During employment, the duty not to compete is implied: an employee cannot work for or set up a competing business. After employment ends, the position changes. Freedom to choose one's occupation is protected by Article 22 of the Constitution, and there is no statute on post-employment non-competes. Courts enforce them only where there is a clear written agreement, in the work rules or a separate pledge, and only to the extent the restriction is reasonable.
The leading early authority is the Foseco Japan case, decided by the Nara District Court in 1970, which upheld a two-year restriction on employees with access to technical secrets. Since then, courts have weighed a consistent set of factors: whether the employer has a real interest to protect, such as trade secrets or client relationships; the employee's position and access; the length of the restriction; its geographic and business scope; and whether the employee received compensation for accepting it. Restrictions of up to about a year are more often upheld, and the absence of any compensation weighs heavily against enforcement. Clauses that bar a former employee from working in an entire industry are commonly struck down or cut back.
Separately, trade secrets are protected by the Unfair Competition Prevention Act regardless of any non-compete, provided the information was managed as secret.
What it means for a foreign employer
- Do not rely on a global template. A two-year, worldwide, industry-wide clause signed by a manager is unlikely to be enforced in Japan.
- Narrow and pay. A restriction limited to named competitors, for six to twelve months, with a dedicated payment, stands a much better chance.
- Protect information directly. Mark and control confidential information, and use non-solicitation of clients and staff, which courts are more receptive to.
- When hiring, ask what the candidate signed. Senior hires from competitors may have pledges tied to their retirement allowance, which some employers reduce or withhold for competition.
Sources
- Constitution of Japan, Article 22.
- Nara District Court, Foseco Japan Limited case, 23 October 1970.
- Unfair Competition Prevention Act.