one hand and legitimate conflicting interests on the other. The provision thus serves as a guiding principle. Clauses that undermine or preclude this balance are incompatible with this fundamental principle, constitute an unreasonable disadvantage pursuant to Section 307 (1) and (2) (1) of the German Civil Code (BGB), and are invalid. Furthermore, a waiver may, under certain circumstances, come as a surprise to the contracting party and, pursuant to Section 305 (c) (1) BGB, may not even become part of the contract.
Conclusion
The decision underscores the importance of ensuring, when drafting a confidentiality agreement, that the clauses are formulated clearly, specifically, and not too broadly. This applies not only to the drafting of a clause that establishes the confidentiality obligation and may be invalid as a catch-all clause. Contractual penalty clauses may also fall under the criteria of a catch-all clause and be invalid.
To avoid a clause in a confidentiality agreement giving the impression that it waives the provisions of Section 5 GeschGehG, it is advisable to expressly list the exceptions to trade secret protection under Section 5 GeschGehG, to state that the exceptions to this provision remain unaffected, or to include an exception that corresponds to this provision.
At the same time, the decision demonstrates that contradictory conduct during litigation is impermissible: A party who presents untrue facts (to the detriment of the other party) cannot impose a contractual penalty for the subsequent disclosure of those facts for the purpose of defense.