Minimum statutory terms
Termination of employment
Discrimination and harassment
Occupational health and safety
Regulation of outsourcing and contracting
Industrial relations

Acknowledgment

This Guide was prepared by the Workplace Law & Advisory – Asia practice of Freehills International Lawyers, with assistance from the following firms:

Contacts:

George Cooper
Practice Leader
+65 6236 9941 begin_of_the_skype_highlighting              +65 6236 9941 
george.cooper@freehills.com

Celia Yuen
Senior Associate
+65 6236 9972 begin_of_the_skype_highlighting              +65 6236 9972 
celia.yuen@freehills.com

Note:     This Guide:

• is current to 31 March 2010;
• contains general introductory information only, without an assumption of a duty of care by Freehills or the other firms listed;
• does not contain legal advice; and
• is not intended to be, nor should it be relied on as, a substitute for legal or other professional advice.

If employers have workplace relations issues or requirements in particular jurisdictions, then Freehills Workplace Law & Advisory - Asia can assist, working with local counsel.

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Minimum statutory terms

Key statutes
The key statutes governing employment relationships in Japan are the Employment Standards Act and the Employment Contract Act.

Other significant statutes relating to employment law include the:

• Act Concerning Succession of Employment Contracts
• Act on Resolution of Individual Employment Disputes
• Child Care Leave & Family Care Leave Act
• Civil Act
• Disabled People Employment Promotion Act
• Employment Safety and Sanitation Act
• Employment Tribunal Dispute Resolution Act
• Equal Employment Opportunity Act
• Golden Age Employment Security Act
• Minimum Wage Act
• Occupation Security Act
• Part-time Workers Act, and
• Worker Dispatch Act.

Significant statutes relating to labour law include the:

• Labour Relation Accommodation Act, and
• Labour Union Act.

Significant statutes relating to Labour Insurance, Social Insurance and Pension include the:

• Workers Accident Compensation Insurance Act
• Unemployment Insurance Act
• Health Insurance Act
• Welfare Pension Insurance Act
• Defined Contribution Pension Act, and
• Defined Benefit Pension Act.

Employer work rules
Under the Employment Standards Act, employers who engage 10 or more persons are required to prepare a set of documents called ‘Rules of Employment’ and to submit these to the Employment Standards Inspection Office. The Rules must contain certain mandatory provisions, including dealing with work start and finish times, breaks, rest days, leave, shift work, computation of wages and payment details, and retirement.

Probationary period
It is fairly common for unlimited-period contracts to contain an initial probationary period of three to six months. While there is no explicit restriction on the length of a probationary period, the general principle is that a probationary period will only be effective for a period that is reasonable.

It is important to note that the provisions of the Employment Standards Act generally apply during any probationary period, and that restrictions on termination of employment under the Employment Contract Act also apply during the probationary period.

Minimum wage
Minimum wage requirements in Japan are governed by the Minimum Wages Act. Currently, two kinds of minimum wages are determined under the Act—regional minimum wages, which apply to all employers (regardless of industry) located within a particular prefecture (there are 47 prefectures in total); and industrial minimum wages, which apply to employers in a specific industry within a particular prefecture, and which set a minimum wage that is higher for that industry than the regional minimum wage for that prefecture. Minimum wages are usually revised on an annual basis.

Remuneration structure
Remuneration in Japan for an unlimited-period employment agreement generally consists of three components:

• regular monthly salary (plus any fixed allowances)
• bi-annual bonuses, and
• retirement allowance.

Although the bi-annual bonus and retirement allowance are not required by law, it is common that they (or something similar) are included in remuneration structures. If they are not to be included, it is common to expressly state this in the contract of employment.

Working hours
Hours of work—Under the Employment Standards Act, an employer is prohibited from requiring employees to work more than eight hours per day or more than 40 hours per week. However, this restriction does not apply in relation to supervisors and managers who are affiliated with management with respect to decisions regarding working conditions and management of work (‘managerial/supervisory employees’). The interpretation of managerial/supervisory employees is very narrow.

An employer may make use of flexible working hours or discretionary working hours by meeting certain requirements prescribed by the Employment Standards Act.

Rest periods—An employer must provide non-managerial/supervisory employees with rest periods of at least 45 minutes where working hours exceed six hours, or at least one hour where working hours exceed eight hours.

An employer is required to provide non-managerial/supervisory employees with at least one designated holiday per week. This is known as the ‘statutory weekly holiday’. (Many employers designate Sunday as a statutory weekly holiday, but any day within one week suffices, from a legal viewpoint.)

Overtime—If an employer wishes to require a non-managerial/supervisory employee to work more than eight hours per day, more than 40 hours per week, or on the statutory weekly holiday, the employer must first enter into a written labour-management agreement with a labour union that has more than half of employees as labour union members (or if there is no such labour union, then an employee representative who represents the majority of employees). Only after such an agreement is entered into may standard working hours be extended by up to 15 hours per week, 27 hours a fortnight, 45 hours a month, 81 hours in two months, 120 hours in three months, or 360 hours in a year. The applicable overtime allowance is an additional 25% of the average hourly rate, increasing to 50% once overtime work exceeds 60 hours in one month. Special allowances also apply to night-time work (additional 25%) and work performed on the statutory weekly holiday (additional 35%).

Public holidays
It is not mandatory to provide employees with paid days off for public holidays in Japan. Most employers do however provide employees with a day off on public holidays.

Paid annual leave
After the first six months of employment, a full-time employee is entitled to be granted 10 days paid annual leave. For each year thereafter, the number of days granted per annum gradually increases to 20, in accordance with the following table:

Untaken annual leave may be carried over for up to one year. Pro-rata annual leave entitlements apply for part-time employees.

Other types of leave

Maternity leave— Female employees are entitled to unpaid maternity leave of six weeks prior to the birth and eight weeks after the birth (total 14 weeks). In the case of multiple births, the entitlement is to 14 weeks prior to the birth and eight weeks after the birth (total 22 weeks).

Childcare leave— An employee may apply for full-time unpaid leave to look after their child until the child turns one (or up to 14 months in certain circumstances due to amendments that will take effect from 30 June 2010), and in some circumstances this may be extended until the child reaches the age of 18 months.

Family care leave— An employee with a spouse, parent, child or other family member who requires constant care for more than two weeks may apply for unpaid family care leave for up to 93 days.

Menstruation leave— A female employee may take unpaid menstruation leave if she has significant difficulty performing her duties at work.

Limited-period employment
Employers are allowed to enter into an employment contract with a limited period. Generally, this period may be no more than three years.

Employers may unilaterally terminate a limited-period employment contract only where there is an ‘unavoidable reason’. An ‘unavoidable reason’ is interpreted as narrower than a ‘justifiable reason’ applicable to those employees whose employment period is not limited (see ‘Legal requirements’ below).

Insurance 
Labour insurance— Employers are required to maintain labour insurance for employees. Labour insurance comprises workers accident compensation insurance and unemployment insurance.
Workers accident compensation insurance operates when employees get sick or injured or die while they are working or when they commute. Unemployment insurance operates when employees leave the employer and are unable to find a new job.

Social insurance— Employers are also required to maintain social insurance for employees. Social insurance comprises health insurance and welfare pension insurance.
Health insurance operates when employees get sick or injured unrelated to work. Welfare pension insurance operates when employees reach an age where they are unable to receive salary from employers due to their retirement.

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Termination of employment

Legal requirements
In general, under Japanese employment 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 Japanese 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 four reasons that have been found legally justifiable in accordance with court judgments:

• lack of qualification or very poor performance of the employee
• physical or mental inability of the employee
• breach of discipline by the employee, and
• business necessity of the employer (that is, redundancy).

Notice periods
In general, the employer must give the employee at least 30 days advance notice or payment in lieu of notice.

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 three 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 employment of a female employee because of marriage, pregnancy, childbirth or requesting or taking maternity leave
• termination for requesting or taking childcare/family care leave
• termination due to labour union membership
• termination for making a report to the authorities regarding a violation of certain employment laws, and
• termination for making a disclosure under the Whistleblower Protection Act.

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 continuous payment to the employee up until he/she 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.

Severance payments
There are no specific rules regarding severance pay under Japanese 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.

Specific requirements applicable to redundancy
As set out above, the legally recognised ‘justifiable reasons’ for termination under Japanese 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.

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Discrimination and harassment
The following provisions apply in relation to discrimination and harassment:

• The Employment Standards Act provides that an employer shall not engage in discriminatory treatment with respect to wages, working hours or other working conditions by reason of an employee’s nationality, creed or social status.
• The Framework Act on Employment Policy requires an employer to give equal opportunities to any job candidate at the recruitment stage, regardless of age.
• The Labour Union Act prohibits an employer from discriminating against union members.
• The Equal Employment Opportunity Act prohibits direct and indirect discrimination on the grounds of sex in all stages of employment.
• Employers are required under the Equal Employment Opportunity Act to establish measures to prevent sexual harassment and to deal with any issues that arise in relation to sexual harassment in the workplace.

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Occupational health and safety
The Employment Safety and Sanitation Act requires employers to implement safety and health management systems. Depending on the circumstances, including the size of the employer, this may include the requirement to appoint certain safety officers. The Employment Safety and Sanitation Act also deals with:

• measures for preventing danger to employees
• regulations on machines and harmful substances
• measures to maintain and promote employee health, and
• measures for creating a comfortable work environment.

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Regulation of outsourcing and contracting

Outsourcing
The basic rule under Japanese employment law is that a company may not engage in ‘worker supply’—that is, dispatching a worker to another company who will give the employee their day to day work instructions. The exceptions to this rule are in the case of a secondment between related companies (subject to the specific rules that apply), or where the dispatch is permitted under the Worker Dispatch Act. The Japanese Government is currently considering significant amendments to the Worker Dispatch Act.

The main purpose of the Worker Dispatch Act is to set standards for agencies who dispatch workers to other companies. Agencies must have a licence for job placement. The agency, as the employer of the dispatched worker, will be responsible for paying salary, unemployment insurance premiums, social insurance premiums, and withholding tax. The receiving company is responsible for the health and safety of the dispatched worker, and is entitled to give the dispatched worker direction and supervision.

The receiving company is allowed to utilize a dispatched worker for a particular job for no more than three years. (This means that the receiving company has to stop the job or to have a directly hired employee handle the job or to outsource the job, when three years have passed.) If the job concerns one of 26 professional types of job, however, then there is no limited period.

Dispatched workers can conclude an employment agreement with the receiving company after their contract with the agency has ended. The Act provides for hiring preferences in respect of dispatched workers who have worked for a receiving company for a particular period (generally three years) in certain situations.

Contracting
Companies may engage persons (for example, consultants) as independent contractors. However, the courts will examine the substance of the relationship and will consider a person to be an employee if the relationship appears to be one of employment—that is, where the employee undertakes work under command and instruction from the employer.

In order for the person to be an independent contractor, they will need to decide themselves how the contracted business will be done, without detailed command or instruction, and be independent in management, including starting and finishing time, rest periods, holidays etc.

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Industrial relations

Legislation in brief
The key statutes dealing with industrial relations in Japan are the Labour Union Act and the Labour Relations Accommodation Act. The Labour Union Act provides for the right to establish a union, undertake union activities, and bargain collectively. The Labour Relations Accommodation Act provides for the settlement of disputes.

Role of trade unions and collective agreements
Employers are required to consult with any labour union (regardless of the number of labour union members) with respect to any terms and conditions of employees who are labour union members, as long as the labour union requests the employers to do so. An employer is obliged to negotiate in good faith with the union. Collective bargaining agreements may be entered into with a union after bargaining. The collective bargaining agreement will be applicable in respect of all union members, and if at least 75% of employees are members of the union, the agreement will be binding in respect of all employees. The provisions of the collective bargaining agreement will supersede the provisions of the Rules of Employment.

The Employment Standards Act and other statutes specifically provide for certain matters that require a labour-management agreement between the employer and the labour union organised by a majority of employees at the workplace, or if there is no such union, with a worker representing a majority of workers (for example extension of standard working hours—refer to ‘Overtime’ above).

Industrial action and disputes
In general, industrial action (for example, strike, slowing down, boycotting, picketing, staying within a workplace) may only be conducted for the purpose of supporting collective bargaining, and provided that prescribed procedures are complied with. Secondary actions are generally not permitted.
There are various procedures for resolving labour disputes, including mediation or unfair labour practices examination procedures by the Labour Relations Commission, and provisional dispositions and litigation in the courts.

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