The Labour and Employment Disputes Review: Japan

Introduction

Labour and employment disputes in Japan fall into two categories: (1) individual employment disputes; and (2) collective employment disputes.

Individual employment disputes include those regarding employment terms and conditions for individual employees, such as termination of employment contracts and payment of extra wages. The main labour laws regulating these disputes are (1) the Labour Standards Act (LSA), which stipulates minimum standards for the terms and conditions of employment contracts; and (2) the Labour Contracts Act (LCA), which governs individual labour relationships by providing for the basic principles under which labour contracts are to be established or changed through voluntary negotiations between employers and employees.

Collective employment disputes include those between employers and labour unions. The principal labour law regulating these disputes is the Labour Union Act (LUA), which governs collective labour relationships.

In June 2018, the Japanese Diet passed a series of laws (the Work-Style Reform Laws) to amend employment regulations under the LSA and the LCA and to improve the work environment by addressing the issues of long work hours and differences in treatment between indefinite-term (regular) and fixed-term (non-regular) employees.

In principle, labour and employment disputes may be characterised in the following three ways:

  1. there are strict restrictions for employers in Japan. Though employment conditions are basically determined through voluntary negotiations between employers and employees, the employer historically tends to have more negotiating power and thus the agreed working conditions are generally unfavourable for its employees. Therefore, to protect employees, labour and employment laws and their ordinances are enacted to be generally favourable for them;
  2. for employers, the disadvantages of losing any disputes are significant, but the benefits of winning are relatively small. If the employer loses a labour and employment dispute, the impact may not be limited to the employee in question. For example, if the employer loses a lawsuit regarding overtime wages, and the wage system applied to its current employees is deemed illegal, then any employees other than those who filed the initial lawsuit may file their own suits claiming unpaid wages. However, there are, of course, disputes that the employer wins. However, the only thing that the employer gains in such disputes is mere confirmation of the status quo. There is no economic incentive to be gained from a court decision made in the employer's favour; and
  3. as a result of these unfavourable regulations for employers in Japan, considering the advantages and disadvantages of wining any labour and employment disputes, such disputes are often resolved by settlement involving the concession of the employer.

Procedures

i Procedures for resolution of employment disputes2

Civil litigation

The main method of resolving any dispute in Japan is litigation, which also applies to labour and employment disputes.

Employees or their employers may file lawsuits by filing a complaint with the court of jurisdiction over the dispute, and then the litigation proceedings start when the complaint is served onto the defendant. After receiving the service of complaint together with a writ of summons for the first hearing, the defendant generally submits a written answer to clarify its admission or denial of the facts in the complaint. At the first hearing, the plaintiff and defendant make their allegations in accordance with the documents that have been submitted in advance, after which both parties usually submit written briefs and documentary evidence in turn. Once the court finds that both parties have adequately submitted their arguments and the issues have been adequately sorted out, the examination of witnesses and of the parties themselves normally follows. If the examination reveals any new, previously unknown facts, then the parties will sometimes submit their final briefs. During civil litigation proceedings, the court may encourage the parties to settle at any time. Settlements may be reached out of court as well.

According to the statistics released by the Supreme Court Secretariat,3 as at 2018, any given employment dispute takes an average of 14.5 months for civil litigation proceedings in the first instance. Further, according to the statistical analysis released by the Ministry of Health, Labour and Welfare, as at 2016 (the Analysis),4 employers pay an average of approximately 10 months' wages in settlement.

Labour tribunal proceedings

To promptly, properly and effectively resolve any disputes arising between individual employees and employers over the existence of labour contracts or any other labour-related matters, the Labour Tribunal Act was enacted and subsequently took effect on 1 April 2006. In principle, that is why labour tribunal proceedings must be concluded by the end of the third proceedings. The court conducts these proceedings through a labour tribunal composed of one tribunal judge and two tribunal members, the latter of whom are appointed from among persons who have expert knowledge and experience in labour relations, such as members of unions or business associations.

If the dispute is likely to be resolved through conciliation within the three proceeding dates, then the tribunal will attempt conciliation, but if it is not resolved, then a labour tribunal decision will be rendered based on the parties' rights and interests found as a result of the labour tribunal proceedings, and in light of other developments therein. Any party may file a challenge with the court against a labour tribunal decision within an unextendible period of two weeks from the day on which the party was served with the written decision, or the decision was rendered during the proceedings.5 If a lawful challenge is filed against the labour tribunal decision, the decision itself ceases to be valid and it is deemed that an action has been filed with the court at the same time that the petition for labour tribunal proceedings was filed. If no lawful challenge is filed, the labour tribunal decision has the same effect as a judicial settlement.

According to the Analysis, employers pay an average of (1) approximately two months' wages in settlement for regular employees whose dismissals are validated by the labour tribunal members; or (2) approximately nine months' wages and an additional amount proportional to years of service (roughly multiplying the number of years by 0.84, equalling that many more months in wages) in settlement for regular employees whose dismissals are invalidated by the labour tribunal members. For non-regular employees, the employer pays approximately three months' wages and an additional amount proportional to years of service (roughly multiplying the number of years by 0.2, equalling that many more months in wages).

Civil provisional remedies

The purpose of civil provisional remedies is to temporarily determine the tentative status of the parties (for example, in the case of employment termination disputes, the legal status of the employee to receive salary and bonus) regarding the rights under dispute in civil litigation in order to preserve the fulfilment of certain rights. The court will order a provisional remedy if there exist (1) any rights that must be preserved; and (2) the necessity of preserving those rights. The level of proof for provisional remedies is prima facie.

Despite the merits of these proceedings, the number of civil provisional remedies for labour-related disputes has decreased with the establishment of labour tribunal proceedings that can achieve prompt, proper and effective resolution of employment disputes.

Proceedings by prefectural labour bureaux

When it comes to settling employment disputes, the prefectural labour bureaux may play an important role. If a prefectural labour bureau's assistance is requested by an employer, an individual employee or both to resolve a dispute, the bureau may provide advice to the parties as necessary to resolve it. However, the parties are not obliged to accept the bureau's advice or guidance.

Moreover, if one or both parties file an application for mediation with respect to an individual labour-related dispute, then the prefectural labour bureau may have the Dispute Coordinating Committee conduct mediation if it finds it necessary to resolve the dispute. Mediation by committee shall be conducted by three mediation members, who may prepare a mediation plan to resolve the dispute and present it to the disputing parties.

However, these mediation proceedings do not work effectively from the perspective of dispute resolution since (1) the mediation is usually conducted within one hearing session and the parties do not have sufficient opportunity to prove their claims, and (2) the parties are not obliged to accept the mediation plan in the first place. Nevertheless, employees often file an application for mediation since the prefectural labour bureau is more favourable to them than the courts may be, and it is a handy procedure for employers that allows them to easily resolve small claims on which they do not want to spend much time.

According to the Analysis, many of the disputes that go through the mediation system are resolved without the need for any settlement payments, or, in the case where employers must pay settlement to resolve the dispute, they pay an average of approximately 1.5 months' wages and an additional amount proportional to years of service (roughly multiplying the number of years by 0.08, equalling that many more months in wages).

ii Procedures for resolution of labour disputes

Unfair labour practices

The establishment of labour unions and their activities are guaranteed as basic labour rights by the LUA, and therefore the following examples of employer conduct are prohibited as unfair labour practices under the same law:

  1. discharging, or otherwise treating in a disadvantageous manner, any employees by reason of their being members of a labour union, having tried to join or organise a labour union, or having performed justifiable acts of a labour union; or making it a condition of employment that they shall not join or they shall withdraw from a labour union;
  2. refusing to bargain collectively with employee representatives without justifiable reason;
  3. controlling or interfering with the formation or management of a labour union by employees, or giving financial assistance to the labour union by paying its operational expenditures; or
  4. discharging, or otherwise treating in a disadvantageous manner, any employees for having filed a complaint with the Labour Relations Commission.

iii Procedures for orders to relieve unfair labour practices

Labour disputes may be discussed by the Labour Relations Commission, which consists of (1 the Central Labour Relations Commission established under the jurisdiction of the Minister of Health, Labour and Welfare; and (2) the Prefectural Labour Relations Commissions established under the jurisdiction of the prefectural governors. Each commission is composed of equal numbers of people representing employers, employees and the public interest.

The Labour Relations Commission has the authority to examine unfair labour practices and to reconcile, mediate and arbitrate labour disputes, with the former examinations being its most important role. The proceedings for ordering the relief of unfair labour practices are commenced when the Prefectural Labour Relations Commission receives a motion that an employer has violated the provisions of the LUA and committed an unfair labour practice. After receiving the motion, the employer refutes the claim, and an examination of the evidence follows once the issues of the case have been adequately sorted out. When the case calls for the issuance of an order, the Prefectural Labour Relations Commission conducts fact-finding and, on the basis of those findings, admits the entire or partial relief in respect of the movant's request, or issues an order to dismiss the motion. When receiving an order for relief from the Prefectural Labour Relations Commission, employers may (1) appeal for review to the Central Labour Relations Commission; or (2) file a lawsuit with a court to rescind the order-for-relief. The Labour Relations Commission may recommend settlement to the parties at any time during the examination. The content of the settlement agreement is not necessarily limited to that of the motion of unfair labour practice, and a relatively open-ended settlement is generally offered.

Types of employment disputes

i Disputes concerning termination of employment contracts

Regulations for regular employees

It is extremely difficult for employers to unilaterally terminate or dismiss employees in Japan. They may only be terminated or dismissed on objective, justifiable and reasonable grounds, without which such termination or dismissal is invalid. Japanese courts strictly interpret what defines 'objective, justifiable and reasonable,' which makes it generally difficult to convince them that an employee's performance was so poor as to merit termination or dismissal. Furthermore, for any dismissal to be valid, all possible grounds must be clearly stated in the work rules.

In the case of dismissal owing to business reasons of the employer, the following general requirements have been formulated by Japanese courts in determining the validity thereof:

  1. necessity of labour reduction, such as financial deterioration of the employer;
  2. necessity to select dismissal over other available measures (for example, whether the employer can avoid dismissal by using other means such as soliciting early retirement);
  3. appropriateness of the selection of the employee being dismissed; and
  4. appropriateness of the dismissal procedure (for example, whether the employer provided enough explanation and opportunities for consultation).

If the court or labour tribunal determines that a dismissal is void, the employer must reinstate the employee and pay the employee's wages since the date of dismissal ('back pay') with interest. If the dismissal is determined to be valid, the status quo is merely confirmed. Regardless of the dismissal's validity, if any action by the employer in relation thereto is a tortious act, a claim for damages may be admitted.

Regulations for non-regular employees

Various factors, such as restrictions on dismissals; social norms concerning employment security; and government employment policy on maintaining employment security have made long-term employment the core feature of Japanese employment relations that cannot be modified easily. Owing to such restrictions, many companies utilise fixed-term employment practices. Fixed-term employment, in principle, expires when the contract term ends, and employers have the discretion to refuse to renew the employment agreement. However, in cases where the fixed-term employment agreement has been renewed repeatedly or the employee has a reasonable expectation of renewal, the employer may not refuse to renew the employment agreement in certain situations according to the LCA.

ii Disputes concerning payment of extra wages

The LSA and its Enforcement Ordinance set forth minimum employment terms and conditions regarding extra wages as follows:

  1. if an employer extends work hours beyond the statutory maximum, it must pay higher wages for each overtime hour equal to 125 per cent of the normal wages. If the number of hours extended by the employer exceeds 60 hours in a given month, it must pay higher wages equal to 150 per cent of the normal wages for work during those excess hours;
  2. the employer is also required to pay higher wages equal to 135 per cent of the normal wages per hour worked on holidays;
  3. the employer must also pay an additional 25 per cent of the normal wages per hour worked from 10pm to 5am; and
  4. there are often cases in which the court orders employers to pay extra wages even though they believe that they calculated the hours worked properly and already paid extra wages adequately.

iii Disputes concerning various types of harassment

To address various types of harassment, including sexual, power and maternity harassment, employers are obliged to take appropriate measures and, if they fail to respond accordingly, they may be obliged to pay damages to the harassed employees, whether current or former.

Under the Act on Securing, etc., of Equal Opportunity and Treatment between Men and Women in Employment (EOA), sexual harassment falls into two categories: (1) speech or behaviour of a sexual nature conducted against the will of employees in the workplace that causes disadvantages to them in terms of their employment conditions (consideration-type); or (2) the same conducted to harm the workplace environment (environmental-type). Employers are obliged to establish necessary employment management measures to prevent their employees from conducting these or any other types of harassment. As such, the following obligations were added to the amended law that came into effect on 1 June 2020: (1) prohibition of disadvantageous treatment for consulting with the employer about sexual harassment; and (2) enactment of cooperative measures if any employee sexually harasses an employee of another company

Regarding power harassment, the amended Work-Style Reform Laws came into force on 1 June 2020, under which employers are obliged to take appropriate employment measures to prevent speech and behaviour in hierarchical relationships in the workplace that are beyond the scope and necessity of business activities, thereby harming their employees' workplace environment. Moreover, employers are prohibited from discharging, or otherwise treating in a disadvantageous manner, any employees for consulting with the employer about power harassment.

Also, employers are obliged to take preventive measures against maternity harassment. Prohibition of disadvantageous treatment of employees for consulting with the employer has been added to the obligations that employers must bear under the amended EOA.

Year in review

i Supreme Court rulings concerning equal pay for equal work

Article 20 of the LCA required indefinite-term (regular) and fixed-term (non-regular) employees to be treated in a reasonable manner according to any differences in their duties and responsibilities. In relation to the interpretation of the Article, the Supreme Court issued two decisions on 1 June 2018 in the Hamakyorex6 and Nagasawa-Unyu7 cases. The court ruled that the respective purposes of wages and other allowances should be taken into consideration when determining any differences between indefinite-term and fixed-term employees.

However, the Work-Style Reform Laws were passed and enacted on 29 June 2018 and promulgated on 6 July 2018. As a result of the amended laws, Article 20 of the LCA has since been deleted, and Article 8 of the Part-time and Fixed-term Employment Act is incorporated instead. This prohibits unreasonable differences in employment conditions of indefinite-term and fixed-term employees, providing that such reasonableness shall be determined 'in terms of base salary, bonuses and other allowances, respectively', which is in line with the above-mentioned court rulings.

In October 2020, the Supreme Court issued five decisions in relation to Article 20 of the LCA as summarised in the following table regarding treatment of indefinite-term and fixed-term employees:

Name of caseTreatmentPurpose or nature of treatmentDecision
Osaka Medical and Pharmaceutical University8 Bonuses• Post-payment of remuneration for labour, rewarding continuous service, and incentive to work
• Securing and retaining employees to perform the duties of indefinite-term employees
Not unreasonable
Payment during leave of absence for non-work-related injury or illness• Lifetime security of indefinite-term employeesNot unreasonable
Metro Commerce9 Retirement allowance• Post-payment of remuneration for labour, rewarding continuous serviceNot unreasonable
Japan Post (Saga)10 Summer and winter vacation• Providing opportunities for mental and physical recovery by taking leave from work besides annual paid or sick leave, etc.Unreasonable
Japan Post (Tokyo)11 Allowance for work during year-end and New Year's holidays • Compensation in addition to basic pay for engaging in postal services during the busiest period of the year when many people are on holidayUnreasonable
Sick leave• Ensuring employees' continuous employment by ensuring their livelihood and allowing them to focus on convalescence on the grounds that indefinite-term employees are expected to work for long periodsUnreasonable
Japan Post (Osaka)12 Allowance for work during year-end and New Year's holidays• Compensation in addition to basic pay for engaging in postal services during the busiest period of the year when many people are on holidayUnreasonable
Allowance for work on statutory holidays• Compensation for working during statutory holidays despite the fact that employees are not supposed to work on those daysUnreasonable
Alimony• Ensuring employees' continuous employment by (1) providing livelihood security and welfare benefits; and (2) making it easier for employees with dependents to conduct life planning on the grounds that indefinite-term employees are expected to work for long periodsUnreasonable

In principle, these court rulings held that the respective purposes or natures of these treatments should be taken into consideration when determining their reasonableness, and are consistent not only with the Hamakyorex and Nagasawa-Unyu cases and the Work-Style Reform Laws, but also with the Guidelines for Equal Pay for Equal Work issued by the Ministry of Health, Labour and Welfare (www.mhlw.go.jp/content/11650000/000469932.pdf) for setting out the principles for determining the types of differences in unreasonable treatment of employees.

Employers are required to reconsider the differences in treatment between indefinite-term and fixed-term employees in line with these rulings and legal revisions.

ii Supreme Court rulings concerning payment of extra wages

The Supreme Court held in the Tec-Japan case13 that when it comes to determining whether an employer has paid extra wages adequately, it should first be considered whether the wages corresponding to normal hours worked can be distinguished from the extra wages for overtime or other off-hours work.

The Supreme Court in the Kokusai Motorcars case14 issued a decision on 30 March 2020 in relation to the interpretation of the above requirement. In this case, the employees claimed the invalidity of a stipulation in their employer's wage rules that any extra wages for overtime or late evening work are to be deducted when calculating percentage wage, and that their employer bore an obligation to pay those deducted wages. The Court stated that such a stipulation practically requires the employer to pay the portion of wages originally required to be paid as percentage wage in the form of extra wages for overtime and late evening work, and therefore the extra wages include a large portion of wages that should be paid as percentage wage, and the portion of the base salary equivalent to the extra wages cannot be clearly distinguished from the remaining portion. Therefore, the Supreme Court ultimately decided to reverse and remand the high court's decision.

In light of the Supreme Court's decision, one must take into consideration not the type but the nature of the payment when it comes to determining whether an employer has paid extra wages adequately.

Outlook and conclusions

In order to prevent the spread of the coronavirus, the prime minister issued an emergency declaration to seven prefectures on 7 April 2020, which was extended to all prefectures on 16 April 2020. Though the government decided to gradually lift the declaration through a series of steps on 25 May 2020, the covid-19 pandemic continues to have a major impact on many aspects of many businesses, causing economically distressed employers to dismiss their employees on the grounds of reduction of the scale of their businesses. Therefore, the number of disputes concerning termination of employment contracts will skyrocket.

During the pandemic, it has been difficult for employees to go to their workplaces and thus the government has strongly recommended telecommuting.15 The permitting of telecommuting will not only help ensure an appropriate work-life balance, but will also facilitate productivity gains through digital transformation. In addition, telecommuting has reduced or eliminated commuting time and increased private time, which has led to an increase in the number of workers starting side jobs, allowing them to design their careers more flexibly and independently, and is expected to increase the mobility of employment. Owing to these factors, the rigidity of employment in Japan, which has been a problem for many years, is expected to gradually dissipate.

Footnotes

1 Taichi Arai is a partner and Takashi Harada is an associate at Mori Hamada & Matsumoto.

2 For further information, refer to 'Outline of Civil Procedure in Japan', published on the Supreme Court's website (www.courts.go.jp/english/vc-files/courts-en/file/Outline_of_Civil_Procedure_in_JAPAN_2020.pdf).

5 If the labour tribunal finds it appropriate, it may render a labour tribunal decision by making an oral announcement of the main text of the decision and a summary of the reasons therefor at the next labour tribunal proceedings at which all parties appear.

6 Supreme Court, Second Petty Bench, decision of 1 June 2018, Rodo Hanrei, vol. 1179, p. 20.

7 Supreme Court, Second Petty Bench, decision of 1 June 2018, Rodo Hanrei, vol. 1179, p. 34.

8 Supreme Court, Third Petty Bench, decision of 13 October 2020.

9 Supreme Court, Third Petty Bench, decision of 13 October 2020.

10 Supreme Court, Third Petty Bench, decision of 15 October 2020.

11 Supreme Court, Third Petty Bench, decision of 15 October 2020.

12 Supreme Court, Third Petty Bench, decision of 15 October 2020.

13 Supreme Court, First Petty Bench, decision of 8 March 2012, Rodo Hanrei, vol. 1060, p. 5.

14 Supreme Court, First Petty Bench, decision of 30 March 2020, Rodo Hanrei, vol. 1220, p. 5.

15 According to the 'Guidelines for the appropriate introduction and implementation of off-site work using communications technology', released by the Ministry of Health, Labour and Welfare (www.mhlw.go.jp/content/000545678.pdf), telecommuting refers to 'off-site work carried out by workers using information and communications technology'.

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