Definition and Types of Restrictive Covenants
Restrictive covenants are not legally defined under Japanese law. However, such covenants are allowed as concomitant obligations under the principle of good faith arising from the employment contract during the term of employment, and even after termination of the employment contract. Generally, restrictive covenants have to be valid to the extent necessary and reasonable, as provided for in the work rules and regulations or the specific employment contract.
During the term of employment, an employee is prohibited from competing with his/her employer.
It is possible to compel an employee to refrain from soliciting customers and former employees after termination of the employment contract, by providing such a clause in the work rules or the specific agreement.
Enforcement of Restrictive Covenants – Process and Remedies
Under Japanese law, there are two types of court actions that are possible against a breach of the non-compete clauses and non-solicitation obligations after termination: (i) demanding an injunction and (ii) filing a claim for damages. With regards to an injunction demand, the plaintiff is required to prove that the company’s business profits, in actuality, have already been infringed or are in serious danger of being infringed. With regards to a claim for damages, the plaintiff is required to prove the occurrence of actual damages, as well as a causal connection between the breach and the actual damages caused.
Use and Limitations of Garden Leave
Garden leave is a tool by which an employer can prevent departing employees from performing their regular duties. Typically, the employee will be prevented from attending the workplace, but will still receive full pay. This has the effect of restricting the employee’s access to customers, clients, staff and information, and hampers their ability to work for a competitor. If an employer wishes to put an employee on garden leave there must, in most circumstances, be an express clause in the employment contract permitting the employer to do so. Otherwise, the employer could be violating the employee’s implied right to work and therefore be in breach of contract.