M&A & Business Succession

Competing activity and the poaching of staff by a seller after an M&A transaction

Major customers of an acquired company end their contracts one after another, several of the employees who ran the operation leave within a short period, or word arrives that the seller has set up a company carrying on the same business. Circumstances of this kind may raise the question whether the seller is competing or poaching staff. What determines the answer is not the appearance of the pattern but the basis on which a claim could be brought: a provision of the contract, the duty not to compete laid down by law for a business transfer, or the rules on trade secrets. This legal guide sets out how the facts are checked, how the method of the transaction affects the position, the scope and validity of non-competition and non-solicitation provisions, the solicitation of customers and employees and the use of confidential information, and injunctive relief, damages and the handling of the dispute, including the position of a party that has received a warning.

Last updated: September 18, 2026

What to check first

The following are the matters we would like you to share, so far as you know them, when you contact us. You are welcome to contact us while matters are still undecided or before all the materials are available.

The method of the transaction and the contract — whether the transaction was a share transfer or a business transfer, and whether there are provisions on non-competition and non-solicitation and what they cover

The seller's present position — whether the seller remained as a director or an employee after the sale, and when they left office or left the company

The facts — the customers whose business has ended, where the employees who left have gone, and the date of incorporation, the stated business purpose and the officers of any company in which the seller is involved

Whether information has been taken — whether there is reason to suspect that customer lists or materials on trading terms have been taken

Alongside checking the facts, we set out whether a claim would be brought under the contract or under the law.

Matters we can advise on: reviewing the provisions of the contract; investigating the facts; preparing warning letters and notices; considering injunctive relief and provisional disposition proceedings; claims for damages; and responding where a warning or a claim has been received.

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How we can helpReviewing the provisions of the contract / investigating the facts / preparing warning letters and notices / considering injunctive relief and provisional disposition proceedings / claims for damages / responding where a warning or a claim has been received

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Contents

1. Where competing activity or the poaching of staff is suspected
2. Share transfers, business transfers and the duty not to compete
3. The scope and validity of non-competition and non-solicitation provisions
4. Solicitation of customers and employees, and the use of confidential information
5. Injunctive relief, damages and handling the dispute
How we assist
Related pages
Key legislation and official sources
Frequently asked questions

1. Where competing activity or the poaching of staff is suspected

Major customers of an acquired company have ended their contracts one after another; several of the employees who ran the operation have left within a short period; word has arrived that the seller has set up a company carrying on the same business. Circumstances of this kind may raise the question whether the seller is competing or poaching staff.

The first step is to check the facts: when, and with which customer, the business ended; who that customer now deals with; where the employees who left have gone; and, if there is a new company in which the seller is involved, its date of incorporation, its stated business purpose and the composition of its board. A good deal of this can be checked from the corporate register and from publicly available information.

The contractual basis is checked in parallel: whether the share transfer agreement or the business transfer agreement contains a provision prohibiting competition or a provision prohibiting the solicitation of customers or employees, and how the subject matter, the period and the territory are defined. Where the seller remained as a director or an employee of the target company after the sale, the contract and the work rules attaching to that position are checked as well. Where there is a confidentiality agreement, the range of information it covers is checked.

Evidence needs to be secured at an early stage. Records of communications with customers, logs from the devices and accounts used by those who have left, and records of data exported from internal systems are all lost with the passage of time. Where the target company's information systems are to be examined, the privacy of employees and the employment law position also call for attention, so the approach is considered before the examination begins. On how an investigation is conducted, see also the guide on internal investigations and responding to internal whistleblowing.

In considering the basis of a restriction, the method by which the transaction was carried out makes a considerable difference.

Where the transaction took the form of a business transfer, a company that has transferred a business must not, unless the parties have indicated a different intention, carry on the same business within the area of the same municipality or of an adjoining municipality for twenty years from the date of the transfer. Municipality here includes a special ward, and in a city designated by Cabinet Order the unit is the ward or the general ward. Where the parties have agreed that the transferor will not carry on the same business, that agreement is effective only within a period of thirty years from the date of the transfer. Separately from these rules, carrying on the same business for the purpose of unfair competition is not permitted. An equivalent rule applies where a merchant has transferred its business.

These are rules laid down for the transfer of a business. The thirty-year ceiling does not thereby become the standard for the validity of a non-competition provision in a share transfer agreement, or of an agreement not to compete entered into with a departing employee.

Where, by contrast, the transaction took the form of a share transfer, the target company, which is the entity carrying on the business, does not change. These rules laid down for a business transfer therefore do not apply as a matter of course. Whether a seller who has transferred shares is restricted from competing depends, as a starting point, on what the contract provides. Where the contract contains no provision prohibiting competition, restricting the seller's competing activity is not straightforward.

Where the seller is an individual who remains in office as a director of the target company after the sale, the Companies Act applies: where a director intends to carry out a transaction falling within the scope of the company's business, for the director's own benefit or for the benefit of a third party, the director must disclose the material facts and obtain approval at a shareholders meeting or at a meeting of the board of directors. That rule does not, however, apply as a matter of course after the director has left office.

3. The scope and validity of non-competition and non-solicitation provisions

Where the contract does contain such a provision, the next question is whether the provision captures the conduct in issue.

What is checked is the range of business restricted, the territory, the period, and who owes the obligation. Two situations need to be distinguished here. In the first, a company controlled by the seller, or a relative of the seller, is itself a party to the contract and owes an obligation not to compete. In the second, the seller alone is a party and owes an obligation not to compete through a third party, expressed by words such as whether directly or through a third party. In the first situation, a claim brought directly against that company or that relative is an option; in the second, the obligation is owed by the seller alone, and a company or a relative that is not a party to the contract does not owe a duty not to compete merely because of the seller's contract. Where the seller does not hold office in the new company, whether circumstances such as involvement as an investor or as an adviser can be assessed as a breach by the seller of the seller's own obligation falls to be considered.

The validity of the provision itself is sometimes disputed. On this point, restricting the competing activity of a departing employee and restricting a seller who has sold a business cannot be discussed on the same footing. The seller has received consideration corresponding to the value of the business and has accepted the restriction in order to preserve that value. That said, depending on the level of the consideration, the scope and duration of the restriction and the degree of disadvantage the seller suffers, the validity of the provision or the extent of its application may be in issue. It is not possible to decide validity across the board by looking only at the period or the territory laid down. Where the seller also remains as an employee of the target company, the restriction arising from the seller's position as seller and the restriction arising from the position as employee are considered separately.

Where the contract contains a provision on a penalty or on agreed damages, the party checks whether it fixes the amount of damages in advance or whether it is a penalty laid down separately from compensation for the loss actually suffered. Whether the loss actually incurred has to be proved, and whether loss exceeding the agreed amount may be claimed separately, vary with that characterization. Nor does it follow that the amount is reduced simply because the actual loss is smaller than the amount agreed.

4. Solicitation of customers and employees, and the use of confidential information

As to the solicitation of customers, what counts as solicitation becomes the point in issue. The assessment may differ between a case in which the seller made the approach and a case in which the customer made contact and the seller responded. It is necessary to check whether the provision prohibits only an active approach or prohibits dealing with the customer at all.

As to employees, the starting point is that they are free to change jobs. What has to be examined nonetheless varies with what the provision prohibits. Where the provision prohibits solicitation, the fact alone that an employee decided to leave and moved to the seller's company does not of itself amount to a breach, and what is in issue is whether the seller made an approach and in what manner. Where, by contrast, the provision restricts hiring or employment itself, the extent of its application and its validity have to be considered separately even in the absence of an active approach. Some provisions exclude the case of a person who applied in response to a job advertisement made generally available.

Where information has been taken, two frameworks are considered separately. The first is breach of a contractual duty of confidentiality, in which case the starting point is how the information concerned is defined in the contract. The second is the rules on trade secrets under the Unfair Competition Prevention Act. A trade secret under that Act is information that is kept secret, that is technical or business information useful for business activities, and that is not publicly known. It does not follow that everything defined as confidential information in a contract is a trade secret under that Act.

Where the Act is relied on, it is not enough that the information is a trade secret; whether the conduct falls within one of the categories laid down by the Act has to be checked separately. Acquiring information by theft or other wrongful means, using or disclosing a trade secret shown by its holder for the purpose of obtaining a wrongful gain or a similar purpose, and acquiring information while knowing that it was wrongfully acquired or wrongfully disclosed are among the categories, and for each of them the requirements concern which of acquisition, use and disclosure occurred and what purpose or knowledge the person had. Where the matter is one in which the seller has used, after leaving office, information the seller properly came to know while in office, the examination cannot proceed until the category to be relied on has been identified.

Where a category does apply, a person whose business interests are infringed, or are at risk of infringement, by unfair competition is entitled to claim that the infringement be stopped or prevented, and a person who intentionally or negligently engages in unfair competition and thereby infringes the business interests of another is liable to compensate the loss so caused. There are also provisions presuming the amount of loss, but the conditions for applying these are laid down by reference to the category of conduct and the particular provision, so they are not available as a matter of course in every matter involving a trade secret. The right to claim an injunction against the use of a trade secret under those provisions is extinguished by prescription where the conduct is continuing and the holder does not exercise the right for three years from becoming aware of the infringement of its business interests, or the risk of it, and of the person carrying out the conduct. The same applies where twenty years have passed since the use began. Loss caused by use after the right has been extinguished in this way cannot be claimed in damages under those provisions. Managing time from the point at which the taking or the use is first suspected therefore has to be kept in mind separately from a claim under the contract. Because the facts to be asserted and proved differ according to the framework relied on, the choice is made to fit the matter.

5. Injunctive relief, damages and handling the dispute

The steps available are sending a warning letter, applying for an order stopping the conduct, and claiming damages. What should be settled before a step is chosen is who is bringing the claim and on what basis. The rights under a non-competition provision in a share transfer agreement are ordinarily held by the buyer, as the party to the contract. Under the duty not to compete that the law lays down for a business transfer, and under a claim based on the Unfair Competition Prevention Act, the person entitled to bring the claim is different. In the latter case it will often be the target company, as the person whose business interests have been infringed. Proceeding without settling whether the claim is to be brought in the name of the buyer or of the target company, and on which basis, can mean having to change the way the case is put partway through the proceedings.

Where a warning letter is to be sent, its contents are considered after checking how far the facts are supported by evidence. Making wide-ranging assertions while the basis for them is thin may draw an assertion from the other side that its business has been interfered with or its reputation damaged. Where a notice is to be sent to the other side's customers, particular care is needed.

Where an injunction is sought, the matter may call for interim measures. A provisional disposition requiring competing activity or solicitation to stop is treated as one provisionally determining the status of a party in relation to a disputed legal relationship. A provisional disposition is a Japanese court procedure for interim relief pending a decision on the merits. Such an order may be issued where it is necessary in order to avoid substantial loss or imminent danger to the applicant. On an application, a prima facie showing is required of both the right to be preserved and the necessity of preservation, and as a general rule a date for oral argument, or for a hearing at which the other party can attend, must be held. Security may also be required, so the funds for that are considered as well. Where the period of the restriction is short, the time the procedure takes is taken into account too.

As to damages, proof is the practical difficulty. It has to be shown, on the basis of the materials available, that the competing conduct was the cause of the customers leaving, and how the profit that would have been obtained from the business lost is to be calculated. Where the contract contains a provision fixing the amount of damages in advance, or where the provisions on the presumption of the amount of loss concerning trade secrets can be used, the burden of proof may be lighter. Where, in addition, the seller can be assessed as having carried out, while in office as a director of the target company, a transaction falling within the scope of the company's business without obtaining the required approval, a provision presuming the amount of the benefit obtained from that transaction by the director or by a third party to be the amount of the loss may also be used. That liability is owed to the company, however, so the claim is brought by the target company. Each of these has conditions for its application, so whether the matter satisfies them has to be checked.

For a party that has received a warning or a claim, the starting point is the same. That party checks whether its own conduct falls within what the provision covers, whether the period of the restriction has expired, whether it is among those to whom the obligation is addressed, and what conduct is prohibited. Where it has to respond while continuing to trade, a decision may also be called for as to how far to hold back from particular activities in the meantime.

Where the indemnification provisions of a share transfer agreement are drafted so as to extend not only to breaches of the representations and warranties but also to breaches of the covenants or of the non-competition provision, a claim within the indemnification framework also falls to be considered. In that case, whether the notice procedure and the provisions limiting liability apply is checked against the wording of the provisions. A cap or a notice deadline laid down for breaches of the representations and warranties does not apply to a breach of the non-competition provision as a matter of course. The indemnification framework is dealt with in the guide on breach of representations and warranties in M&A and indemnity claims. Where what is in issue is the departure or the treatment of employees themselves, see also the guide on labor and employment disputes.

How we assist

For those affected by a seller's competing activity or poaching of staff, and for those who have received a warning

We review the relevant materials and the sequence of events and assist with considering the rights and obligations arising under the contract and the applicable law and the approach to be taken. Depending on the scope of the engagement, we negotiate with the other side, act in court and other proceedings, and work with the professionals the matter requires. When you contact us, please let us know through the inquiry form, so far as you are able, the current situation, whether you have received any notice from the other side, and any deadlines you are aware of. You are welcome to contact us before all the materials are available.

Whether we are able to accept instructions, and the scope of our support, is confirmed individually after checking for conflicts of interest.

Breach of representations and warranties in M&A and indemnity claims — whether and to what extent indemnification may be claimed for problems that come to light after an M&A transaction has been completed, the deadline for giving notice, and set-off and the withholding of payment.

Termination of an M&A contract and refusal to close — the matters to consider where completion of the transaction, or its termination, is disputed on the ground that a condition precedent has not been satisfied or that the contract has been breached.

M&A and business succession (practice area) — our work on structuring M&A transactions, legal due diligence, drafting and negotiating contracts, support at closing, post-merger integration and business succession.

Key legislation and official sources

English translations of legislation are provided for reference. The Japanese texts are authoritative.

Where it appears	Legislation	Source type
Duty of a transferring company not to compete after a business transfer; the area and the period covered; the effect of an agreement not to compete; carrying on the same business for the purpose of unfair competition	Companies Act（会社法）	Japanese legislation
Duty not to compete where a merchant has transferred its business	Commercial Code（商法）	Japanese legislation
Disclosure of material facts and approval where a director carries out a transaction within the scope of the company's business; liability to the company and the presumption that the benefit obtained is the amount of the loss	Companies Act（会社法）	Japanese legislation
Requirements for a trade secret; the categories of unfair competition; injunctive relief; damages; presumption of the amount of loss; extinguishment by prescription of the right to claim an injunction against use	Unfair Competition Prevention Act（不正競争防止法）	Japanese legislation
Orders provisionally determining a party's status, the prima facie showing required, hearing dates and security	Civil Provisional Remedies Act（民事保全法）	Japanese legislation
Provisions fixing the amount of damages in advance, and provisions for a penalty	Civil Code（民法）	Japanese legislation

Legal information reviewed: 2026-09-18

Frequently asked questions

Can a seller's competing activity be restricted where the contract contains no non-competition provision?

That depends on the method of the transaction. Where the transaction took the form of a business transfer, the law imposes a duty not to compete on the transferring company, framed by reference to the area of the same municipality and of adjoining municipalities, including special wards and, in a city designated by Cabinet Order, the ward or the general ward, and to a period of twenty years from the date of the transfer. In the case of a share transfer, these rules do not apply as a matter of course, and without a provision in the contract a restriction is not straightforward. While the seller remains in office as a director of the target company, the rules of the Companies Act apply.

What is the position where the seller is involved in a competing business through another company?

The first step is to check whether that company is itself a party to the contract and owes the obligation, or whether the seller alone is a party and owes an obligation not to compete through a third party. In the latter case the company does not owe a contractual obligation, so whether the matter can be framed as a breach by the seller of the seller's own obligation falls to be considered. The treatment of a case in which the seller is involved only as an investor or as an adviser is considered from the same standpoint.

Does responding to an inquiry from a customer breach a non-solicitation provision?

That depends on what the provision prohibits. Where the provision prohibits only an active approach, the treatment of a case in which the customer made contact may differ. Where it prohibits dealing with the customer at all, the assessment changes again.

Is it a problem as poaching where an employee left and changed jobs of their own accord?

That depends on what the provision prohibits. Where the provision prohibits solicitation, employees are free to change jobs, so the fact alone that an employee decided to leave does not of itself amount to a breach by the seller, and what is in issue is whether the seller made an approach and in what manner. Where, by contrast, the provision restricts hiring or employment itself, the extent of its application and its validity are considered separately from whether there was any solicitation.

We have received a warning letter alleging competing activity and the poaching of staff. What should we check?

The first thing to check is in what capacity, and on what basis, the other side is bringing its claim. The requirements, and the person entitled to bring the claim, differ according to whether it rests on a provision of the contract, on the duty not to compete laid down by law, or on the rules on trade secrets. The next step is to check whether your own conduct falls within what the provision covers, within the period, among those who owe the obligation, and within the range of conduct prohibited. Alongside that, check whether the facts alleged actually occurred and, where it is alleged that information was taken, what the basis for that allegation is. Where the effect on the business is substantial, it is worth taking legal advice at an early stage, including on what to do in the meantime.

Contact

Competing activity or the poaching of staff by a seller, and responding to a warning

On disputes over competing activity and the poaching of staff by a seller, we check the relevant materials and the sequence of events, and assist with considering the rights and obligations arising under the agreements and the applicable legislation and the approach to be taken. To the extent instructed, we conduct negotiations with the other party, act in court and other proceedings, and work with other professionals where needed. When you contact us, please let us know through the inquiry form, so far as you are able, the current situation, whether any notice has been received from the other party, and any deadlines you are aware of. You are welcome to contact us before the documents have been gathered.

Whether we are able to act, and the scope of our work, are confirmed individually after a conflict check.

This article is provided for general informational purposes only and does not constitute legal advice on any specific matter. Please consult us regarding your specific situation. The content is based on the laws and regulations in effect as of the date of the last update.