Non-Compete Clauses, The Law, And You

"I want to quit my job and work for another company. However, my contract has a non-compete clause that states that I am prohibited from working for another company in the same industry. Is this legal?"

If you've ever decided to leave your current dispatch company (haken kaisha) or conversation school (eikaiwa) for a different employer, you might have discovered that there was a "non-compete" clause in your contract that - on paper - seems to prohibit you actually doing so.


A typical "non-compete clause" might sound something like this:

(1) Employee agrees not to conclude any contract that binds him/her to perform work with a competitor of the Employer, or any other competitive entity, including organization, institution, or individual, regardless of their affiliation, and shall not conduct any business of his/her own that may be in competition with that of the Employer without the prior written approval of the Employer.
(2) Employee agrees not to engage in activities stated in Section (1) of this Article for a period of two years after resignation from Employer.

In effect, clauses such as these seek to prevent an employee from leaving one company to join a different company that operates within the same business area or industry.

For example, if you work at an English conversation school, a non-compete clause (or "Restrictive Covenant") in your contract would prevent you from working at any company or school that is also involved with English education, in any way, for a period of time determined by the contract.

However, in Japan, are these "non-complete" clauses actually legal?

The answer to that question is: (a) "non-compete" clauses in contracts are legal in Japan in (b) very specific cases, but (c) they are usually unenforceable due to the fact that (d) they violate both Civil Code and the Constitution of Japan.

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WHAT THE LAW SAYS

Article 22 of the Constitution of Japan provides the following:

"Every person shall have the freedom to choose and change his residence and to choose his occupation to the extent that it does not interfere with the public welfare."


Article 90 of the Civil Code asserts:

"A juristic act with any purpose which is against public policy is void."


In addition, Article 6 of the Labor Standards Act states:

"Unless permitted by act, no person shall obtain profit by intervening, as a business, in the employment of others."


Therefore, Article 22 of the Constitution (the fundamental law of Japan) can be seen to provide every resident of Japan the freedom to choose where they want to work, Article 90 of the Civil Code grants additional support to Article 22, and - although open to interpretation - Article 6 of the Labor Standards Act would seem to prevent a former employer from attempting to prevent a former employee from starting work with a new employer for their own benefit.

"Non-compete" clauses would seem to directly go against the Constitution by restricting an individual's freedom of choice, and are therefore deemed "invalid" by the Civil Code.

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WHAT LEGAL FIRMS SAY

This interpretation of the law and how it applies to "restrictive covenants" such as non-compete clauses is also supported by a number of global law firms.

"Non-competition clauses are not always enforceable, since the Constitution guarantees freedom of choice of occupation."
- DLA Piper; Doing Business in Japan
 
"The Japanese Constitution protects the freedom of choice of employment. Therefore, within limits, people should be able to work for whatever company they want."
- Ohara Law Office (http://www.oharalaw.jp/en/)
 
"...they may infringe on an employee’s right to choose his/her occupation which is guaranteed under Article 22 of the Constitution of Japan. Accordingly, ... [they] may be deemed invalid on the ground that they are against public order under Article 90 of the Civil Code of Japan."
- Mayer Brown; A Global Guide To "Restrictive Covenants"

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WHEN "NON-COMPETE" CLAUSES ARE VALID

It is important to note that while "non-compete" clauses are generally unenforceable in regards to an employee who merely wishes to leave one company for another that operates in the same industry, there are specific cases when a "non-compete" clause may be upheld by a court.

For example, if an employee works for an employer with whom they have a confidentiality agreement (kimitsu hoji), then the employee is generally deemed to have a responsibility to honor any "non-compete" clauses that may be present in their contract, along with the agreement itself.

In addition, if an employee who was in a very senior position within a company decided to leave their company and either join or start a rival company, and used the confidential and proprietary information that they had learned in their former position for the benefit of their new employment role, this may also be a case in which a "non-compete" clause could be upheld by a court if the former employer wished to seek damages.

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"NON-COMPETE" CLAUSES IN EVERYDAY LIFE

In normal day-to-day life, there is very little chance that an employer would be able to take a former employee to court just for changing companies - for leaving one dispatch company for another dispatch company, for example. You also have the right to work direct hire at a Board of Education that you have previously been sent to by a company.

"The enforceability of non-compete clauses is determined upon considering the balance between their necessity for the employer’s legitimate benefit (in most cases, protecting trade secrets) and the employee’s constitutional right to freedom of choice in employment. It is very difficult to persuade the court to prioritize the employer's benefit over that of the employee."
- Morgan Lewis; Non-compete Agreements in a Global Marketplace

Furthermore, when a person resigns from a company, there is no legal requirement that requires an employee to give a reason for their resignation, and therefore no obligation upon an employee to tell their former employer who they are leaving them for.

In conclusion, if you are considering leaving your company or school to begin work at a different company or school, you have very little to fear from "non-compete" clauses that may be present in your contract.

You don't even have to tell your current employer where you will be working next. Unless you are planning on stealing confidential trade secrets, you are protected by both the Constitution and the Civil Code.

However, if you are still unsure about the possible consequences, you should always seek advice from either the General Union, from or a specialist law company.

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Do you have more questions about "non-compete clauses", or are concerned that your company will threaten you with them if you decide to resign? Contact the General Union for advice at:

union(@)generalunion.org


Has a previous employer ever come after you over a non-compete clause that you rightfully ignored? Share your stories on our official Facebook Page:

http://www.facebook.com/GeneralUnionJapan/


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