Japanese law mainly distinguishes between a fixed-term employee and an indefinite-term employee.

There is no concept of agency/contractual employees under Japanese law. Fixed-term employees are often called “contractual employees,” however, this is not a legal term.

An independent contractor is not an employee under Japanese law. However, due to the increase of independent contractors/freelance workers, a new law entitled the “Act on Optimization, Etc. of Transactions Concerning Specified Consignees" (so-called the “Freelance Worker Protection Act”) passed the Diet in April 2023. 

The Freelance Worker Protection Act is scheduled to come into force by October 2024, and it will include regulations on transactions between a company or business, who is the ordering party, and a freelance worker, who is the subcontractor, including the following :

• The ordering party’s obligation to execute a written agreement with a freelance worker;
• The ordering party’s obligation to specify the dates of payments to freelance workers,
• Prohibitions on unfair practices by the ordering party such as to, without justifiable cause; refuse to receive product or service, reduce agreed fees, require the freelance worker to purchase or use designated goods/services, require the freelance worker to provide economic interests, and change the work scope or order without paying additional fees;
• The ordering party’s obligation to accurately display work offering information;
•  The ordering party’s obligation to care for the freelance worker’s pregnancy, childcare and/or family care;
• The ordering party’s obligation to establish a consultation system for the freelance worker;  and
• The ordering party’s obligation to provide the freelance worker with reasons and prior notice of termination.

Japanese law mainly distinguishes between a fixed-term employment contract and an indefinite-term employment contract.

The maximum period for limited-term employment is, in principle, 3 years (renewable), however, for 1) highly skilled workers (doctors, lawyers, accountants, etc.) and 2) workers over 60 years of age, the maximum period can be 5 years.

A fixed-term employee will be entitled to request an unlimited-term employment contract after 5 years of his/her fixed-term employment.

There is no specific requirement for executing an employment contract. For example, an orally executed employment contract is also valid. An employer is, however, required to provide a written notice to notify an employee of certain prescribed terms and conditions of employment upon hiring of the employee, but this is not a condition for validly executing an employment contract.

Part-time employees are, in general, entitled to the same rights and benefits as full-time employees except for the days of annual paid holidays to be granted. However, part-time employees who work less than approximately 3/4 of workdays or hours of full-time employees, are not covered by social insurance (i.e., Health Insurance and Welfare Pension Insurance).  In addition, part-time employees who work less than 20 hours a week or whose employment term under the employment agreement is less than 31 days are not covered by Unemployment Insurance.

Yes, subject to the individual consent of the employee who is subject to the assignment.

It would depend on the type and method of the company transfer.  

In the case of transfer by way of a share transfer, employees do not have any rights to object to such transfer.

In the case of transfer by way of a business and asset transfer, individual consent of each employee is required to transfer the employee’s employment agreement to the transferee.

In the case of transfer by way of a corporate split, the target business will be carved out to the transferee, while individual consents of the employees who are mainly engaged in the target business are not required in order for them to be transferred (subject to certain procedural requirements), the employees who do not mainly work in the target business will have the right, under the Act on the Succession to Labor Contracts upon Company Split, to object and refuse to be transferred to the transferee.

As discussed in our answer to Question 6 above, in the case of a corporate split, employees who do not mainly work in the target business have the right to object to the transfer of their employment contracts, as provided under the Act on the Succession to Labor Contracts upon Company Split.

In practice, many Japanese companies provide for employment terms and conditions, such as working hours and wages, not in individual employment agreements, but in their work rules uniformly applicable to all employees.  If an employer and its employees agree on employment conditions that do not meet the standards established by the employer’s work rules, such agreed conditions will be deemed invalid, and the standards established by the work rules will apply.  The standards established by the work rules would also apply in the event that the applicable employment agreement is silent as to certain employment conditions.

The basic principle is that an employment agreement binds both the employer and the employee once the contract is executed and, therefore, that an employer may not unilaterally change the terms and conditions of employment.

An important question is whether an employer may change portions of its work rules, thereby changing certain employment conditions, without obtaining consent from its employees, in particular, in the event such unilateral change would be disadvantageous to employees.

Article 9 of the Labor Contract Act (the “LCA”) provides that an employer may not change the work rules in a manner disadvantageous to the employees without obtaining the employees’ consent. This is a legal principle formerly established by the court precedents holding that changing work rules, thereby changing employment conditions, in a way that is disadvantageous to employees without obtaining their consent, is, in principle, invalid.  If such a change of employment conditions is invalid, the employees may take legal actions based on the premise that such a change is null and void.

However, Article 10 of LCA further provides that such a change may be allowed if the change to the work rules is reasonable in light of the extent of the disadvantage to be incurred by the worker, the need for changing the working conditions, the appropriateness of the contents of the changed work rules, the status of negotiations with a labor union or the like, or any other circumstances pertaining to the change to the work rules.

Japanese law does not recognize an “employment-at-will.”

Under the Labor Standards Act (the “LSA”), an employer may terminate employment by providing 30 days' prior notice.  However, this is merely a procedural requirement.

Article 16 of the LCA provides that, if the cause of termination lacks objectively reasonable grounds and is not considered to be appropriate in general societal terms, the termination will be void. It has incorporated the concept of an employer’s “abuse of its right to dismiss,” which has been originally and firmly established by judicial precedents of Japanese courts that restrict the rights of employers to dismiss their employees.

Accordingly, in practice, it is generally very difficult in Japan to dismiss employees once they are hired on a non-temporary (indefinite) basis. This is because traditional lifetime employment practices are still considered to be prevailing in Japan and the sole source of a worker’s living is generally his or her employment, therefore, a worker’s living is easily jeopardized by dismissal because it is difficult for him/her to find a new job under the current labor market.

Reasonable grounds for dismissal, according to case law, can be generally summarized as follows:

1. Employee’s incompetence, or lack or loss of the skills or qualifications required for his/her job (e.g., exceptionally unsatisfactory job performance ratings, the loss of occupational ability resulting from an injury or sickness);
2. Breach of disciplinary rules; or
3. Business necessity of the company: in this category fall dismissals as a result of rationalization and reduction of the number of employees due to a business downturn.

However, due to the above concept of an employer’s “abuse of its right to dismiss,” the reasons for the dismissal generally must be so serious that the employer cannot be expected to maintain the employment relationship with the employee.

Further, in connection with (c) above, the courts have established the following four requirements for dismissal due to rationalization or adjustment of the size of the workforce (the so-called “Four Requirements for Work Force Reduction”):

1. A compelling need exists to reduce the number of employees, e.g., serious economic depression;
2. Dismissal is unavoidable in attaining the necessary personnel reduction: an employer must endeavor to avoid dismissal by resorting to other measures including transfers, secondments to other companies and temporary layoffs.  Measures less painful than dismissal, such as solicitation of voluntary resignation, should be implemented prior to unilateral dismissal;
3. The selection of the person(s) to be dismissed must be based on objective standards; and
4. Proper procedures must be followed: this includes explaining to the workers the need for the dismissal and the conditions thereof and consulting with them in good faith.

If a dismissal is adjudicated to be unlawful, the possible consequences are as follows:

1. Restoration of the status of the relevant employee as an employee of the employer: Although most cases are settled by paying monetary compensation, there have been cases in which the court orders the employer to re-hire the employee.
2. Payment of unpaid wages (with default interest) from the time of the attempted dismissal until the restoration of status:

As a result of the nullification of the dismissal, the employer will be required to pay the employee his/her salary for the period from the time of the attempted dismissal to the time of the restoration.  However, the amount of any eventual income earned by the employee while the litigation was pending will be deducted from the payment by the employer with respect to the portion of the earned income that exceeds 60% of the average wages of the employee (i.e., the employer will be required to pay at least 60% of the average wages regardless of any temporary income earned by the dismissed employee).

Other than bringing a legal action before a court seeking the remedies as described above, the most common course of action that may be taken by an employee who is dismissed is to:

1. file for a provisional injunction order for the provisional restoration of status and provisional payment of wages;
2. file a petition for proceedings before a labor tribunal, under a system that was introduced in 2006 and aimed at resolving a dispute in a short term and in a flexible manner; or
3. participate in a labor union (the unions being fairly flexible in regard to such new memberships), which will then necessitate the employer to engage in collective bargaining for withdrawal of the proposed dismissal or any payment of compensation.

Yes.  The Whistleblower Protection Act prohibits dismissal and other disadvantageous treatment of an employee who, without any wrongful purpose, reports about a reportable fact provided under the same act.

Dismissal of an employee in violation of the Whistleblower Protection Act will be void.

Employees have a general right to privacy under the Japanese Constitution. In addition, employees’ personal information is protected under the Act on the Protection of Personal Information and relevant guidelines.

Employees who were subject to infringement of privacy rights may claim damages under tort theories against an infringing party.

Yes. Especially, Article 3 of the LSA provides that employers shall not use the nationality, creed or social status of any worker as a basis for engaging in any discriminatory treatment with respect to wages, working hours or other working conditions.  In addition, Article 4 of the LSA provides that employers shall not use the fact that a worker is a woman as a basis for engaging in differential treatment in comparison to men with respect to wages.

Further, the Act on Securing of Equal Opportunity and Treatment between Men and Women in Employment prohibits discrimination of employees on the basis of their sex, which includes discriminatory treatment concerning hiring, assignment, promotion, demotion, loans and other fringe benefits, termination, renewal of fixed-term contract and retirement age.

In case of unlawful discrimination, the affected employee may take legal action against the employer based on tort and/or contractual claims.

Employees are entitled to take annual paid leaves, maternity leave, menstruation leave, child care leave, leave for taking care of a sick child, family care leave, leave for taking care of a family member and leave for public services.

There was an amendment to the Child Care and Family Care Leave Act which passed the Diet in June 2021 and came into force in phases in the past 12 months. An outline of the amendments is as follows:

1. A father of a newborn child is eligible to take a total of 4 weeks of childcare leave within 8 weeks of the child's birth.
2. Parents are entitled to take child care leaves in 2 separate periods (formerly, the child care leave was required to be taken in one block).
3. Entities with more than 1,000 employees are obliged to annually disclose the status of childcare leave taken by male employees.
4. The requirement of 1 year employment period for employees to take child care or family care leave is, in principle, abolished.
5. An employer is obliged to inform the employees of the childcare leave system available to the employees and to take measures to confirm the employees’ intention to take the leave.

It will depend on the types and contents of the restrictive covenants.  However, obligations such as non-compete, non-solicitation and confidentiality are regularly seen in Japan.

Concerning the non-compete obligation, under Japanese statutory law, there is no provision that expressly prohibits an employer from insisting on a non-competition clause. However, since the individual’s freedom to choose his or her livelihood is guaranteed under the Japanese Constitution, there is some uncertainty as to the enforceability of certain non-competition clauses that restrain an employee from engaging in some competitive job after expiration or termination of employment.

Whether or not a particular non-competition clause will be upheld depends on all of the facts and circumstances. There are many decisions of the Japanese courts upholding various non-competition clauses.  In such cases, the courts have considered many factors in their determinations, for example, the term of the restriction, the geographic area and the kind of job subject to such restriction, whether or not there is any compensation for such restriction, the necessity for the employer to keep secret business information which the employee may have, the disadvantages which the employee may suffer, and so on. With respect to the duration of a post-termination non-competition covenant, a two-year term has generally been accepted as reasonable regardless of whether it is within or beyond the compensation payment period unless the geographical area or the kind of job subject to the restriction is too broad or the compensation is particularly insufficient.

Article 16 of the LCA provides that, if the cause of termination lacks objectively reasonable grounds and is not considered to be appropriate in general societal terms, the termination will be void (such reasonable cause of termination being the “Reasonable Grounds”) (see our answer to Question 9 above).

As for consideration for the restrictive covenant, there is no legally required consideration, however, in practice, monetary compensation is the norm.

As for a retirement scheme, there is no mandatory severance payment required under Japanese employment law, and thus there are no legally required contributions to a retirement scheme. Concerning contributions to a pension scheme, in principle, it is mandatory to have employees covered by the Welfare Pension Insurance (see our answer to question 18 below), and an employer is required to contribute one-half of the insurance premiums for the Welfare Pension Insurance. Insurance premiums are calculated by multiplying an employee’s standard salary grade (the maximum standard monthly salary grade for this purpose is JPY650,000) by the then-effective insurance premium rate. The current insurance premium rate is 18.3%, however, the rate is subject to periodic reviews and amendments.

In Japan, insurances generally mandated are Worker's Accident Compensation Insurance, Health Insurance, Welfare Pension Insurance and Unemployment Insurance.

Yes. The minimum retirement age is 60 years old, however, an employer must provide a system to allow its employees to be employed until age 65. Further, as of April 1, 2021, an employer is obliged to endeavor to allow its employees to work until age 70.  

No. In principle, mandatory pensions and insurance described in our answer to Question 18 above continue until certain ages:

• For the Welfare Pension Insurance, the coverage in principle needs to continue until the age of 70.
• For Health Insurance, the coverage in principle needs to continue until the age of 75.
• For the Unemployment Insurance, the maximum coverage age has been abolished in 2019. As such, in principle, the coverage needs to continue so long as the employee is employed.
• For the Worker’s Accident Compensation Insurance, there is no maximum coverage age and the coverage needs to continue so long as the employee is employed.

No. It is possible for an employer to encourage its employees to be vaccinated, however, it is not possible for an employer to mandate and force the employees to get vaccinated. Since the vaccination cannot be forced on employees and it is also not mandated under any laws, it is highly likely that dismissal due to an employee’s refusal to take the vaccine will be found illegal and void.

An employer may require its employees to return to work in an office so long as the employer has taken reasonable measures to prevent the spread of the disease and the employee does not have compelling reasons to refuse to work in the office. In such a case, if an employee refuses to work in the office without justifiable cause, the employer may impose certain disciplinary actions. However, in light of the dismissal criteria discussed above, it is highly likely that a dismissal solely for the reason that an employee refused to work in the office due to fears of COVID-19 will be found illegal and void.