Employment 2020

Last Updated September 08, 2020

Japan

Law and Practice

Authors



TMI Associates is one of the largest law firms in Japan, with offices in six locations in Japan and overseas branches in China, South-East Asia, the USA and the UK. Its labour and employment team is comprised of 38 lawyers, including ten partners. The firm advises Japanese and multinational clients in various industries across the entire spectrum of employment-related matters, including litigation, M&A, and negotiation with labour unions. The team collaborates with TMI’s data privacy, intellectual property and criminal law experts, which include former judges and public prosecutors, on matters that intersect with these areas, such as trade secret theft and employee misconduct. The team also regularly works with immigration experts within the firm. Recent work includes advising Japanese clients planning to expand business in South-East Asia on employment and immigration law, working closely with its branches in the region.

Change in Statute of Limitations

Substantial amendments to the Civil Code came into effect on 1 April 2020. One of the many amendments was a change of the statute of limitations. The statute of limitations for wage and related claims and the retention period of important labour-related documents, such as employee rosters and wage ledgers, was previously two years under the Civil Code. Under the amendment, the statute of limitations and retention period was extended to five years; however, as a transitional measure, it would only be extended to three years for the time being.

The most significant consequence of this change for employers is that employees will be able to bring claims for unpaid wages for a longer period, and would therefore recover larger awards if they prevail. This would expand potential exposure, for example, in the case where an employer incorrectly classifies an employee as exempt and fails to pay overtime, an issue frequently experienced by companies. Accordingly, it is highly recommended for companies to review and confirm that their current classification of employees and time-tracking systems are in compliance with legal requirements.

Prevention of Power Harassment

Power harassment (bullying and abuse at the workplace) has been a social problem in Japan for some time, but there had not been a statute to address it. An amendment to the Act regarding Overall Promotion of Employment-related Measures and Policies, Employment Stabilisation and Fulfilling Occupational Life, etc, (the “Act”) was adopted in order to address this widespread issue. The amendment came into effect on 1 June 2020 for large businesses, and will start applying to small and medium-sized businesses from 1 April 2022.

Power harassment is defined in the amended Act as “any speech or behaviour of an employee at the workplace based on a dominant relationship, which is beyond the extent necessary and appropriate for business, that harms the working environment of other employees”.

Employers are required under the amended Act to take measures to prevent power harassment by, for example, making their anti-power harassment policy widely known to employees, establishing a system to receive and deal with employee complaints, and taking immediate and appropriate measures in case power harassment actually occurs. It is prohibited to retaliate against an employee for making a complaint or co-operating with an investigation. 

The amendment does not set forth any sanctions for non-compliance with the Act, but failure to properly address power harassment can lead to harmful publicity and reputational damage. In addition, an employer as well as the harasser will be liable for any damages suffered by the employee who was subjected to power harassment (eg, mental suffering, medical costs, lost income). It is important for employers to take action to prevent, detect, and properly deal with any instance of potential power harassment.

The most important legislative action that has been taken to cope with the COVID-19 crisis from an employment perspective is the temporary expansion of government subsidy for employers. The subsidy is available to employers in all industries who suffered a certain reduction in sales or production, and provides funding, subject to a cap, for an allowance employers are required to pay by law – 60% of the employee’s average wage – when they place employees on leave for a reason that is short of force majeure. This would cover situations where an employee is placed on leave, for example, for the following reasons.

  • there is a reasonable concern that the employee may be infected with COVID-19;
  • the employee is confirmed to be infected with COVID-19, but is not subject to a work restriction order by the municipality;
  • the employer is suffering reduced business;
  • the employer suspends its operations as requested by the government, but does not instruct its employees to work from home because it has not implemented a teleworking system.

Regular Employees

An important distinction in employee status is between (i) indefinite-term, full-time employees (commonly called “regular employees”) and (ii) fixed-term and/or part-time employees (commonly called “non-regular employees”). There have been significant differences in employment conditions of regular employees and those of non-regular employees. Recently, new laws have been enacted to address this situation by prohibiting unreasonably different treatment, and many court cases have ensued.

Exempt Employees

Another important distinction is between exempt and non-exempt employees. Managers and supervisors who (i) have personnel and other management authority, (ii) decide at their own discretion when to start and finish their work, and (iii) receive higher salaries, are generally exempt from increased wages for overtime and holiday work. This requires particular attention, as the scope of employees who are considered exempt in Japan is much narrower than in some other countries and, as a result, employees are often incorrectly classified as exempt.

There are no formal requirements for entering into a written employment contract. An employment contract can be entered into orally. Upon hiring, employees must be given a written notification which states core employment terms such as the employment period, terms of renewal (if applicable), workplace, duties, working hours, days off, holidays, salaries and termination of employment.

Maximum working hours are eight hours per day and 40 hours per week, in principle. A labour management agreement (an agreement with a major labour union or, if such union does not exist, with an employee who represents the majority of the employees) must be entered into and filed with the Labour Standards Inspection Office every year in order to require employees to work beyond the maximum working hours.

Even with the labour management agreement, overtime hours (the hours exceeding the maximum working hours) generally cannot exceed 45 hours per month and 360 hours per year for normal months. For busy months up to six months per year, this cap may be raised to 100 hours per month including holiday work, 720 hours per year not including holiday work, and 80 hours per month including holiday work on average over any period of two to six months.

Employers who would like to have some flexibility may, depending on the nature of their business, adopt one or more of the following:

  • a “flexible working hours system”, under which employees decide their own starting and finishing time, and working hours are calculated on a monthly basis;
  • an “irregular working hours system”, under which the starting and finishing time is determined by the employer, and the daily or weekly working hours can be longer than the maximum working hours so long as the average weekly working hours are 40 hours or less; and
  • a “discretionary working hours system”, under which employees who engage in certain work which requires discretion on how to proceed with the work can decide their own starting and finishing time, and working hours are deemed to be certain hours (eg, normal working hours at the workplace) regardless of the actual working hours.

Minimum hourly wages are determined per prefecture (ie, administrative district), in principle. Higher minimum hourly wages apply to certain industries. Prefectural minimum hourly wages are reviewed every year and are in the range of JPY790 to JPY1,013 from October 2019 (JPY1,013 for Tokyo, JPY964 for Osaka). 

There is no statutory obligation to pay bonuses or increase salary. The government does not intervene in the determination of compensation unless the amount is below the minimum hourly wage, determined based on discrimination, or reduced in an illegal manner.

Annual Leave

Employees whose attendance rate is 80% or more are entitled to ten to 20 days of annual paid leave per year depending on years of service. The number of entitled days is prorated if an employee works on a part-time basis.

Employees who meet certain criteria can take maternity leave (for delivery), childcare leave (up until the child reaches two years of age, at a maximum), and family care leave (for a family member requiring care). These leaves can be unpaid.

There is no legal obligation to provide paid sick leave for an illness or injury that is not work-related. When employees need to be absent from work due to such an illness, they commonly use annual paid leave. If they have used up annual paid leave, they may receive health insurance benefits which cover a part of their salary.

Employee Liability

Japanese law prohibits prior agreement on liquidated damages in case of an employee’s breach of an employment agreement. In addition, employers are prohibited from offsetting any claims against an employee with salary payment without the employee’s voluntary consent. It is, therefore, difficult to set forth a claw-back clause in Japan.

In Japan, it is possible for employers to adopt non-competition (or non-compete) clauses to restrict an employee’s activities for a period of time after the employment has ended. The validity of non-compete clauses is determined on a case-by-case basis. They will be considered void as a violation of public policy if they unreasonably restrict the employee’s constitutional right to choose his or her occupation.

To be enforceable, the non-compete clause must be reasonable in duration, geographic area, and scope of business or activity, and must be necessary to protect the employer’s legitimate business interests. Legitimate business interests may include technological and business secrets and information, protection of transaction with business partners, and avoidance of material damage on business operation. The courts also take into account the position of the employee, including the employee’s knowledge of confidential information and relationship with customers or suppliers, and the compensation awarded to the employee. 

In many cases, courts have sustained a non-compete clause but narrowly interpreted it by limiting its effect to an extent deemed reasonable. Typically, the courts are reluctant to acknowledge that an employee violated a non-compete clause simply by joining a competitor, and require that the employee is engaging in activities that harm the previous employer’s interests.

Since an injunction against competing activities directly interferes with an employee’s freedom of occupation, an injunction will only be granted when and to the extent it is necessary to prevent the employer’s damages. Under the current practice in Japan, the threshold is relatively high, and the courts do not easily grant an injunction based on a non-compete clause.

It is uncommon for Japanese employers to adopt clauses prohibiting the solicitation of former colleagues. The enforceability of such clauses is therefore not widely discussed. In principle, a balance must be sought between the solicited employee’s freedom of choice of occupation and the legitimate business interest of the employer. A clause prohibiting an employee from hiring a former colleague, even if there was no solicitation and the colleague applied of his or her own volition, is unlikely to be enforceable.

In cases where employers have sought the liability of former employees for soliciting former colleagues based on tort, the courts have generally focused on the nature of solicitation. For example, if the departing employee solicits many of his or her team members to leave the current employer and join a competitor, the court will likely find that the nature of solicitation is malicious to the current employer, and thus consider the solicitation to be unlawful. Similarly, if the departing employee requests his or her ex-co-worker to bring the current employer’s proprietary information such as cost information, price list or customer list, it is more likely that the solicitation shall be deemed unlawful.

On the other hand, if the solicitation is made based on a personal relationship on an individual basis without involving any disclosure of confidential information, it is less likely to be judged unlawful.

Clauses prohibiting the solicitation of customers are likely to be considered enforceable, as long as they can be shown to be necessary to protect the employer’s legitimate business interests, and do not unduly interfere with the employee’s freedom of choice of occupation. If the customer voluntarily approaches the ex-employee without solicitation from the ex-employee, the court is unlikely to consider it as a breach of non-solicitation clause.

The Act on the Protection of Personal Information, which sets forth rules on the protection of personal information of individuals in general, applies to the employment area as well. 

An employer must:

  • collect personal information properly (ie, directly from the employee or with the employee’s consent) as to “special care-required personal information” such as the employee’s medical history or criminal record;
  • publicly announce or inform the employee of the purpose of use of personal information unless it is obvious;
  • process personal information within the scope of purpose of use which has been announced or informed;
  • obtain the employee’s consent when transferring personal information to a third party unless the transfer falls under an exception under the Act;
  • in particular, when transferring personal information to a third party located outside of Japan, obtain the employee’s consent to such overseas transfer, unless the transfer falls under an exception under the Act;
  • implement safety measures to protect personal information and supervise employees and contractors who handle personal information; and
  • administer the employee’s request to access, correct, add or delete personal information.

In relation to data privacy, it is advisable to build into the work rules a provision that permits the employer to monitor and search employees’ communications and files stored on the employer’s computers and systems and other electronic devices.

Employers should also be mindful of the need to adopt rules on handling health information of employees which became a legal obligation in 2019.

Foreign nationals with a working resident status are permitted to engage only in the type of work and for the term authorised pursuant to their respective resident status.

The “student” resident status and the “family stay” resident status (for those who reside as a family member of a person with a different residence status) are non-working statuses. However, if a foreign national with such status obtains a permit “to engage in an activity other than that permitted pursuant to the resident status granted”, the foreign national can work up to 28 hours per week. In addition, those with a student resident status can work up to eight hours per day, 40 hours per week during long-term vacations.

On the other hand, foreign nationals with permanent resident status, special permanent resident status, long-term resident status, and spouses or children of a Japanese national or permanent resident do not have any limitations on the type of work or hours of work, other than such limitations that also apply to Japanese nationals.

If an employer causes a foreign national to work in Japan under any of the following circumstances, the foreign worker and the employer may be subject to imprisonment for up to three years and/or a fine of up to JPY3 million:

  • work without a resident status that permits work;
  • engage in work that does not fall within the work permitted under the applicable resident status;
  • work after the expiry of the resident status term; or
  • work in excess of the hours under the permit “to engage in an activity other than that permitted pursuant to the resident status granted”.

Employers are required to notify the name, resident status, period of stay, nationality, etc, of a foreign worker to the local Public Employment Security Office (Hello Work, harōwāku) upon the worker’s hiring and termination. Punishment for non-compliance is a fine of up to JPY300,000. The notification requirements do not apply to the hiring or termination of foreign nationals with a special permanent resident, diplomatic or public status.

Labour unions are formed in accordance with the Labour Union Act and have internal rules for the organisation, election of officers and procedures to make decisions.

Traditionally, labour unions are formed in each company (ie, "enterprise unions"). Often, such enterprise unions belong to a higher hierarchy organisation consisting of enterprise unions in the same industry. These enterprise unions, especially if they constitute a majority of employees, have significant bargaining power regarding the employment terms and conditions of employees. Enterprise unions negotiate with employers for an increase of wages and bonuses, typically once a year in March (the "spring labour offensive"). The majority of enterprise unions have union shop agreements which require the employer to terminate non-managerial employees who do not become members of the enterprise union. The rate of unionised employees has dropped over the past several decades; according to a 2018 survey by the Ministry of Health, Labour and Welfare, it is estimated at 17%.

In recent years, another type of labour union has become popular. Labour unions which accept local workers of different companies, including managerial-class employees, are called "general unions", and are becoming increasingly active in supporting individual workers. General unions represent individual workers in negotiation with their employers on various matters including dismissal or resignation, change of employment conditions, and other issues in the workplace such as harassment or bullying. 

In principle, employers need to participate in collective bargaining with labour unions, including general unions, when requested. Refusing to engage in collective bargaining without a reasonable ground could constitute an unfair labour practice prohibited under the Labour Union Act.

There are two main types of employee representative bodies in Japan.

The first body is a majority labour union. When an enterprise union constitutes the majority of employees in a workplace, such an enterprise union is authorised to act as an employee representative body for said workplace. Typically, majority labour unions act as a party to labour-management agreements such as an agreement regarding overtime and holiday work hours (the Article 36 Agreement). Also, majority labour unions are entitled to, and required to, submit an opinion to the employer regarding the content of work rules when they are adopted or amended.

If there is no majority labour union in a workplace, an employee representative elected by employees acts as an employee representative body for purposes of executing labour-management agreements and submitting an opinion on work rules. The employee representative must be a non-managerial employee, and must be elected by a majority of the employees in the same workplace by a democratic method such as voting.

Collective bargaining agreements (rodo-kyoyaku) are often entered into between employers and enterprise unions. They must be executed in writing.

Standards regarding employment conditions set forth by a collective bargaining agreement prevail over work rules stipulated by the employer and terms of individual employment agreements. Any employment condition which is inferior to the standards set forth in a collective bargaining agreement is null and void even if such inferior employment condition is set forth in the work rules or individual employment agreements.

In addition to negotiations for executing or amending collective bargaining agreements, labour unions – general unions, in particular – may request employers to engage in collective bargaining to resolve various individual employment matters such as resignation, dismissal or resignation, change of salary or holidays, and trouble in the workplace such as harassment and bullying. Employers may not refuse collective bargaining without reasonable grounds and these are interpreted narrowly.

If the employer refuses to engage in collective bargaining without reasonable grounds, the union may apply for relief from unfair labour practice to a regional labour committee which is an independent administrative body established under the Labour Union Act. The regional labour committee conducts an investigation regarding the unfair labour practice. In many cases, the investigation ends by settlement between the labour union and the employer. If a settlement is not reached, then the regional labour committee issues a decision either to recognise an unfair labour practice and order the employer to attend the negotiation, or reject the union’s petition. The losing party may appeal to the central labour committee or file a lawsuit to challenge the decision.

Grounds for Termination

An employer can dismiss a non-fixed-term employee only if (i) there are objectively reasonable grounds and (ii) the dismissal is considered to be appropriate in light of social convention. In practice, the employer bears the burden of proof to show that a dismissal has “objectively reasonable grounds” and “is appropriate in light of social convention”. Japanese courts apply a very strict interpretation of this standard, and have found many dismissals to be invalid unless there was a significant reason for the dismissal. Therefore, many employers in Japan try to reach an agreement with the employee to terminate employment, rather than to dismiss the employee, in order to avoid the high risks associated with the dismissal and lengthy and costly disputes.

Typical examples of grounds for dismissal are:

  • an employee’s inability to work or insufficient ability to work due to illness, injury, or where the employee is performing at a consistently low level in carrying out his or her duties;
  • an employee has committed a material breach of his or her employment contract or work rules of the company; and
  • decisions by the management to restructure the company due to the serious financial ill-health of the company and there is a need to reduce the workforce as a result of such restructuring (ie, redundancy).

In a redundancy case, Japanese courts have continuously held that the validity of a dismissal will be determined based on a comprehensive analysis of the following four requirements when assessing the situation under the above standard:

  • there must be a business need to reduce the workforce;
  • the employer must make every effort to avoid the dismissal of employees (eg, reduction or suspension of recruitment, transfers, restrictions on overtime, offering voluntary early retirement);
  • the selection criteria to determine which employee is to be dismissed is reasonable; and
  • the appropriateness of the procedure (eg, whether sufficient explanations and discussion opportunities with the labour union or employees were provided).

The courts weigh the balance of necessity and reasonableness of the dismissal against the damages incurred by the affected employee due to the loss of his or her employment. A case-by-case analysis is necessary for determining whether these criteria are met.

Other standards apply for fixed-term employees. Employers cannot dismiss employees hired under a fixed-term employment during their term without “unavoidable reasons”. This standard is even more strictly interpreted by the courts, compared to the standard for non-fixed term employees.

Procedures for Dismissal

There are no statutory procedures for lawful dismissal, except for the required notice of 30 days or payment in lieu of such notice, as described in 7.2 Notice Periods/Severance. However, as mentioned above, procedures such as providing sufficient explanation and consultation are given importance in considering the validity of a dismissal due to redundancy. Due process is crucial for disciplinary dismissals, as described in 7.3 Dismissal for (Serious) Cause (Summary Dismissal). In addition, in a case where a collective bargaining agreement is entered into between an employer and a labour union regarding the termination of employment, the employer must follow the provisions of such agreement.

Further, from an administrative perspective, an employer must notify the Public Employment Security Office in advance if any of the following situations occurs:

  • when 30 or more employees are expected to leave or to be dismissed within one month;
  • when five or more employees between the ages of 45 and 64 are expected to leave due to the failure to meet the standards of the continuous employment system at retirement age or due to a cause attributable to the employer or are expected to be dismissed within one month;
  • when an employee who has a disability is dismissed;
  • when withdrawing job offers or postponing the hiring date for new graduates or cancelling or downsizing hiring plans for new graduates.

Notice of termination must be given 30 days prior to dismissal, unless the employer’s work rules or the employment agreement stipulates that the employer shall give a longer notice period. However, an employer may provide payment equivalent to the particular employee’s average wage for 30 days in lieu of such notice. The payment should be made when notifying the employee of the dismissal. An employer may also give a combination of notice and payment, in which case the employer will pay for the number of days short of the requisite 30 days (eg, if the employee gives ten days’ notice, the employer must pay an amount equivalent to 20 days of the employee’s average wage).

An employer may dismiss an employee without notice or payment in lieu of notice in the event that the company cannot continue to function due to a natural disaster or another unavoidable cause, or when reasons for dismissal are attributable to the employee. Under these circumstances, the employer must obtain the approval of the administrative office with respect to the reason in question.

In addition, the employer may dismiss, without notice or payment in lieu of notice, employees who are:

  • employed on a daily basis and have not been employed consecutively for more than one month;
  • employed for a fixed period not longer than two months and have not been employed consecutively for longer than that period;
  • employed in seasonal work for a fixed period not longer than four months and have not been employed consecutively for longer than that period; and
  • in a probationary period and have not been employed consecutively for more than 14 days.

Dismissal as a disciplinary action due to an employee’s misconduct or illegal act is classified as “disciplinary dismissal”. This type of dismissal is different from a “regular dismissal” which is not a sanction but occurs when there is a reason to terminate employment that does not reach the level of a disciplinary dismissal.

As a disciplinary dismissal is a type of disciplinary action, it must follow the procedures and formalities required to conduct disciplinary action.

The Labour Standards Act requires employers to state what type of conduct constitutes grounds for disciplinary action and the types of disciplinary action. An employer cannot conduct disciplinary action based on grounds not stipulated in the work rules.

In addition, an employee must be given the opportunity to defend himself or herself against an accusation. This is the minimum procedural requirement. If there are additional procedural requirements set forth in the work rules or a collective bargaining agreement, the employer must follow such procedures to conduct disciplinary action. If the employee violates a material procedural requirement, the disciplinary action may be void as an abuse of the employer’s right to impose discipline.

Even in cases where an employer takes disciplinary action based on the provisions of the work rules, if such disciplinary action lacks an objective, justifiable reason or the disciplinary action is considered to be unreasonable in light of social convention, the action may be deemed null and void as an abuse of rights by the employer.

As a general rule, 30 days’ prior notice or payment in lieu of such notice must also be provided for disciplinary dismissal, except for cases where the chief of the Labour Standards Inspection Office otherwise approves.

Employers may enter into termination agreements to end an employment relationship with an employee based on mutual consent. There are no specific procedures or formalities required under the law to conclude an enforceable termination agreement or to include a release clause in such agreement.

However, a waiver of an employee’s rights may be deemed invalid if such employee’s consent to the waiver was not made under his or her “free will”. The courts will look into whether there is an objective, rational reason that sufficiently supports the existence of the employee’s free will. Notably, recent court decisions tend to strictly review the “free will” of the employee, especially in cases where the employee waives a significant portion of his rights. Therefore, it is advisable to provide an accurate and detailed explanation of the content of the waived rights before allowing an employee to sign a release.

In addition, if the manner of the solicitation to resign is coercive or if there is any undue pressure on the employee to resign, it may constitute an illegal act under Japanese law that may result in claims for damages against the employer. Therefore, it is important to avoid actions or words that can be deemed to constitute threats or harassment or that invite misunderstanding and also to avoid requiring the employee to attend an unreasonable number of termination-related discussions over a protracted period.

An employer may not dismiss the following employees.

  • Employees taking leave for medical treatment with respect to a work-related injury or illness and within 30 days after he or she returns to work from said injury or illness. Only if the period is longer than three years may the employer dismiss the worker by paying compensation of the equivalent of 1,200 days’ average salary of the said employee.
  • Female employees during their pre-and post-natal leave (ie, a six-week period before childbirth and an eight-week period after childbirth) and within 30 days after the end of such period.

In addition, an employer is prohibited from dismissing an employee for such reasons as:

  • discriminatory reasons based on nationality, creed and social status;
  • being a union member or having engaged in proper union activities;
  • being female, getting married, becoming pregnant, or giving birth;
  • requesting maternity or family care leave or having taken such leave;
  • making a declaration of an unlawful situation to the competent authorities; or
  • disclosing information in the public interest (under certain conditions).

Under Japanese law, an employer may only dismiss an employee if (i) there are objectively reasonable grounds and (ii) the dismissal is considered to be appropriate in light of social convention. A dismissal that does not satisfy these requirements will be deemed an abuse of right and thus invalid.

In this regard, a wrongful dismissal claim is available where an employee is dismissed without an objectively reasonable ground. The Japanese courts take a very strict view in determining whether there are facts that substantiate the existence of “an objectively reasonable ground”, and many dismissals have been found invalid unless there was a very significant reason for said dismissal.

If the employee prevails in a litigation claiming a wrongful dismissal, the employee can request to be reinstated and receive payment of unpaid wages from the day following the termination, with a delay interest at the rate of 6% per annum.

The prohibition of discrimination in the workplace is governed by several laws which set forth matters relating to discrimination and harassment. Employees are protected against:

  • discrimination with respect to wages, work hours and other working conditions for reasons of nationality, creed or social status (Labour Standards Act);
  • discrimination based on gender (Labour Standards Act and Equal Employment Opportunity Law);
  • unfair treatment on account of pregnancy, giving birth, taking child and family care leave, or similar personal circumstances (Equal Employment Opportunity Law and the Child and Family Care Leave Law); and
  • unreasonable discrimination against part-time workers, fixed-term employees, and dispatched workers (Act on Improvement, etc, of Employment Management for Part-Time Workers and Fixed-Term Workers).

There is no statute which explicitly shifts the burden of proof to employers. Therefore, employees who claim that discrimination has taken place bear the burden of proof to substantiate such discrimination.

Any discriminatory act taken by the employer with respect to an employee’s working conditions, transfer, relocation, and termination in violation of any of the above laws will be invalid. The employer may be subject to administrative guidance, administrative orders, and criminal penalties for such act, depending on the applicable law. Further, employers may be liable to compensate for damages incurred by the employee if discriminatory actions constitute a breach of the agreement with the employee or constitute tort.

The labour tribunal procedure (rodo shinpan) which was introduced in 2006 focuses on the resolution of individual employment disputes and has become highly popular. This procedure aims to resolve disputes between the employer and employee such as dismissal, demotion, reduction of salary, and overtime payment in an expeditious manner.

The labour tribunal procedure is conducted by a labour tribunal committee composed of one professional judge and two lay judges. The parties can represent themselves, although in many cases, parties retain attorneys. The procedure is generally concluded within three hearings which average 70 to 80 days, while regular lawsuit procedures normally take more than one year.

Since this is a procedure with an emphasis on expeditious resolution, the labour tribunal tends to proactively suggest settlement, and so many labour tribunal cases are resolved by amicable settlement. If parties cannot reach an amicable settlement, the labour tribunal awards a decision; however, if either party is dissatisfied with such decision, then the dissatisfied party/parties can file an objection to have the case determined by the district court in a regular lawsuit.

Class action claims are not available in Japan, whether in labour tribunal or regular lawsuit.

Alternative dispute resolution is possible in employment disputes. The possible procedures are conciliation (assen), mediation (chotei) and arbitration (chusai). Parties are not obliged to engage in any of the alternative dispute resolution procedures before making an official claim in the court.

  • Conciliation is a procedure where a conciliator acts as an intermediary to have both parties compromise their claims and reach settlement. 
  • Mediation is a procedure in which a mediation committee presents a settlement proposal after hearing facts from both parties and advise both parties to accept such settlement.
  • Arbitration is a procedure in which an arbitrator or arbitration committee renders an arbitration award to resolve the case after hearing the facts from both parties. Unlike conciliation and mediation, an arbitration award is binding on both parties.

Pre-dispute arbitration agreements under which employers and employees agree to resolve future employment disputes through arbitration are rendered invalid under the Arbitration Act, in light of the view that there are differences in the bargaining power between the employers and the employees and thus the employees’ right to submit their claims to court should not be forfeited by such agreements.

A prevailing party to a litigation can demand the other party to bear court costs under the Act Concerning Civil Litigation Costs. However, attorney’s fees are not included in the scope of such court costs. Therefore, in principle, each party bears its own attorney’s fee, and even a prevailing party cannot require the other party to bear the prevailing party’s attorney’s fee.

In the case a party files a suit against the other party claiming damages based on tort, there is a possibility that attorney’s fees will be awarded as a part of damages. However, the court generally only awards a fraction of the attorney’s fees even in such a case.

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Mori Hamada & Matsumoto is one of Japan’s “Big Four” law firms, and is among the country’s largest locally headquartered full-service firms. Its practice brings together advisory, litigation and M&A specialists to cover the full range of labour and employment law advice. The firm has also established a strong international presence; it now has a presence across East Asia, having offices in Beijing, Shanghai, Singapore, Bangkok, Yangon and Ho Chi Minh City. Mori Hamada & Matsumoto's employment team offers support to M&A transactions and restructurings, ensuring that all labour considerations are optimised as part of the reorganisations resultant from such transactions. The firm assists some of Japan’s largest employers with labour and employment law advice.

Impact of COVID-19 on Labour

Overview of the situation in Japan

On 7 April 2020, Prime Minister Shinzo Abe issued an emergency declaration (the “Emergency Declaration”) to seven prefectures based on Article 32 (1) of the Act on Special Measures for Pandemic Influenza and New Infectious Diseases Preparedness and Response (the “Special Measures Act”); on 16 April the Emergency Declaration was extended to all prefectures. On 25 May 2020, the Emergency Declaration was lifted gradually through a series of steps.

Effect of COVID-19 on employment contracts

Dismissal based on COVID-19

Dismissal of a permanent employee

Termination of a permanent employment contract due to circumstances attributable to the employer will fall under the category of dismissal due to business necessity under Japanese law. Therefore, the validity of the termination will be determined taking into account the following four criteria:

  • necessity to reduce the number of employees;
  • obligation to endeavour to avoid dismissal;
  • reasonable selection of person(s) to be dismissed; and
  • following the proper procedures.

Therefore, termination of a permanent employment contract by an employer on the sole ground of reduction of scale of business due to the impact of COVID-19 will not be sufficient reason. It is necessary to consider whether the above criteria will be satisfied on a case-by-case basis.

Dismissal of fixed-term employees

A fixed-term employee may not be dismissed by the employer in the middle of a fixed-term employment contract unless there is an unavoidable reason (Article 17, paragraph 1 of the Labour Contract Act). Unavoidable reason is understood to mean a situation such as bankruptcy of the employer, and it is not easy to terminate a fixed-term contract during its term.

In principle, a fixed-term employment contract terminates (automatically) upon the expiration of its term. This is provided, however, that fixed-term employees whose contracts have been renewed three times or more, or who have been employed continually for more than a year, are given a 30-day advance notice by the employer if their contracts are not being renewed. In addition, if the contracts are deemed practically the same as indefinite-term labour contracts because of repeated renewal, or if there is legally protectable expectation on the employee’s side that the contract will be renewed for the next term, non-renewal without reasonable grounds is not allowed (Article 19 of the Labour Contract Act).

In conclusion, it is not easy for an employer to terminate a fixed-term employment contract in the middle of its term, and it is not allowed not to renew under certain circumstances, even if the scale of the business is reduced due to the impact of COVID-19.

Termination of contract regarding a dispatched worker

If an employer terminates a worker's dispatch contract for company reasons, it is necessary to take actions such as securing new/alternative employment opportunities and sharing the expenses required for the payment of leave allowance in accordance with Article 29-2 of Workers Dispatch Law.

When terminating a worker's dispatch contract due to temporary absence from work due to the impact of COVID-19, employers may take these precautions.

Obligation to pay compensation for absence of work

Permanent employees

Article 26 of the Labour Standards Act stipulates that if the leave is for a reason attributable to the employer, then the employer shall pay to such employee on leave a "compensation for absence of work" (at least 60% of the employee’s average wage) during such leave period. If the leave of absence is due to force majeure, employers are not obliged to pay a compensation for absence of work. For leave to be considered as a leave of absence due to force majeure, it is necessary to satisfy the following conditions: (i) that the cause of the leave was an event that occurred outside the business; and (ii) that the employer is still unable to avoid such an event, even after exercising the utmost care as a normal proprietor.

Regarding (i), for example, an appropriate reason might be that in response to the Special Measures Act, the employers have been requested to refrain from business activities by the government. Regarding (ii), it is necessary for employers to make utmost efforts to prevent such occurrence; in the same example, specifically, whether an employee is allowed to telework, or is permitted to engage in other duties are matters that would be taken in account.

Fixed-term employees

Employers are obliged to pay compensation for absence of work to fixed-term employees under Article 26 of the Labour Standards Act (see above, 'Permanent employees').

If a voluntary holiday system or allowance is established due to COVID-19, uniform exclusion from such system due to fixed-term employment may violate the principle of same wages for the same work (under the Part-time and Fixed-Term Employment Act).

Dispatched worker

With regard to whether the company to which employees are dispatched (the “client”) is obliged to pay the compensation for absence of work, in the event of termination of a workers dispatch contract before its expiration, the client might be obliged to bear such compensation under the Worker Dispatch Law. Where the client is not obliged to pay compensation for absence of work, due to valid reasons for termination of the contract before its expiration, the temporary staffing agency must pay the compensation for absence of work.

Government support fund

Employment adjustment subsidies

System overview

If employers are forced to reduce their business activities due to economic reasons and maintain the employment contracts with their employees by offering leave of absence from work, training or transfer of the employees, then such employers are subsidized in part by the government granting compensation for absence of work.

Expansion of special provisions

Special measures were taken from 1 April to 3 June 2020 because companies were required to voluntarily refrain from and restrain corporate activities nationwide due to the impact of COVID-19.

Special measures vary widely, such as requirements for payment being eased, and the subsidy rate being increased (two-thirds to four-fifths or nine-tenths without dismissal for small or medium enterprises, one-half to two-thirds or three-quarters without dismissal for large enterprises).

Subsidy for temporary leave from elementary school, etc

There is a subsidy system for employers who have given paid holidays, excluding annual paid leave under the Labour Standards Law, for employees who need to take care of their children as a guardian from 27 February to 30 June 2020.

Implementation and operation of telecommuting

Necessary items for implementing telecommuting

Because of COVID-19 and the Emergency Declaration, people in Japan were required to refrain from going out of their homes. As a result, it became difficult for many employees to attend work, and the government strongly recommended work by telecommuting (also known as "teleworking").

Various matters associated with telecommuting

While telecommuting has the advantages of reducing commuting time and improving work efficiency by enabling employees to concentrate on work, it has also been pointed out that there are matters such as the difficulty of labour management and the difficulty of separating work from private matters.

Telecommuting expenses

The general rule is that employers shall bear expenses related to telecommuting as utilities, communications expenses and office expenses, which are required to perform the work in general. Therefore, if an employer wishes to cause employees to bear telecommuting expenses, the employer may do so only after establishing the relevant clauses in its rules of employment (“shugyo kisoku”) or internal rules relating to the conditions of working at home (Article 89, item 5 of the Labour Standards Law).

Treatment of commuting allowance

Whether employers are obliged to pay commuting allowances that have become unnecessary due to telecommuting shall be governed by the provisions of the rules of employment. If the commuting allowance has been reimbursed for actual cost, it is considered possible not to pay the commuting allowance during the period it is not incurred. On the other hand, if the commuting allowance is paid as a certain fixed amount as a part of the salary, regardless of whether actually used towards the commuting cost, it is difficult to stop the payment of the commuting allowance or to demand its return.

Management of working hours at home

Even during telecommuting, employers shall calculate and manage the working hours of the employees appropriately. Therefore, if employees work overtime or work on holidays, extra wages for overtime must be paid.

If it is difficult for employers to track such working hours during the period of telecommuting, then such working hours may be deemed to be a designated regular working hour ("deemed outside the working hour system" according to Article 38-2 of the Labour Standard Act). In order to apply the deemed outside working hour system for telecommuting, the following two requirements must be met:

  • information and communications devices are not constantly available as a method to receive instruction from the employer;
  • the employees are performing actual work while on standby for specific instructions from the employer or waiting in a state of readiness.

Safety and health

Even during telecommuting, employers are required to take actions such as medical examination and other measures to maintain employees’ health (articles 66 to 66-7 of the Industrial Safety and Health Act), such as arranging interview of an employee working long hours by a physician and implementing the required measures after receiving the results of the interview (articles 66-8, 66-9 of the Industrial Safety and Health Act), and implementing stress checks and balancing measures after receiving these results (articles 66-10 of the Industrial Safety and Health Act).

Restrictions on Overtime Work

In principle, the upper limit for overtime work excluding work on holiday is 45 hours per month and 360 hours per year, and the upper limit cannot be exceeded unless there are special circumstances under the amendments made to the Labour Standards Act in 2018. This amendment has already come into effect for large enterprises since 1 April 2019, and has been fully enforced since 1 April 2020, including for small or medium enterprises.

Even if there are extraordinary special circumstances, it is necessary to comply with the following provisions:

  • overtime work – within 720 hours per year;
  • overtime work and work on days off – less than 100 hours per month and within 80 hours on average for past two to six months;
  • employers are not allowed to have employees work over 45 hours overtime a month for more than six months a year.

In the event of a violation, the employer and any other offender may be subject to criminal punishment. Overtime is calculate based on statutory overtime hours and not contractual overtime hours.

Regulation for Harassment

Sexual harassment

Sexual harassment refers to sexual words and behaviours against the will of employees in the workplace that causes disadvantage to them in terms of their working conditions ("consideration type") or harms the working environment by sexual speech and behaviour ("environmental type").

Employers are obliged to take necessary measures for employment management to prevent sexual harassment of either the consideration type or the environmental type (Article 11, paragraph 1 of the Act on Securing, Etc. of Equal Opportunity and Treatment between Men and Women in Employment – the “Equal Employment Act”). The following obligations have been added under the amendment law, which came into effect on 1 June 2020:

  • prohibition of disadvantageous treatment by reason of consulting with the employers (Article 11, paragraph 2 of the Equal Employment Act);
  • co-operative measures if an employee commits sexual harassment of another company's employee (Article 11, paragraph 3 of the Equal Employment Act).

Power harassment

Power harassment refers to words and behaviours based on superior relationships conducted in the workplace that are beyond the scope and necessity of business activities, thereby harming the working environment of workers (Article 30-2 of the Amendment Law of the Act for the Promotion of Comprehensive Labour Policy – the “Act for Labour Policy Promotion”).

Since the amendment law came into force on 1 June 2020, employers have the following obligations regarding power harassment, from 1 June 2020. However, small and medium enterprises are not obliged to make these additional efforts until 1 April 2022: employers are obliged to take the necessary measures for employment management to prevent power harassment (Article 30-2, paragraph 1 of the Act for Labour Policy Promotion).

Disadvantageous treatment as a result of consultation by the employee with the employer is prohibited (Article 30-2, paragraph 2 of the Act for Labour Policy Promotion).

Maternity harassment

"Maternity harassment" refers to words and behaviours by superiors of colleagues to women in the workplace, related to the pregnancy, childbirth, or the use of childcare leave by women who fall under any of these categories.

Employers are obliged to take preventive measures against maternity harassment (Article 11-2 of the Equal Employment Act and Article 25 of the Act on Childcare Leave, Caregiver Leave, and Other Measures for the Welfare of Workers Caring for Children or Other Family Members – the “Act on Childcare and Familycare Leave”). The following obligation has been added under the amendment law which came into effect on 1 June 2020: prohibition of disadvantageous treatment by reason of the employee consulting with the employer (Article 11-3, paragraph 2 and Article 11 paragraph 2 of the Equal Employment Act, Article 25, paragraph 2 of the Act on Childcare and Familycare Leave).

Equal Wage Regulations for Equal Work

The Part-time and Fixed-term Labour Law

The Part-time and Fixed-term Labour Law has been enacted to eliminate unreasonable differences in treatment between full-time permanent employees and part-time or fixed-term employees.

This law came into force in April 2020 for large enterprises, and it will be enacted entirely in April 2021, including for small or medium enterprises.

Obligations of employers

To eliminate unreasonable differences in treatment

Employers are prohibited from establishing unreasonable differences in treatment between full-time permanent employees and part-time or fixed-term employees, taking into account the job description, scope of changes in job description or assignment, and other circumstances (prohibition of unreasonable differences; Article 8 of the Part-time and Fixed-term Labour Law).

Employers shall not discriminate against a part-time employee or fixed-term employee whose job description, scope of changes in job description and assignment is the same as that of a full-time permanent employee, in terms of basic salary or bonus, or any other treatment only on the ground that they are part-time or fixed-term employees (Article 9 of the Part-time and Fixed-term Labour Law).

Obligation to explain treatment to workers (Article 14 of the Part-time and Fixed-term Labour Law)

When employers hire part-time or fixed-term employees, they shall explain to such employees the details of employment management measures and the considerations taken into account in determining the manner in which such employees will be treated.

When requested by part-time or fixed-term employees, an employer is required to explain to them the details and reasons for any difference in treatment between them and permanent employees.

Employers shall not dismiss, or in any other way treat at a disadvantage, part-time or fixed-term employees who have requested an explanation from the employee as set out in the preceding paragraph.

Mori Hamada & Matsumoto

Marunouchi Park Building
2-6-1 Marunouchi
Chiyoda-ku Tokyo 100-8222
Japan

+81 3 5220 1800

eriko.ishihara@mhm-global.com www.mhmjapan.com
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Law and Practice

Authors



TMI Associates is one of the largest law firms in Japan, with offices in six locations in Japan and overseas branches in China, South-East Asia, the USA and the UK. Its labour and employment team is comprised of 38 lawyers, including ten partners. The firm advises Japanese and multinational clients in various industries across the entire spectrum of employment-related matters, including litigation, M&A, and negotiation with labour unions. The team collaborates with TMI’s data privacy, intellectual property and criminal law experts, which include former judges and public prosecutors, on matters that intersect with these areas, such as trade secret theft and employee misconduct. The team also regularly works with immigration experts within the firm. Recent work includes advising Japanese clients planning to expand business in South-East Asia on employment and immigration law, working closely with its branches in the region.

Trends and Development

Authors



Mori Hamada & Matsumoto is one of Japan’s “Big Four” law firms, and is among the country’s largest locally headquartered full-service firms. Its practice brings together advisory, litigation and M&A specialists to cover the full range of labour and employment law advice. The firm has also established a strong international presence; it now has a presence across East Asia, having offices in Beijing, Shanghai, Singapore, Bangkok, Yangon and Ho Chi Minh City. Mori Hamada & Matsumoto's employment team offers support to M&A transactions and restructurings, ensuring that all labour considerations are optimised as part of the reorganisations resultant from such transactions. The firm assists some of Japan’s largest employers with labour and employment law advice.

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