Article

From competitor to competitor

Legal risks for employee mobility in strategic industries

From competitor to competitor
Published Date
Jul 2 2025
Sectors characterized by massive investments and a limited number of market players—such as defense and semiconductors—are experiencing unprecedented levels of investment as governments and industry seek to secure technological sovereignty and resilience in critical infrastructure. Despite this influx of capital, these sectors remain relatively small in terms of market participants and are characterized by a highly specialized, limited pool of talent. As a result, employee mobility—especially the movement of key personnel between direct competitors—raises acute legal and commercial risks. Recent developments, including a landmark case decided most recently by the European Court of Justice (ECJ) (Case C-415/23 P, OHB System AG v. European Commission) which  is about whether a bidder is to be disqualified from a tender if that bidder hired former key personnel of the competing bidder who had access to sensitive information, have brought these issues into sharp focus, underscoring the need for employers to proactively manage legal exposure in this sensitive environment.

Need for specialists in narrow markets

The EU is currently shifting its focus to quite some extent from sustainability to competitiveness and resilience. Similar developments can be observed on the level of EU Member States—notably Germany has amended its Constitution allowing the federal government to increase state debts in order to invest in infrastructure and to increase defense related public spending. A number of (high-tech) industries are expected to benefit from these developments including semiconductors, AI, satellite or defense companies. A common feature of these to-grow sectors is a lack of highly qualified specialists. Companies considering hiring employees from competitors should pay specific attention to comply with applicable rules and standards—not at least to avoid disqualifying themselves from public tender procedures and thereby loosing access to critical public contracts as the latest ECJ decision highlights.

Key aspects for employers

Notice periods

Employers have to ensure that statutory and contractual notice periods are observed when employees are leaving the company. In sensitive sectors, it is advisable to consider the application of extended notice periods or the introduction of release-of-work arrangements. By allowing employees to remain on leave, companies can effectively limit the risk of immediate disclosure of sensitive or confidential information to competitors, as the employee remains bound by their contractual obligations but is not actively involved in ongoing projects.

Loyalty obligations

During the term of the employment contract, including the notice period, the employee is bound by duties of loyalty and fidelity. These obligations require the employee to act in the best interests of the employer and to avoid any conduct that could harm the employer’s business. Should the employee breach these duties, they may be held fully liable for damages. Furthermore, the employer is entitled to assert enforceable—also by way of interim relief—claims for injunctive relief against the employee to prevent future breaches.

Non-compete clauses

Contractual non-compete clauses apply during the term of employment and prevent employees from engaging in activities that compete with the employer’s business while they are still employed. Such clauses are generally enforceable as part of the employee’s duty of loyalty and do not require separate financial compensation. However, they must be clearly defined and proportionate to the legitimate interests of the employer, ensuring that employees understand the scope of their obligations while they remain with the company.

Post-contractual non-compete clauses, on the other hand, take effect after the employment relationship has ended. These clauses are particularly relevant in strategic sectors where employees may have access to sensitive information or key business relationships. To be enforceable, post-contractual non-compete clauses must provide for compensation (i.e. for employees at least 50% of their remuneration most recently received including variable payments etc.), and must be reasonable in scope, duration, and geographic reach. Failure to meet the requirements can render the clause void and unenforceable. Given the dynamic nature of business risks and legal developments, it is advisable to regularly review and update non-compete clauses. This ensures ongoing compliance with legal standards and alignment with the company’s current interests and the employee’s actual duties.

Non-solicitation clauses

Employers should also consider including non-solicitation clauses to prevent departing employees from soliciting clients or colleagues after their departure. Such provisions serve as an effective tool to safeguard client relationships and retain key personnel, thereby reducing the risk of business disruption and the loss of valuable human capital.

Prevention of employee turnover

Given the limited pool of specialized talent in strategic sectors, companies should proactively introduce incentive programs aimed at retaining key personnel. These measures can help prevent excessive staff turnover, which is particularly important for maintaining operational stability and protecting sensitive information within the organization.

Trade secrets and confidentiality obligations

In narrow sectors such as defense, AI, satellite and others, nowadays it is even more essential than ever to make sure there are appropriate processes and policies in place as regards the protection of confidential information and trade secrets, and that these processes and policies are actually implemented and realized on an everyday basis. Every market participant should have done its homework of identifying and classifying its trade secrets by now, and of determining the appropriate, which also means tiered, measures to maintain secrecy, ranging from employment contracts via access limitations and marking of confidential information to consistent and appropriate (i.e. no excessive catch-all) secrecy obligations of suppliers, business partners and even customers. Absent appropriate secrecy measures, EU law does not grant any protection to trade secrets. Having perfectly phrased policies on the intranet, however, is only half the battle. Employees and management must bring these policies to life, check where adjustments are needed, and when push comes to shove, enforce the company’s rights by what often is a sophisticated interplay of employment, civil, contract and criminal law including involvement of public prosecution.

In a competitive, growing market, high-performing individuals will receive attractive offers to change jobs, and many will accept these offers. This is nothing but an element of a functioning market mechanism. Scrutiny is required, however, for both onboarding new employees as well as offboarding leavers. Raising each individual’s awareness, and documenting the related conversations, often is an important element for establishing a case. Regular (at least annual) revisions of trade secrets classifications and policies are indispensable, given that some confidential information becomes outdated and less important, while new elements emerge from R&D as well as from other business activities including sales. Experience shows that the best concepts fail if they are not supported by regular reminders and trainings for all individuals concerned. 

From a practical viewpoint, cutting access to sensitive information as early as possible, and considering garden leaves, are measures that are to be balanced against the potentially disruptive impact they can have on ongoing projects. Where there is a suspicion of trade secrets misappropriation, management must instigate internal investigations quickly but always in line with applicable law, especially data protection, in order not to jeopardize the value of any evidence that the investigation brings to light. Safeguarding and effectively enforcing the protection of trade secrets and confidential information are at the core of the interests of shareholders, staff, customers, vendors and other stakeholders. As the ECJ OHB case illustrates, lack of scrutiny on trade secrets can result in losing out on huge business opportunities, which can severely damage the company.

Criminal law risks

Section 23 of the German Trade Secrets Act (Gesetz zum Schutz von Geschäftsgeheimnissen – GeschGehG) establishes criminal liability for the intentional unlawful acquisition, use, or disclosure of trade secrets, particularly when done for commercial advantage or to harm the trade secret holder. This section is central to the enforcement of trade secret protection in Germany, as it provides for criminal sanctions in addition to civil remedies.

If an employee joins a company from a competitor and brings trade secrets (e.g., customer lists, technical drawings, formulas) from their former employer, the new employer can be held criminally liable, for example, in case where:

  • the new employer actively asks the employee to bring or use trade secrets; or
  • the new employer knowingly accepts the use of documents, data, or information that clearly originate from the previous employment relationship and qualify as trade secrets.

While there is no corporate criminal liability under German law, the German Administrative Offences Act (Ordnungswidrigkeitengesetz) provides for the imposition of a corporate administrative fine (Unternehmensgeldbuße) of up to EUR10 million against a legal entity. This applies if legal representatives or senior staff of the company have committed a criminal or administrative offense as a result of which duties incumbent on the legal entity have been violated, or where the legal entity has been enriched or was intended to be enriched, such as in the case of a breach of Section 23 GeschGehG.

Public procurement angles

In sectors such as defense, where public contracts are often pivotal to commercial success, procurement procedures are governed by strict principles: equal treatment, non-discrimination, proportionality, transparency, and the preservation of competition. These principles are enshrined in legal frameworks such as Article 24 of Directive 2014/24/EU, Section 124 of the German Competition Act (Gesetz gegen Wettbewerbsbeschränkungen – GWB), and Section 6 of the German Procurement Ordinance (Vergabeverordnung – VgV), which primarily address conflicts of interest on the side of the contracting authority.

However, recent jurisprudence has extended these principles to the bidder side. In Case C-415/23 P, the ECJ ruled that a conflict of interest may arise when a bidding company hires a leading employee from a competitor during an ongoing procurement procedure. In this instance, the company gained a valuable employee—but lost the contract. The ruling confirms that conflicts of interest are not limited to the public authority’s domain and that bidder-side conflicts can justify exclusion from tendering.

Further risks arise when a bidder hires personnel from advisors or service providers who previously consulted the contracting authority. For example, a German public procurement review body (VK Lüneburg - VgK-38/2021) examined whether the newly hired employee possessed critical knowledge that could confer an unfair competitive advantage. In such cases, the potential for exclusion hinges on whether the employee’s prior role created a conflict that undermines the integrity of the procurement process.

Conclusion

The recent ECJ ruling serves as a critical reminder of the increased legal risks associated with employee mobility, particularly in tightly-knit industries such as Europe’s defense and semiconductor sectors. These risks are further amplified in cross-border scenarios, where differing national laws, regulatory regimes, and cultural expectations can add significant complexity to the movement of key personnel and the management of confidential information. Companies must adopt a proactive, multidisciplinary approach to managing these risks, balancing the need for talent acquisition with robust legal compliance and the preservation of fair competition.