Restrictive Covenants in Japan

1. Definition of Restrictive Covenants

There is no legal definition of restrictive covenants. Restrictive covenants commonly include non-compete and non-solicitation of customers and/or other employees.

2. Types of Restrictive Covenants

a. Non-Compete Clauses

A non-compete clause must be agreed upon in the employment agreement. Whether such a clause is enforceable will depend on the circumstances surrounding termination of employment, and a balance between the need to protect the employer’s assets, and the employee’s Constitutional right to freely seek employment and maintain a livelihood.

b. Non-solicitation of customers

Non-solicitation of customers is easier to implement than non-competition, as the restriction on the economic activity towards the employee tends to be more limited.

c. Non-solicitation of employees

Since non-solicitation also means restriction on the activities of employees who are subject to solicitation and may infringe their Constitutional right to seek employment, enforceability is usually determined based on the test of whether the employee acted in bad faith and went beyond reasonable/ fair means to solicit other employees.

3. Enforcement of Restrictive Covenants—process and remedies

The following are the three typical legal procedures taken to enforce a restrictive covenant:

  • Provisional Injunction to seek cessation of the action infringing a restrictive covenant –
  • Formal Injunction to seek cessation of the action infringing a restrictive covenant.
  • Claim for damages (if damage has been caused)

4. Use and Limitations of Garden Leave

There is no law regarding garden leave, although it is permissible for employers to order employees to stay at home (not come to work) during the notice period, as long as the employer continues to pay salary.

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