Employment in Japan: Leveraging Japan’s Labor Force for Business Success amid Unique Traditional Practices and Evolving Regulations

ADCO Law

Employment law in Japan is primarily shaped by several fundamental principles that prioritize job security, fairness, and the protection of workers’ rights. These principles are deeply ingrained in both legislation and societal norms. Here are some key aspects:

1. Labour Standards Act (LSA) and Minimum Wage Act (MWA): These laws are the cornerstone of employment law in Japan, providing minimum standards on working hours, wages, holidays, and other basic employment conditions.
2. Lifetime Employment: Historically, many Japanese companies have offered lifetime employment to their workers. While this practice has somewhat diminished, the idea of long-term job security and loyalty between employers and employees still influences employment practices. In this practice, workers are usually hired without a specific job title, job description, or work location, and are subject to extensive reassignments.
3. Seniority-Based Promotions and Wages: Traditionally, Japanese companies have used a seniority-based system for promotions and wage increases, where employees are rewarded based on their length of service rather than individual performance. Although this system has been challenged in recent years, it still influences many employment practices in Japan.
4. Dismissal Protection: Dismissal in Japan is subject to strict regulations. Employers must have justifiable reasons for termination.
5. Collective Bargaining: The Labour Union Act encourages collective bargaining between employers and labor unions to negotiate terms and conditions of employment. While labor unions within companies in Japan are on the decline, unions outside companies, such as those for non-regular employees, are becoming more active.
6. Various Sources of Employment Law: Employment law in Japan is mainly based upon the following sources:
   • the Constitution;
   • laws such as the LSA and other laws mentioned above;
   • government ordinances and implementation regulations;
   • collective bargaining agreements;
   • company’s work rules;
   • employment contracts;
7. guidelines published by administrative authorities; and
8. Court decisions, especially those of the Supreme Court.

Regarding flexible employment arrangements, while Japan traditionally emphasized permanent full-time positions, there has been a gradual shift towards accommodating more flexible employment arrangements to adapt to changing economic conditions and workforce preferences. Some ways in which Japanese employment law accommodates flexible employment arrangements include part-time and temporary work, and dispatch work.

Under Article 15, Paragraph 1 of the LSA, employers are obligated, upon hiring an employee, to give clear notice of the specific terms and conditions of employment in writing or by other means prescribed by the LSA and its government ordinance. These conditions are as follows:

1. Term of the employment agreement;
2. Criteria for renewing a renewable fixed-term employment agreement;
3. The employee’s workplace and duties;
4. Daily work starting and ending times, regarding whether the employee is required to work more than his/her prescribed working hours, rest periods, holidays, leave; and when employees are divided into two or more groups, shift changes;
5. The method of determining, calculating and paying wages; the time at which payment period ends and when wages are paid; and rules regarding wage increases; and
6. Rules regarding resignation and unilateral termination.

The revised LSA Government Ordinance, effective April 1, 2024, requires employers to notify all employees of the scope of possible changes in their workplace and duties during their employment in addition to their workplace and duties assigned immediately upon hiring. Other amendments based on the revised LSA Government Ordinance should also be noted.

An employer may only terminate or dismiss an employee on objective, justifiable and reasonable grounds such as incompetence, lack of qualification or misconduct. Any termination or dismissal that is not on those grounds is unlawful and constitutes an abuse of the employer’s rights. Termination due to economic reasons such as redundancies is severely restricted in Japan and are not permitted without meeting strict requirements established by past court decisions.

In general, a dismissal is considered lawful only if the cause of the dismissal is serious, there is no other way to avoid the dismissal, there are few factors to be considered in favor of the employee, and due process has been followed.

In principle, an employer is required to provide at least a 30-day advance notice to the employee, or to pay the average wage the employee would earn for not less than 30 days in lieu of notice. The number of days for the advance notice can be reduced by the number of days for which the employer pays the average wage.

There is no statutory obligation to pay severance packages upon termination, except in circumstances when payment is made in lieu of notice mentioned in part 3 above.

However, since the validity of dismissal is subject to strict scrutiny in Japanese courts when it is disputed, employers often offer severance packages to employees to encourage voluntary resignation. The amount of severance packages varies widely from company to company, but is often calculated based on the employee’s length of service and the degree of reason for termination.

Failure to comply with laws that set minimum standards, such as the LSA and the MWA, can result in criminal penalties such as fines and imprisonment, as well as administrative penalties such as publication by administrative agencies of violations of the law.

1. Keep close eye on frequently changing rules of Japanese employment law by monitoring official government websites, subscribing to legal updates, or consulting with employment law specialists.
2. Conduct a thorough review of existing employment contracts to identify any clauses that may be outdated or in conflict with current regulations, especially regarding wages, working hours, overtime, leave, termination, and non-compete clauses.
3. Ensure that employment contracts are written in plain language, especially in multilingual workplaces. Professional translation services can help avoid misunderstandings or misinterpretations.