“Taking customer lists upon leaving,” “saving internal know-how on a personal PC,” “posting new product information on SNS”—employee breaches of confidentiality pose a significant threat to a company’s survival.
An employee’s duty of confidentiality arises naturally from the duty of loyalty (good faith) under the Labor Contract Act, not just from individual agreements, and persists even after resignation. Crucially, a key factor is whether the leaked information can be protected as a “trade secret” under the Unfair Competition Prevention Act (UCPA). Meeting the UCPA’s three requirements (confidentiality management, utility, and non-public domain) allows the company to take powerful legal action, including criminal prosecution leading to a maximum of 7 years imprisonment or a ¥7 million JPY fine. However, if a company neglects “confidentiality management,” it will be left legally unprotected when a leak occurs.
1. Legal Basis for the Duty of Confidentiality
| Basis | Content | Information Covered |
| Labor Contract Act, Article 3 | Duty of Loyalty (Good Faith) naturally gives rise to confidentiality obligation. | All secrets known through business operations. |
| Civil Code, Articles 709 & 415 | Liability for damages due to tort or breach of contract. | General corporate secrets. |
| Unfair Competition Prevention Act (UCPA), Art. 2(6), 21, 22 | Protection of Trade Secrets (Civil/Criminal measures available). | “Trade Secrets” (must meet specific requirements). |
| Work Rules/Confidentiality Agreements | Specifically stipulated confidentiality obligations. | All information designated by the contract. |
| Act on the Protection of Personal Information | Liability for the leakage of personal information. | Personal information. |
2. The Three Requirements for Protection as a Trade Secret (UCPA)
For information to be protected as a “Trade Secret” under the UCPA, all three criteria must be met:
- Confidentiality Management (秘密管理性): The information must be objectively recognizable as being managed as a secret.
- Examples: Access restrictions, passwords, “Secret” designation display, and non-disclosure agreements (NDAs).
- Utility (有用性): The information must be useful for business activities.
- Non-Public Domain (非公知性): The information must not be generally known.
💡 Note: Information that does not meet these three criteria is not protected as a “Trade Secret,” but the duty of confidentiality under the labor contract still remains.
3. Typical Examples Constituting a Breach of Confidentiality
| Action | Applicability of Breach |
| Taking a customer list upon resignation / providing it to a competitor | ◎ (Most serious) |
| Saving internal technical documents on a personal PC and losing them | ○ |
| Posting “Our new product is XX” on SNS | ○ |
| Disclosing “Actually, our cost ratio is…” at a business partner’s drinking party | ○ |
| Using “I used this know-how at my previous job” at a competitor after resigning | ◎ |
| Telling family, “We got a big contract with XX company today” | △ (Depends on the content) |
4. Legal Measures Available to the Company
| Measure | Basis | Practical Effect |
| Civil Suit (Claim for Damages) | Civil Code / UCPA | Can claim actual damages incurred + lost profits. |
| Injunction/Request for Disposal | UCPA, Articles 3 & 4 | Can mandate the prohibition of information use and the deletion of data. |
| Criminal Prosecution | UCPA, Article 21 (Up to 7 years imprisonment or a ¥7 million JPY fine) | Police intervention in malicious cases. |
| Punitive Dismissal/Disciplinary Action | Work Rules | Allows immediate dismissal + withholding of severance pay (supported by many precedents). |
5. Frequently Raised Issues in Practice
| Point of Contention | Precedent/Practical Trend |
| Duty of confidentiality after resignation | In principle, it continues to exist (especially for trade secrets or clearly designated information). |
| Private use during employment (e.g., photo with personal smartphone) | Numerous precedents uphold the validity of punitive dismissal. |
| Case where “no secret designation” was made | Not protected as a Trade Secret, but damages/disciplinary action are possible for a breach of the duty of loyalty under the labor contract. |
| Careless posting on SNS | Punitive dismissal can be upheld even if the information itself is not a Trade Secret (e.g., Tokyo District Court, 2018). |
| Difference from Non-Compete Obligation | Confidentiality duty is near indefinite, while non-compete only binds within a reasonable scope. |
6. Essential Corporate Prevention Measures (Mandatory in Practice)
- Conclude individual confidentiality agreements (NDAs) upon hiring.
- Thoroughly label important information with “Secret” or “Confidential.”
- Strictly manage access rights (folder locking, log management).
- Obtain a written pledge for the return and disposal of confidential information upon resignation.
- Conduct regular compliance education.
- Establish an internal reporting system.
✅ Summary
- An employee’s duty of confidentiality arises naturally from the labor contract and continues after resignation.
- If the information qualifies as a Trade Secret, criminal penalties and powerful civil measures are possible.
- Even if it doesn’t qualify as a Trade Secret, punitive dismissal and claims for damages are very possible.
- In recent years, leakage via SNS posts and private use tends to be severely punished.
- For companies, the most crucial step is establishing a management system, as neglecting confidentiality management means the information will not be protected as a Trade Secret even if it leaks.
