Document Type

Article

Disciplines

International Law

Abstract

Restricting employees, especially those who have resigned from their employment, from competing with their employers may result in severe conflicts between the rights, benefits, and interests of both parties.

Economic enterprises create and develop all sorts of beneficial information that gives them advantageous positions in their market. This information is often more valuable than their tangible property. But in today's information-oriented society, such business information can be duplicated and transferred more readily than can material assets. To protect their investment in this information, careful employers often want to impose on former, as well as current, employees non-competition agreements and other restrictive covenants, such as non-solicitation agreements. These agreements (or clauses in larger employment contracts) stipulate the duties of employees for the post-employment relationship (hereinafter simply referred to as "restrictive covenants").1 A "non-competition obligation" in the field of employment law, imposed by the restrictive covenants, means an employee's obligation not to compete with the employer or not to work for the employer's competitors; and the term of "compete" includes "soliciting customers and recruiting employees," as peripheral activities, in a broad sense.

On the other hand, employees accumulate knowledge, experience, and knowhow, and improve their own vocational abilities and skills through on-the-job training from their employers. In some cases, the employees then quit and set up their own business or jump to another firm that can more fully use or reward their vocational competence. Thus, employees frequently resist enforcement of the restrictive covenants in order to protect their privilege to engage in their own economic activities.

In balancing these interests of the parties to the restrictive covenants, courts in many jurisdictions in the United States employ the common-law "reasonableness rule." This rule focuses on the employer's interest and the scope of the contractual restriction on post-employment competition in order to judge the enforceability of the covenants.5 Similarly, courts in Japan adopt a "reasonableness test" to determine the validity ofthe restrictive covenants as their case law doctrine.6 However, whether the restrictive covenant at issue is enforceable or not is unpredictable in many cases for courts, lawyers, and scholars in both countries, because each element of reasonableness in both countries creates room for problems of interpretation and application. Furthermore, some courts have developed doctrines to address situations where a reasonable covenant is found lacking, such as the "blue-pencil doctrine"7 and the "inevitable disclosure doctrine."

This study chooses to compare Japanese law with the American legal system. The reason for this is that both countries' regulations on restrictive covenants stipulating post-employment duties are substantially analogous, even though the fundamental thoughts on job protection are totally different in the two countries.9 This study supposes that certain profound doctrines commonly underlie both of these legal systems. Therefore, comparing them will be suggestive to each other in elucidating the reasonableness rules. Only one previous research note has introduced the Japanese law about the issue of enforceability of restrictive covenants.10 However, it did not compare Japanese and American law. Moreover, the study is so old that its achievement should be updated. When it was published, the reasonableness test was a developing doctrine in Japan, because there were only a handful of cases. Today, disputes over restrictive covenants have become a significant issue in Japan since the mobility of workers has increased.

This study also provides an overview of American system through the Restatement of Employment Law, 12 among others, in order to compare it with Japanese law. Although the Restatement of Law is not a source of law but merely a secondary source, it is highly informative and offers a synthesis of the common law in the 50 states. The reasonableness rules among the states subtly vary in detail, but their general principles are sufficiently clear to offer a useful contrast to the reasonableness rules in Japan.' 3 This study attempts not only to assist in understanding the rule of restrictive covenants in Japan, but also to compare it with the law in the United States, as adopted in many jurisdictions. Part I of this article surveys the American law briefly. Part II illustrates the Japanese legal system in detail. In each ofthese parts, this article analyzes (A) the concept of reasonableness which is a requirement for the enforceable covenant and elements of the reasonableness, (B) the blue-pencil doctrine or a similar rule, and (C) the inevitable disclosure doctrine or a pertinent theory. Finally, Part III learns some lessons from the comparison between American and Japanese law concerning the restrictive covenants.

Accessibility Requirements

1

Download

Share

COinS