Introduction

This chapter of the guide aims to provide a comprehensive overview of crucial updates to Japanese employment law by covering various topics including: overtime regulations; equal pay for equal work; transfer orders; worker classification and the New Freelance Act (defined below); harassment regulations; doctrine of free will; and digital money payment of wages. New topics covered in this article include the “2024 Problem” facing the trucking industry, the High Court judgment on salary reductions around retirement, new topics related to employee status under the LSA, new topics related to the New Freelance Act, and digital money payment of wages.

Overtime Regulations

Employers are generally prohibited from ordering employees to work more than eight hours a day or 40 hours per week, and employers must provide at least one day off per week or at least four days off in a four-week period (Articles 32 and 35 of the Labour Standards Act (Act No 49 of 1947) (LSA)).

An exception to the above rule allows for overtime and holiday work if a labour-management agreement is concluded with a labour union representing a majority of workers or a representative of the majority of workers and reported to the local labour standards inspection office (Article 36, paragraph 1 of the LSA). This is known as a “36 Agreement”, and many Japanese companies have concluded and submitted this agreement.

Until the recent amendment, the upper limit of overtime hours under the 36 Agreement was governed by the notice of the Minister of Health, Labour and Welfare (MHLW); however, there was no clear statutory upper limit as long as the 36 Agreement was properly concluded and submitted.

However, with the recent amendments to the LSA in April 2019 (which is part of the Work Style Reform), statutory limits on overtime work were established, along with penalties for violations. Specifically, the limit on overtime under the 36 Agreement is 45 hours per month and 360 hours per year (Article 36, paragraph 4 of the LSA). In special circumstances, the limit is:

• 720 hours per year;
• an average of 80 hours per month over multiple months;
• less than 100 hours per month; and
• up to six months per year (Article 36, paragraph 5 of the LSA).

Although the reform was implemented on 1 April 2019, certain occupations (construction workers, automobile drivers and physicians) were given a grace period until 31 March 2024. After this period, the regulations on the upper limit of overtime work apply to these occupations as well. In particular, the introduction of the regulations on the upper limit of overtime work for truck drivers in the automobile driving business, effective 1 April 2024, has had a significant impact on logistics, such as a reduction in the amount of cargo that can be transported per day, and this is referred to as the “2024 Problem”.

Furthermore, working hours are defined as the time during which employees are under the employer’s direction and supervision (Supreme Court judgment of 9 March 2000, Employee v Mitsubishi Heavy Industries Nagasaki Shipyard, Minshū, Vol 54, No 3, p 801), and employers are responsible for managing employees’ working hours. If it is difficult to calculate working hours when employees work outside the workplace, the employer may deem that the employees work for the prescribed working hours (Article 38-2, paragraph 1 of the LSA). Recently, the Supreme Court issued a judgment relating to this provision.

In the above-mentioned case, the Tokyo High Court ruled that because the employee working outside the workplace created daily work reports, it was not difficult to calculate working hours (ie, working hours could potentially be calculated and were not “difficult to calculate”, so Article 38-2, paragraph 1 of the LSA shall not apply). However, the Supreme Court found that the nature, content and manner of the work, as well as the method and content of instructions and reports, made it difficult to determine the specific working conditions outside the workplace. Without thoroughly examining the accuracy of the daily reports, the High Court’s judgment that it was not “difficult to calculate working hours” was deemed erroneous, and the case was remanded for further review (Supreme Court judgment of 16 April 2024, Employee v CO-OP Globe, Saibansho Jihō, No 1837, p 3).

The introduction of remote work has progressed during and after the COVID-19 pandemic. As work styles diversify, including remote work and telecommuting, discussions have arisen on how to calculate working hours. Therefore, this Supreme Court judgment and subsequent lower court judgments will likely serve as future references.

Equal Pay for Equal Work

Article 9 of the Act on Improvement of Personnel Management and Conversion of Employment Status for Part-Time Workers and Fixed-Term Workers (Act No 76 of 1993) (the “Part-Time and Fixed-Term Employment Act”) prohibits discriminatory treatment concerning basic wages, bonuses and other benefits for being a part-time or fixed-term worker. Essentially, this provision is considered to establish the Japanese equivalent of the principle of “equal pay for equal work”. Moreover, the amendment of the Part-Time and Fixed-Term Employment Act was implemented for all companies in April 2021. In addition, the MHLW has created Guidelines for Equal Pay for Equal Work as a document that outlines a general approach and specific examples. Please note that the guidelines are currently being reviewed by the MHLW five years after their implementation, and their content may be revised in the future.

However, it is important to note that the Part-Time and Fixed-Term Employment Act primarily governs the relationship between regular employees and part-time or fixed-term workers, and does not address wage disparities among regular employees. Therefore, it seems that the Part-Time and Fixed-Term Employment Act’s regulation mainly governs the gap between employment conditions in different groups, and the Japanese version of the “equal pay for equal work” is not synonymous with the equal pay for equal work regulation in other countries.

Furthermore, Article 9 establishes that discrimination is prohibited for cases where, “considering the practices and other circumstances in the relevant workplace, it is foreseeable that the content and arrangement of duties will be changed within the same scope as the changes made to regular employees’ duties until termination of the employment relationship”. This means that justified differences in compensation may still exist based on the nature of duties, their complexity, or the possibility of job rotation.

Moreover, the regulation of age-based employment discrimination (which is often debated abroad) is not as stringent in Japan. However, the Act on Stabilisation of Employment of Elderly Persons (Act No 68 of 1971) obliges companies to provide continued employment until the age of 65 to those who desire it. As a result, most Japanese companies typically set the retirement age at either 60 or 65 in employment contracts; moreover, if the companies set the retirement age at 60, many opt to offer part-time or fixed-term contracts to employees aged 60 to 65 for a few years before their official retirement. In this case, it is common for compensation to be significantly reduced around the time of retirement and transition to a part-time or fixed-time arrangement. It is notable that employees who continue to work under part-time or fixed-term contracts after retirement are still protected by the Part-Time and Fixed-Term Employment Act.

Recently, disputes have arisen over claims of unlawful salary reductions around retirement or discrimination based on a part-time or fixed-term arrangement, based on the fact that there is no significant difference in job description before and after retirement. For instance, in the Nagoya High Court judgment of 25 March 2022, Roudou Hanrei, No 1233, p 5, Employee v Nagoya Automobile School, the High Court indicated that salary reductions below 60% of pre-retirement earnings would be considered an infringement of the Act, given the absence of differences in job description before and after retirement. However, in the recent Supreme Court judgment of 20 July 2023, Employee v Nagoya Automobile School, the Court remanded the case to the lower court. In so doing, it stated that the lower court had neither sufficiently considered the nature and purpose of the pre-retirement and post-retirement basic pay and bonuses, nor had it adequately considered the circumstances of labour-management negotiations and the process. Consequently, a definitive conclusion is pending as the case will be retried in the lower court.

On the other hand, when there is a difference in job description before and after retirement, there is a tendency to justify salary reductions around retirement. For instance, in the Tokyo High Court judgment of 28 August 2024, Roudou Hanrei, No 1329, p 52, Employee v Japan Surfactant Industry Co, Ltd, the High Court indicated that the decision to reduce the salary of an employee who was demoted from a managerial position upon reaching retirement age to approximately 40% of pre-retirement earnings did not constitute an abuse of reasonable discretion.

Transfer Orders

In Japan, Work Rules often include provisions that allow employers to order employees to transfer for business reasons, which become part of the employment conditions and terms of contract. Given that dismissal is not so easy under Japanese law, it has been established that employers may order employees to transfer workplaces at their discretion as long as it does not constitute an abuse of rights (Article 3, paragraph 5 of the Labour Contracts Act (Act No 128 of 2007); Supreme Court judgment of 14 July 1986, Employee v Toa Paint, Roudou Hanrei, Vol 477, p 6).

However, if there is an agreement between the employer and employee that limits the employee’s duties, extent of the employment transfer, or job role to a specific type, such agreements tend to be respected. Recently, the Supreme Court made it clear that if there is an agreement on job limitations, transfer orders exceeding such limitations cannot be issued without the employee’s consent (Supreme Court judgment of 26 April 2024, Employee v Shiga Prefecture Social Welfare Council, Saibansho Jihō, No 1838, p 3), implying that there is no room to discuss the abuse of rights. Please note that this case was related to tortious claims for damages and was not about a claim to invalidate the transfer order.

Worker Classification and the New Freelance Act

The applicability of employment law protection shall be determined by the eligibility of the “employee”, and this is recognised as a worker classification matter. In general, regarding the definition of “employee” under the LSA, the following factors are considered:

• freedom to accept or decline work;
• presence or absence of specific instructions and supervision on how to carry out work;
• degree of time and location restrictions;
• substitutability of labour;
• remuneration in relation to the work performed;
• existence of the nature of business ownership;
• exclusivity; and
• treatment under tax and social insurance laws.

These factors are considered for determining employee status (Ministry of Labour, LSA Study Report, The Criteria for Determining “Employee” under the LSA, dated 19 December 1985).

In any case, if employee status is denied, the employee may not receive protection under labour laws. At the same time, regarding freelancers who are denied employee status under the LSA, issues have been pointed out in terms of disparities in negotiation and information-gathering capabilities in transactions and working conditions. In this regard, it should also be noted that recent legislation has been enacted to protect independent contractors, ensuring fair transactions and improving working conditions, through the Act on the Improvement of Transactions with Specified Contractors (Act No 25 of 2023, the “New Freelance Act”), and the Act came into effect on 1 November 2024.

The New Freelance Act imposes obligations to:

• clearly state transaction conditions (Article 3);
• pay compensation by the due date (Article 4);
• accurately display recruitment information (Article 12); and
• establish harassment prevention measures (Article 14).

Given that long-term contractual relationships will generate economic dependence between the entrustor and freelancer, provisions similar to those of the Act against Delay in Payment of Subcontract Proceeds, etc to Subcontractors (Act No 120 of 1956) are established, prohibiting:

• refusal of acceptance (Article 5, paragraph 1, item 1);
• reduction of compensation (same paragraph, item 2);
• return of goods (item 3);
• unfairly low prices (item 4);
• coercion to purchase or use services (item 5);
• unjust requests for economic benefits (paragraph 2, item 1); and;
• unjust changes or redelivery of delivered content (paragraph 2, item 2).

Additionally, there are obligations to consider childcare and nursing care (Article 13) and to provide notice and reasons for termination (Article 16) for entrustors.

In the case of violations of some provisions, freelancers can report to the relevant government authorities (Fair Trade Commission, Small and Medium Enterprise Agency or the MHLW). Also, entrustors must not treat freelancers unfavourably for making such reports (Article 6, paragraph 3; Article 17, paragraph 3).

Regarding violations of the New Freelance Act, the Fair Trade Commission has established a contact point for reporting suspected violations of the New Freelance Act, and is accepting consultations and reports of violations. Additionally, on 17 June 2025, the Fair Trade Commission issued its first recommendation against two major publishing companies for failing to disclose transaction conditions such as compensation amounts and to pay compensation by the due date to freelancers (freelance writers) contracted as business partners, and made this recommendation public.

Additionally, on 25 October 2024, the MHLW announced the establishment of a consultation desk at the Labour Standards Inspection Office for individuals with concerns regarding their employee status under the LSA, etc, and it is accepting consultations on whether the freelancer qualifies as an “employee”.

Furthermore, on 2 May 2025, the MHLW established a new study group on the definition of “employee” under the LSA. It is expected that the above-mentioned factors and criteria for “employee” under the LSA (Ministry of Labour, LSA Study Report, The Criteria for Determining “Employee” under the LSA, dated 19 December 1985) will be revised for the first time in approximately 40 years.

Harassment Regulations

In Japan, in the context of workplace harassment, sexual harassment and then maternity harassment were regulated. After that, a type of harassment called power harassment (which is not commonly categorised as a type of workplace harassment in overseas jurisdictions) has also been regulated.

Employers must take necessary measures for employment management, so that the workers they employ neither suffer any disadvantageous working conditions on the grounds of those workers’ response to sexual harassment in the workplace, nor suffer any damage to their work environment due to sexual harassment (Article 11, paragraph 1 of the Act on Equal Opportunity and Treatment between Men and Women in Employment (Act No 113 of 1972) (the “Equal Opportunity Act”)).

Maternity harassment is divided into two categories: (i) harassment carried out as an exercise of personnel authority by employers or others; and (ii) harassment by superiors or colleagues unrelated to personnel matters. Employers are directly prohibited from engaging in the former (Article 11-3, paragraph 2 of the Equal Opportunity Act; Article 25, paragraph 2 of the Act on Childcare Leave, Caregiver Leave, and Other Measures for the Welfare of Workers Caring for Children or Other Family Members (Act No 76 of 1991) (the “Childcare and Family Care Act”)), while the latter is further divided into (i) harassment related to the state of pregnancy, childbirth, or other matters related to pregnancy or childbirth that harm the working environment (harassment related to the state of pregnancy or childbirth, under the Equal Opportunity Act), and (ii) harassment related to the use of systems such as pre- and post-maternity leave or childcare leave that harm the working environment (harassment related to the use of systems, under the Equal Opportunity Act and the Childcare and Family Care Act). Accordingly, preventative measures are mandated, in accordance with Article 11-3, paragraph 1 of the Equal Opportunity Act; and Article 25, paragraph 1 of the Childcare and Family Care Act.

Power harassment is defined as “behaviour in the workplace that is based on a superior–subordinate relationship and exceeds the necessary and reasonable scope of work, resulting in harm to the employee’s working environment”. Employers are obligated to take preventative measures (Article 30-2, paragraph 1 of the Act on Comprehensively Advancing Labour Measures, and Stabilising the Employment of Workers, and Enriching Workers’ Vocational Lives (Act No 132 of 1966)). Accordingly, the issued MHLW Guidelines exist to address these types of harassment, indicating the direction of preventative measures.

While there is no exact match between the criteria for a tort claim and those for sexual harassment, maternity harassment and power harassment, many forms of workplace harassment constitute tortious acts; moreover, claims for damages for the consequent mental distress suffered are often filed.

The harassment of LGBTQ employees is prohibited under the regulations on sexual harassment and power harassment. Recently, the Supreme Court ruled that, in the specific circumstances, disadvantageous treatment towards a transgender employee in the government lacked reasonable justification and was illegal (Supreme Court judgment of 11 July 2023, Employee v Government (Ministry of Economy, Trade and Industry), Minshū, Vol 77, No 5, p 1171).

Doctrine of Free Will

Although the principle of freedom of contract (based on the principle of private autonomy) is recognised as a fundamental concept under Japanese law, there are cases where agreements relating to employment, including their terms and existence, are negated by courts due to the lack of the employee’s free will.

In the leading case involving a reduction in retirement benefits through a change in employment rules, where the employee had signed and sealed a document indicating their agreement, the Supreme Court held that determination of the existence of consent should be based not only on the employee’s act of accepting the change but also on whether sufficient rationale objectively exists based on the employee’s free will, considering the nature and extent of the disadvantages imposed on the employee by the change, the circumstances and manner in which the employee came to perform the act, and the content of information or explanations provided to the employee before the act (Supreme Court judgment of 19 February 2016, Minshū, Vol 70, No 2, p 123, Employee v Yamanashi Prefectural Credit Union).

Subsequently, the concept of the doctrine of free will has been invoked in litigation cases; however, the scope of applicability of the doctrine of free will is not necessarily clear at present. Currently, there are existing analyses and discussions in scholarly articles that have elaborately examined past precedents and cases (see Hisashi Ikeda, “The Coerciveness of Labour and Employment Law and Employee Expression of Intention”, Hōritsu Jihō, No 1186, p 29), implying that the application will not be expanded without limitations.

Digital Money Payment of Wages

As a general rule, employers must pay the full amount of wages in currency (Japanese yen) directly to the worker (Article 24, paragraph 1 of the LSA); however, if the worker agrees, employers may pay a worker’s wage by transfer to the worker’s account at a bank or other financial institution designated by the worker (Article 7-2 of the Ordinance for Enforcement of the LSA).

In addition, with the increase in cashless payments and diversification of remittance services, there has been a certain demand to receive wages in digital money. Taking this into consideration, it has become possible to pay wages in digital money since April 2023.

However, in order to implement this system, it is necessary to select a fund transfer service provider from among those designated by the MHLW, conclude a labour-management agreement, and obtain the consent of each individual worker. Furthermore, this system is intended solely for payment and remittance purposes and is not a deposit system. As such, there is a maximum acceptance limit, and any transfers exceeding this limit will be automatically withdrawn to a deposit account. Additionally, payments in the form of non-cashable points or cryptocurrency are not permitted.

Although this system has been operational since April 2023, it became possible for companies to actually pay wages using digital money on 1 April 2025, when four companies were designated as fund transfer service providers by the MHLW.