International Employment Law Guide

Analysis

Japan

International Employment Law Guide

This page outlines country-level details about the onboarding process when hiring employees, and touches upon the applicable rules when terminating employment contracts.

Last updated: 31 January 2022

A. Hiring of employees (onboarding)

Mandatory employer requirements

When employing an individual in Japan, the employer enters into a labor contract with the individual. On or before the execution of the contract, the employer is obliged to notify the employee in writing of the prescribed employment conditions, which at least must include the term of the agreement (also if permanent), the workplace, the duties that the employee will have to perform, the start and finish times, under which conditions it can be necessary to perform overtime, breaks, days off and leave, methods of determining, calculating and paying wages, the wage calculation period and payment date, and details on resignation and dismissal procedures (including all grounds for dismissal). For part-time employees, the employer must specify in writing whether they will be eligible for pay increases, retirement allowances, and/or bonuses.

An employer is legally obliged to take part in the following four insurances for employees who meet certain criteria: (i) Workers' accident compensation insurance, which covers any illness or injury at work or while commuting to or from work; (ii) Employment insurance, which provides workers with financial aid and subsidies when they become unemployed; (iii) Health insurance and nursing care insurance, which covers medical and nursing care expenses incurred by the workers; and (iv) Employees' pension insurance, which provides benefits for old age, death or disability.

An employer who continuously employs 10 or more employees has to draw up rules of employment covering the items described in the Labor Standards Act and submit the rules to the relevant government agency. It is not required to establish a Japanese legal entity to hire someone to work in Japan.

Probation periods

Probation periods are allowed under Japanese law and there are no regulations on the term. However, a court may find it null and void if the period is too long. Termination during a probation period is easier than termination after this period, but there are still restrictions. No action is required for an employee to continue employment at the time of expiration of a probation period.

Hiring checks

Medical examination
An employer may request that an applicant take a health check if relevant for the job, or they may request that the employee inform them about any health conditions that might impede his/her ability to perform his/her duties. The employer is obliged, when employing an individual as a regular employee, to provide him/her with a medical examination by a physician at least once a year. If the results are seriously different from the information provided by the employee and his/her current health condition makes it difficult for him/her to perform his/her job and other jobs, there is a chance for the employer to terminate the employment contract.

Criminal background check
An employer is not obliged to, but may conduct criminal background checks. In practice, the employer requests that an applicant submit his/her curriculum vitae (CV), including information on his/her criminal background. It is permissible to terminate the employment contract when false information is provided, depending on the facts, the job responsibility, etc.

Reference and education checks
Reference and education checks are permissible, although not mandatory. In practice, an employee is requested to notify his/her reference and education. If the information turns out to be false, it is permissible to terminate the employment contract.

Diversity & inclusion

All employers are obliged to employ persons with disabilities at a rate equal to or above 2.3% as the statutory rate (as of March 1, 2021). Employers whose employment rate of persons with disabilities falls below the statutory rate will be obliged to pay "levies for the employment of persons with disabilities" in proportion to the difference between their actual employment rate and the statutory rate. The law also stipulates that employers must not use the nationality, creed or social status of any employee as a basis for engaging in discriminatory treatment with respect to wages, working hours or other working conditions.

Types of employment contracts

There are typically two types of employment contracts: open-ended contracts and fixed-term contracts.

Open-ended employment contracts are the standard employment form (“Seishain”). Since the employers’ dismissal rights are very restricted in Japan, such employment contracts tend to continue until each employee’s retirement age, unless the employee voluntary leaves or is dismissed under strict restrictions.

Fixed-term employment contracts are agreements which typically refer to a specific term or a specific end date of employment. The maximum term is three years, in principle, but the contract can be renewed. An employer who intends to execute a fixed-term employment contract must inform the potential employee of the possibility of the contract renewal and the factors to be considered for a decision on whether the contract will be renewed. A fixed-term employment contract can be converted to an open-ended employment contract upon the employee's request if the consecutive total term of employment exceeds five years. The working conditions for employees with a fixed-term contract have to be in balance with those for employees with open-ended contracts.

Neither type of employment contract is required to be in writing, as long as the employers provide notice of important working conditions in writing. However, most employers and employees make written employment contracts.

Specific rules for executives

There is no official category of executives under Japanese law whose rights, to some extent, deviate from the employment law rules applied to employees. Among executives, it is construed that directors are not employees. Executives other than directors can therefore generally be classified as employees unless they are self-employed, in which case the relationship is governed by the contract with the employer.

Language requirements

There is no language requirement in Japanese employment law, and an employer and employee may draft the employment contract in any language that they agree on. It is recommendable for an employer to ask a job applicant to confirm if he/she completely understands the language of the employment contract.

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B. Termination of employees (Offboarding)

Kinds of dismissal

  1. An open-ended employment contract
    An open-ended employment contract cannot be terminated by the employer unless such a dismissal meets two requirements: (a) it has “objectively reasonable grounds”; and (b) it is considered to be “appropriate in general societal norms.” If it lacks either requirement, the dismissal will be treated as the employer’s abuse of his right to dismiss and become invalid.
  2. A fixed-term employment contract
    A fixed-term employment contract cannot be terminated by the employer without “unavoidable circumstance” until the expiration of the contract term. The “unavoidable circumstance” is stricter than the requirements (a) and (b) for the open-ended contract.

Dismissal motivation

Individual dismissals in Japan can be justified only when they strictly meet both of the following requirements:

  • “objectively reasonable grounds”:
    • Employee’s inability to work, lack/loss in aptitude;
    • Employee’s violation/infringement of discipline in the workplace;
    • Business necessity; and
    • Based on the union-shop clause in the collective labor agreement.
  • “appropriate in general societal norms”:
    Case law provides that in order to meet the requirement “to be appropriate in general societal norms”, an employer needs to prove that (i) the cause of dismissal is serious; (ii) the employer has no other option than to dismiss the employee; and (iii) there are little facts favorable for the employee.

The courts of Japan tend to hesitate to find both (a) "the reasonable grounds"; and (b) "the appropriateness". The courts especially tend to protect employees with open-ended contracts, because ”lifelong employment” is the traditional employment system in Japan and some dismissed employees may face difficulty to find a new job.

For example, even in case an employee lacks the skills to perform his/her job, a court often demands that the employer provide the employee with opportunities to improve his/her skills or to offer another, easier, job before the dismissal. If the employer does not provide sufficient opportunities for improvement or easier jobs, the court will likely find that such dismissal does not meet either of the requirements.

Notice period

The law stipulates the fixed notice period of at least 30 days. Such notice period may be shortened by the number of days for which the employer pays the indemnity in lieu of notice. The duration of the notice period is always the same regardless of an employee’s seniority or other factors.

Severance pay

There is no severance payment requirement in Japan. In other words, an employer cannot terminate an employment agreement without the employee’s consent even though the employer has the intention to pay an amount of money to the employee. Dismissal of employees with an open-ended contract is very restricted, but if a dismissal is found to be valid, the employer does not need to pay severance payment other than the retirement allowance stipulated in the work rules or his/her employment contract.

There are often cases where a court finds that the dismissal cannot be justified but the former employee agrees to leave the company in exchange for a certain amount of payment by the employer. A governmental study (The study group on transparent and fair labor dispute resolution system etc., available at: http://www.mhlw.go.jp/file/05-Shingikai-11201000-Roudoukijunkyoku-Soumuka/0000166655.pdf [Accessed 15 November 2017]) found the following average settlement amounts:

Amount of the settlement Conciliation Labor tribunal Judicial settlement
1 month’s salary 37.5% 4.9% 6.3%
1 - 2 month’s salary 28..4% 8.8% 10.2%
2 - 3 month’s salary 10.2% 13.4% 8.7%
3 - 4 month’s salary 13.6% 13.4% 7.9%
4 - 5 month’s salary 5.7% 11.3% 8.7%
5 - 6 month’s salary 2.3% 11.9% 3.15%
6 - 9 month’s salary - 18.0% 18.1%
9 - 12 month’s salary - 4.6% 15.7%
12 - 24 month’s salary - 9.5% 14.2%
24 month’s salary - 4.3% 7.1%

Dismissal formalities

In Japan, there is no specific formality for dismissing an employee. However, in general, an employer provides advance notice in writing.

On the other hand, employers have to issue a certificate of reasons for the dismissal, without delay, when an employee is given an advance notice of leave and requests the employer to issue such a certificate.

Special dismissal protection

Certain categories of employees enjoy special statutory protection against dismissal

  • Employees during a work absence period for medical treatment for injuries or illnesses suffered in the course of the employment or within 30 days thereafter; and
  • Female employees during the period of absence from work before and after childbirth or within 30 days thereafter.

Protected employees cannot be dismissed except under the following circumstances:

  1. When the employer pays compensation for discontinuation equivalent to the average wage that would be earned over 1,200 days when an employee fails to recover from the injury or illness within three years from the date of commencement of the medical treatment; or
  2. When the continuation of the business has become impossible due to either natural disaster or other unavoidable reasons.

Even in these exceptional circumstances, the employer has to obtain an approval from the relevant government agency after disclosing the reasons for the dismissal.

Legal means of employees

  • Litigation
    An employee who was dismissed can file a complaint to seek a confirmation of the validity of a dismissal in court. There is no special labor/employment court in Japan. If a court finds that the dismissal is invalid, the employer has to:
    • Reinstate the employee to the former position; and
    • Pay back-pay, if any.

The employer has to treat the employee as if he has been an employee without dismissal in light of salary, position and any other work conditions.

  • Labor Tribunal (“Roudou-Shimpan”)
    A dismissed employee can file a petition at the labor tribunal, instead of filing a formal complaint to a court. The tribunal proceedings are conducted by three members: a labor tribunal judge and two labor tribunal members, both of whom have knowledge and experience in labor issues. A labor tribunal proceeding typically ends by either (i) a conciliation; or (ii) a labor tribunal’s decision. If both parties do not file an objection against the labor tribunal’s decision, such a decision becomes final and binding. However, when either party files an objection, the dispute is moved to a formal litigation stage.
  • Administrative procedures
    The Prefectural Labor Bureau (“Todofuken Roudou-Kyoku”) provides the following services for resolution of individual labor-related disputes:
    • The advice and guidance system (“Jogen-shidou”)
      If the director of the Prefectural Labor Bureau is requested by one or both parties (hereinafter referred to as "disputing parties") to assist the resolution of an individual labor-related dispute, the director may give necessary advice or guidance to the parties. The disputing parties are not obliged to accept such advice or guidance from the director.
    • The conciliation system (“Assen”)
      If one or both disputing parties file(s) an application for mediation with respect to an individual labor-related dispute (except for disputes with respect to a matter concerning the recruitment and employment of workers), the director needs to have the Dispute Coordinating Committee conduct mediation if the director deems this necessary. In addition to hearing opinions from the disputing parties, mediators can hear the opinions of witnesses or request expert opinions. The mediators then prepare a mediation plan and present it to the disputing parties. The parties are not obliged to accept it.

Specific rules for executives

There is no official category of executives under Japanese law whose rights to some extent deviate from the employment law rules applied to employees. Only executives other than directors and those without a self-employed status are treated as employees and the same restrictions regarding dismissal are applied.

Collective dismissals

Court precedents established that any dismissal for the purpose of reduction of employees needs to be regarded as “reasonable” by considering the following conditions or factors:

  • A reduction in employees is necessary for the company’s continuation;
  • The company has made efforts to avoid dismissals by not hiring new employees or by encouraging early retirement;
  • The criteria for reduction must be objective, rational, and fair, and the selection process (of employees to be dismissed) must be fair; and
  • The company has made efforts to explain to the employees’ satisfaction the rationale of staff reductions and the necessity of dismissal.

Although the rules above generally apply when the employer considers dismissing multiple employees, there is no specific threshold triggering the rule.

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Get in touch

Takashi Tanazawa
Japan
takashi.tanazawa@tohmatsu.co.jp | +81 703 237 4296

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