2.1 Statutory requirements
In general, under Japan labour law, it is impossible for an employer to unilaterally terminate the employment of an employee, unless there is a legally recognised justifiable reason for the termination in accordance with the Employment Contract Act.
The legally recognised justifiable reasons under Japan law are very limited in their scope. The law expects employers to do everything possible to rectify problems with their employees, and to terminate the employment only as a last resort in the most extreme cases. In principle, there are 4 reasons that have been found legally justifiable in accordance with court judgements:
- Lack of qualification or very poor performance of the employee.
- Physical or mental inability of the employee.
- Breach of discipline by the employee.
- Business necessity of the employer (ie redundancy).
2.2 Notice periods
In general, the employer must give the employee at least 30 days’ advance notice or payment in lieu of notice.
2.3 Restrictions on the ability to terminate employment
In addition to the strict requirement that a termination may only occur for ‘justifiable reason’, the following specific prohibitions on termination also apply:
- termination during a period of leave for medical treatment, and for 30 days’ thereafter, for an injury/disease suffered in the course of employment, except where the period of leave exceeds 3 years or where the employer pays compensation equivalent to 1,200 days’ salary;
- termination by reason of the employee’s nationality, creed, social status or sex;
- termination of a female employee because of marriage, pregnancy, childbirth or requesting maternity leave;
- termination for requesting or taking childcare leave;
- termination for making a report to the authorities regarding a violation of the law;
- termination for making a disclosure under the Whistleblower Protection Act.
2.4 Remedies
If a court finds that there was no justifiable reason for a unilateral termination, it will generally order that the employee be reinstated (this means the employer’s continuous future payment up until the employee retires at the age of 65 years old or so) and be compensated with back-pay (the remuneration which should have been paid had there been no termination) corresponding to the period from the date of termination to the date of reinstatement.
2.5 Severance payments
There are no specific rules regarding severance pay under Japan law.
It is common to pay a retirement allowance at the time of termination, though this will not be legally mandatory unless it is provided for in the applicable contract of employment or Rules of Employment, or if the employer has established a practice of paying such allowances. Employers tend to develop their own systems concerning retirement allowances.
2.6 Specific requirements applicable to redundancy
As set out above, the legally recognised ‘justifiable reasons’ for termination under Japan law are very limited in their scope. Although redundancy is one such reason, the law expects employers to terminate employment only as a last resort in the most extreme cases. Generally a termination on the basis of redundancy will only be justifiable where the reasons are so strong that, for instance, only by effecting the termination will the employer be able to avoid insolvency.
If a unilateral termination on the ground of redundancy is challenged, the court will require the employer to prove why the redundancy was necessary, that every reasonable effort was made to avoid terminations, that the selection process was fair and reasonable, and that due process was observed (including consultation with affected employees and labour unions).
Note that it is common for employees to seek assistance from a labour union when faced with potential redundancy, and that union may seek discussions and consultations with the employer.