From the Substance to the Shadow: The Court Embedded into Japanese Labor Markets

Modern contract law generally does not allow property rights or similar claims to be made against employees. This undermines a claim on the return on the employer fs investments in recruiting and training a worker, making them vulnerable to possible infringement from a bystander. Accordingly, employers investment in recruiting and training might become deficient. Therefore, protecting an employer fs investment, balanced against the mobility of the labor market for better employer-employee matches, has emerged as an issue in the transitory phase towards a market-based economy. We explore how the Japanese state court in its early period addressed this issue in the tight labor market of the silk-reeling industry, the leading industry then. The court first directly protected interests of employers whose employees were poached, at the expense of workers mobility. Then, it seemed to indirectly govern transactions between employers as a shadow off-the-equilibrium path. Thus, an employer whose employee was poached and an employer who dud the poaching would privately negotiate to settle the dispute, using a possible suit as a threat against the poacher. Examining suits that were actually filed leads to this hypothesis. This indirect governance facilitated labor market mobility with some protection of the original employer fs claim.