Worker Rights
and Obligations

in the Japanese IT Industry
Employment Law for
the Foreign Programmer

by Karl Ruping

Foreign employees working in the japanese computer industry live in a precarious state: Glorified by colleagues who assume the foreigner knows everything about anything to do with a microprocessor. Vilified by compatriots for selling out to "the competition." Envied by friends back home yearning for an exotic high-tech rush.

Typically, the foreign employee in Japan remains a "guest" worker, kept on a short leash and with a short-term visa. Japanese companies usually offer foreign employees only a one-year contract, with no enforceable guarantee of extension. This is not because of any government immigration restrictions; it is simply because Japanese law may extend "permanent" employment status (and strong labor rights) to long-term "temporary" employees - something that corporations hope to avoid for foreign workers.

Domestic demand, foreign supply
While Japanese hardware manufacturers have established a global presence, only in game applications is Japanese software internationally competitive. This poor performance is due in part to the lack of experienced computer programmers and system designers in Japan.

Since a knowledgeable in-house staff is necessary to ensure efficient product design, development, and maintenance, many companies are reluctantly turning abroad to meet their programming needs. "With the high demand for specialists in certain high-technology fields, Japanese companies have been recruiting from overseas," notes Hitomi Kanaumi, a human resource specialist in Tokyo. "The software industry in particular looks to the US, Europe, India, and occasionally Taiwan."

These temporary employees are familiar with the technology, but few are familiar with their legal rights and obligations while working in Japan - an oversight that could spell trouble when their short-term contact is through. Three areas of law that impact the foreign computer programmer are the rights gained under Japanese intellectual property law, the intellectual property rights lost in the employment relationship, and the contractual obligations assumed with respect to noncompetition and nondisclosure clauses.

The foreign programmer should not expect to retire on any invention made within the scope of a Japanese employment relationship.

Copyright initially accrues to the author of the work - either a natural person (the programmer) or a legal person (the corporate employer). But the programmer/employee can lose his or her copyright in one of two ways: through the work-for-hire doctrine, or through the employment contract.

Article 15(2) of the Copyright Act provides that, absent a specific agreement to the contrary, the rights to a computer program created within the scope of employment are automatically transferred to the employer. This provision is intended to facilitate the development and commercial exploitation of software applications, which usually require the efforts of numerous individuals employed by a corporate entity.

[The contract] is only one element of the employment relationship. An equally important document is the corporate work rules.

Patents incorporating a computer program are rare, but increasing. Unfortunately, the Japanese patent system is even less friendly to the employee/inventor. In Japan, a 20-year exclusive right to use a new, innovative invention is available to the initial patent applicant rather than the first inventor. This first-to-file system tends to favor an employer with the resources to pursue the complex and often expensive application process.

Even if an employee does secure a patent, article 35(1) of the Patent Act grants the employer a non-exclusive license (called "shop right") to those patents that fall within its scope of business. One consolation is that the employer must provide "reasonable remuneration" to the inventor/employee, but because the value of a patent at the time of application is difficult to estimate, that remuneration may be merely a token award of money with a note of recognition. In other words, the foreign programmer should not expect to retire on any invention made within the scope of a Japanese employment relationship.

So the work-for-hire doctrine covers many of the computer applications produced in the workplace, while the first-to-file patent system favors the employer. To have any hope of retaining ownership rights when going above and beyond the call of duty, therefore, the employee should take care to isolate programming activities from employment responsibilities. Even when automatic transfer has been avoided, however, the foreign employee can still lose his or her intellectual property rights under the terms of the employment contract.

Employment contracts and work rules
Employment contracts in Japan are deceptively short and notoriously vague. Even with an accurate translation in hand, the foreign employee may not realize that the contract just signed is only one element of the employment relationship. An equally important document is the corporate work rules.

The Japanese Labor Standards Act requires a company with 10 or more employees to establish a set of detailed work rules. These rules are adopted by the company after consulting labor representatives, who are usually lifetime employees with comfortable ties to management. The interests of the "atypical" employee - such as temporary staff, technical personnel, and foreign employees - are not well defended in this process. Yet despite having little or no role in forming the work rules, foreign employees are still bound by their provisions.

Work rules typically cover a broad range of statutory subject matter, from overtime to vacation time. Companies operating in the computer industry are careful to include blanket provisions in their work rules stipulating that all intellectual property rights created during the term of employment become the exclusive property of the company.

Such transfer clauses are usually broader in scope than even the work-for-hire doctrine, in that the company attempts to secure the copyright to all works that the programmer has made during the period of employment - even when the application was designed at home for purposes unrelated to the employee's job responsibilities. Transfer clauses have been held valid by Japanese courts in other industries, although it is not clear how far beyond the workplace these can reach in the software industry.

The law stipulates that work rules must be available to all employees, but not necessarily in the native language of the foreign employee. Since foreign programmers are brought in for their technological skills, not their language abilities, without an accurate translation they may know only the general provisions of their contract, and even less of the more important work rules. "There are legal grounds for the foreign employee to demand a translation of the work rules," observes Yoichiro Hamabe, a US lawyer and Japanese bengoshi with experience in high-tech labor issues. "However, few are aware of the work rules, or the importance of their contents."

Theoretically, for a contract to be valid, both parties must understand the terms of that contract. But as Hamabe explains, "A Japanese court will view the employee's signature as evidence that he or she knew and agreed to the contents of the contract." It is the employee's burden of proof to convince the court otherwise.

Subcontractors beware
Some programmers attempt to maintain their independence by working as subcontractors. In this capacity, the work-for-hire doctrine does not apply, and intellectual property rights remain with the subcontractor absent an explicit transfer.

The terms of the agreement between a subcontractor and the client, written or oral, will determine the holder of the copyright and any related licenses to use the program. But a subcontractor who signs an agreement in Japanese without knowing all the terms and their legal implications risks losing more than just intellectual property rights.

Your legal status can be a gray area; although you may think you know, it is not always clear, in legal terms, if one is a subcontractor or an employee. The court will begin its analysis with the contractual declarations made between the parties. Where the contract is silent, a court will consider a variety of factors in determining the nature of the relationship.

Independent programming activities on a project basis, for example, suggests a subcontracting relationship. But if the individual works at a company's place of business under management supervision, the court will likely find an employee relationship. A practical issue in this analysis is the individual's visa status - a double-edged sword for the foreign programmer "working" in Japan without a corporate sponsor.

An additional danger for the subcontractor/programmer is the issue of co-authorship with a client. A copyrighted work may be deemed created by more than one person, as computer applications often are, and a co-author must obtain the consent of all other co-authors before exercising or transferring the copyright of a joint work. A client involved in the production of a subcontractor's program thus may have a copyright claim to certain integral elements of that program (the scope of which depends on the creative elements provided). While consent for a co-author to use a joint work must not be withheld absent justifiable reason, the client can, in practice, effectively prevent a subcontractor from servicing others - particularly competitors - with the same or similar application.

Noncompetition and nondisclosure
The foreign programmer may not only lose intellectual property rights created while in Japanese employ; he or she can assume burdensome obligations as well. The individual job applicant is in a weak negotiating position to demand modification of a company's standard employment contract, much less the existing work rules. The choice is usually simple: sign or work elsewhere.

Many companies in the computer industry now include a noncompetition clause in the employment contract or work rules. Noncompetition clauses take various forms, but the common objective is to prevent an ex-employee from directly or indirectly competing with the former employer by performing similar activities for other companies in a particular market for a specified period of time.

This is not a serious issue for lifetime employees (those who typically negotiate the terms of the work rules). Foreign programmers, however, are generally employed for a limited term and then must find other work. Enforcement of a noncompetition clause may completely prevent an individual from seeking a job in his or her area of technical skill.

Article 22 of the Japanese Constitution guarantees the freedom to choose an occupation, but a computer programmer's freedom to secure future employment may be severely restricted by a noncompetition clause. Japanese courts have recognized the validity of contractual restrictions to employment, although they have strictly reviewed the contents of such provisions in light of the constitutional freedom.

Nondisclosure If any provision is sure to find its way into a foreign employee's job contract, it is the nondisclosure clause. If you are considering a job offer, be sure to carefully review the contract to determine the scope of the obligation imposed. You should look beyond the contract, however, since employee confidentiality requirements are commonly found as boilerplate sections hidden in the work rules. Past court cases have held that corporate data, client lists, and undisclosed work material must not be disclosed without authorization. The difficulty for you, as a foreign employee, is to distinguish among the company's proprietary information, the technical knowledge you gained during your period of employment, and material obtained outside of the employment relationship, which may or may not qualify as a corporate trade secret.

A court may invalidate an unreasonably harsh noncompetition clause to ensure an equitable burden relative to the nature and period of the employment. But unlike the US, where courts may rewrite the contractual limitation, Japanese courts either enforce or completely reject the application of a noncompetition clause to particular litigants.

Nondisclosure clauses are another threat to a programmer's employment freedom. Under general theories of tort law and the Unfair Competition Prevention Act, a party must not release another's secret commercial information without first obtaining appropriate authorization. A company obviously will want to ensure that employees with access to proprietary information are contractually restricted in the use of that information by prohibiting the disclosure of trade secrets to unauthorized third parties. Some nondisclosure clauses, however, extend the secrecy obligation to all commercial information, proprietary or not, relating to the corporation and its clients. This obligation can extend for several months or even years beyond the term of employment, which may interfere with or even prevent a programmer's subsequent employment.

Any product or service passing through Japan that is related to a foreign violation of a noncompetition clause or nondisclosure clause is subject to the jurisdiction of the Japanese court.

While Japanese labor law does not have extraterritorial application beyond the domestic employment relationship, the validity of contractual provisions does not end at the border. Any product or service passing through Japan that is related to a foreign violation of a noncompetition clause or non-disclosure clause is subject to the jurisdiction of the Japanese court.

Even a foreign judge may recognize the provisions of a Japanese contract when it comes to transferring intellectual property rights, or limiting the programmer's activities even after the employment relationship. It is less apparent if work rules will have equal application, but a prospective employer will not want to undertake any unnecessary legal liability suggested by such rules. In short, the provisions of a Japanese employment contract could render a programmer unemployable even outside Japan.

Foreign specialists working in the Japanese software industry should be familiar with the loss of intellectual property rights in work-related computer applications, since this is a common feature in other industrialized nations. The broad reach of these losses in the employment relationship, and the severe obligations assumed in a brief period of employment, however, may surprise the newcomer to Japan.

If you're considering a job in Japan, reading your employment contract is not enough. Take a close look at the work rules, and grab a kanji dictionary or ask a trusted Japanese friend to assist. For detailed questions about the employment relationship, it is worth the expense to consult a Japanese lawyer familiar with labor issues. Considering the possible consequences, "look before you leap" is sound advice.

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