Non-compete clauses should not be drafted as broadly as possible

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Contracts sometimes carry very broad non-compete clauses: no employment at a competitor for two years, no involvement in any competing business at all. We see this in employment contracts, director agreements, founder arrangements and M&A seller undertakings alike. A non-compete does not become stronger simply because it is written broadly. Drafted too widely, it can become harder to enforce exactly when the company needs it.

A protectable interest, not just a broad prohibition

After an employee leaves, their interest in freely choosing an occupation grows stronger, so a post-employment clause is examined for whether the company has a genuine protectable interest (a trade secret, a customer relationship, a sales method, know-how) and whether the restriction is reasonable relative to it. Japan's Ministry of Economy, Trade and Industry lists case-law factors including the interest protected, the employee's position and any consideration provided. It also matters whether the information is truly managed as a secret: under the Unfair Competition Prevention Act, trade-secret protection requires secrecy management, usefulness and non-public status. A non-compete clause is not a substitute for access controls and NDAs. It is layered on top for specific people.

Narrow the people, scope and duration

Not every employee needs the same obligation, and a wide non-compete for everyone can hurt recruiting. Allocating duties by role and project involvement usually beats one blanket clause. A ban on "any involvement in a competing business" leaves what counts as competing, and which territory applies, unclear: a particular problem for SaaS. Duration should track how quickly the protected information goes stale, not default to several years. Barring a departing salesperson from soliciting their specific former customers is often more workable than barring them from any competitor altogether.

Consideration, directors, founders and M&A sellers

Consideration, whether extra pay, an enhanced retirement payment or stock options, is relevant to validity, though its absence does not automatically invalidate a clause. For founders and key people, non-compete terms are often tied to equity and designed together with the shareholders' agreement. Directors face a separate Companies Act rule requiring board approval for certain competing transactions. Investors often require founder non-competes, but an overly broad clause can unreasonably limit a founder's next venture. M&A sellers are commonly subject to a post-closing non-compete, still with defined scope, duration and territory.

Contractors need a lighter touch

Contractors and side workers commonly serve multiple clients, and a broad non-compete can block other work, potentially raising Freelance Act issues. Confidentiality, IP assignment and a narrow ban on soliciting specific customers usually fit practice better than a broad clause.

LegalAgent reviews non-compete clauses by looking beyond the clause itself: what information the person can access, what must be returned on departure, and who the customer relationship belongs to.