Competition by Employees and Former Employees in Japan｜Non-Compete Covenants, Trade Secrets and the Remedies Available

A senior member of staff resigns and appears at a competitor within weeks, and the customers he handled begin to move across one by one. Or the departing employee sets up on his own and approaches the same customers with a near-identical product at a lower price. Companies with a subsidiary or an operating base in Japan meet this situation regularly. Whether the conduct can be stopped, and whether damages can be recovered, turns first on a distinction that must be drawn at the outset: the position during employment is not the position after it has ended. What follows sets out the law of Japan.

Contents

During employment and after it: two different regimes
When a post-employment non-compete covenant will be enforced
Misappropriation of trade secrets
The remedies available
Proving the loss
Prevention is worth more than pursuit
In closing
How to contact us

During employment and after it: two different regimes

While the employment relationship subsists, an employee owes a duty of good faith arising out of the contract of employment, and is bound not to compete with the employer even in the absence of any express covenant. Article 3(4) of the Labour Contracts Act requires both employer and employee to exercise their rights and perform their obligations in good faith; diverting the employer’s business opportunities to oneself or to a third party while still employed is a breach of that duty.

Once employment has ended the position reverses. Article 22(1) of the Constitution of Japan guarantees freedom to choose one’s occupation, and in the absence of an express covenant a former employee is in principle free to compete. This is frequently misunderstood. A single line in the work rules stating that “an employee shall not compete after leaving the company” does not necessarily bind anyone unless the requirements set out below are met.

When a post-employment non-compete covenant will be enforced

The Japanese courts weigh the following factors together in deciding whether a covenant goes further than is necessary.

Whether there is a business interest deserving protection — general skill and general commercial contacts acquired in the course of the work will rarely qualify; specific trade secrets, or customer relationships built at real cost to the employer, are more readily recognised.
The employee’s position — the covenant must attach to someone whose role gave access to confidential information. A covenant imposed uniformly on the entire workforce is viewed strictly.
Geographical scope — a restraint extending nationwide, or worldwide, with no relation to where the employer actually trades is likely to be treated as too wide.
Duration — a period of a few months to about a year is more readily upheld; the longer the period, the stronger the justification required.
The range of conduct prohibited — a restraint confined to particular work or particular customers is far more defensible than a blanket ban on joining any competitor.
Whether compensation was paid — the presence or absence of consideration for the restraint carries considerable weight.

A covenant whose scope and duration are excessive may be held void, in whole or in part, as contrary to public policy under Article 90 of the Civil Code of Japan.

Misappropriation of trade secrets

Even where no covenant exists, or where the covenant is unenforceable, a former employee who removes and uses customer lists, drawings or manufacturing methods may be met with a claim under the Unfair Competition Prevention Act. Information is protected as a trade secret (eigyo himitsu) under that Act only if it satisfies all three of the following requirements (Article 2(6)).

It is managed as secret, in a manner by which its confidential character is objectively recognisable.
It is useful for business activities.
It is not publicly known.

In practice the first requirement is where most cases are won or lost. Information held without access restrictions, without any confidentiality marking, and freely removable by anyone in the organisation will often fail this test and fall outside the Act’s protection altogether. Day-to-day management of information therefore determines the outcome directly.

The remedies available

Injunction — restraining the competing activity, or the use of the trade secret, either on the basis of an enforceable covenant or under Article 3 of the Unfair Competition Prevention Act.
Damages — for breach of contract, in tort under Article 709 of the Civil Code, or under Article 4 of the Unfair Competition Prevention Act.
Reduction or forfeiture of the retirement allowance (taishokukin) — a provision to this effect in the work rules is not automatically effective in full. The courts have tended to uphold it only where the employee’s conduct was seriously disloyal, and reduction is more readily accepted than complete forfeiture.
Provisional disposition — an application under the Civil Provisional Remedies Act to restrain the competition or the use of the information before judgment in the main action. Because the effect on the respondent’s livelihood is severe, the court examines such applications closely, and a security bond must be deposited.

Proving the loss

The hardest part of these cases is quantifying the loss. Customers do not always leave because of the former employee, and causation is routinely contested. Article 5 of the Unfair Competition Prevention Act provides presumptions as to the amount of damage in trade secret cases, which lightens the evidential burden to a degree. Beyond that, the movement in turnover before and after the departure, the transaction records of each customer affected, and the correspondence showing contact between the former employee and those customers should all be secured at an early stage, before they are lost or overwritten.

Prevention is worth more than pursuit

Work rules and written undertakings — include non-compete and confidentiality clauses in the work rules, and take a signed undertaking both on joining and on leaving. A restraint drawn too widely defeats itself, so the persons covered, the period and the scope should each be defined specifically.
A system for managing confidential information — tiered access rights, confidentiality markings, and records of and limits on what may be taken out. This is not merely a matter of information security: it is the condition on which the information qualifies as a trade secret at all.
Exit procedures — confirming the return and deletion of materials, taking a proper handover, and reconfirming the non-compete and confidentiality obligations in writing.

In closing

Competition by a former employee sits across trade secret law, employment law and the law of contract at once, and the factual position is largely fixed in the first few weeks. When something appears to be wrong, the records and materials should be secured first, and the choice of remedy considered afterwards. We act for foreign companies with a subsidiary, customers or a base in Japan, and are equally glad to work through the company’s own counsel abroad.

How to contact us

Telephone 03-6435-8418 within Japan, or +81-3-6435-8418 from overseas. Lines are open from 08:00 to 24:00 Japan time, including Saturdays, Sundays and public holidays. Enquiries are also received at any hour through the form on this site.

M&A Partners Law Office LPC　Katsuhiro Tsuchiya, Representative Attorney-at-Law (Tokyo Bar Association, Registration No. 26775)　17F Mori Trust Shiroyama Trust Tower, 4-3-1 Toranomon, Minato-ku, Tokyo, Japan

This article is a general explanation based on the laws and practice of Japan as at August 2026 (Reiwa 8). The outcome of any particular matter depends on its own facts, and no specific result is guaranteed.

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