Obligation of Employers to Make Efforts to Extend the Mandatory Retirement Age
While it is legal in Japan to provide for a mandatory retirement age, employers are currently required to ensure stable employment until employees reach 65 years of age. Under the amended Act for Stabilisation of Employment of Elderly Persons, which came into effect in April 2021, employers are required to “make efforts” to ensure stable employment of their employees until they reach 70 by taking one of the following measures:
The amended Act only requires employers to “make efforts” to take one of these measures. However, as the aim of the Act is to ensure employees’ stable employment until they become eligible to receive their pension, and the government is now considering raising the pension age, it is likely that the requirement under the Act will become mandatory in the near future.
Amendment to Encourage Male Employees to Take Childcare Leave
The Childcare and Family Care Act was amended in June 2021 with the aim to raise the percentage of male employees taking childcare leave, which is currently extremely low in Japan. One of the main changes is to provide more flexibility, allowing employees to take a maximum of four weeks’ leave within eight weeks after the child’s birth (which corresponds to the duration of post-natal leave) up to two separate occasions within such period. Childcare leave after eight weeks from the child’s birth until the child’s first birthday can also be taken on two separate occasions (ie, male employees can take a maximum of four separate childcare leaves until the child becomes one year old). The notification required to take such leave has also been shortened to two weeks’ prior notice from the current one month’s notice.
These amendments will come into effect no later than December 2022, on a date which will be determined separately.
In addition, the amended Act adopted other measures to encourage employees to take childcare leave, such as requiring employers to individually confirm with their employees their intention to take childcare leave (from April 2022), relaxing eligibility requirements for fixed-term employees (from April 2022), and requiring employers having more than 1,000 employees to announce the status of utilisation of childcare leave by their employees (from April 2023).
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:
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.
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:
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 JPY793 to JPY1,013 from October 2020 (JPY1,013 for Tokyo, JPY964 for Osaka). A raise in the minimum wages is now under discussion.
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.
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.
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:
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:
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 few decades; according to a 2020 survey by the Ministry of Health, Labour and Welfare, it is estimated at 17.1%.
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:
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:
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:
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:
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.
In addition, an employer is prohibited from dismissing an employee for such reasons as:
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 3% 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:
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.
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.