On June 1, 2018, in the Hamakyorex (please see the September 2016 issue) and Nagasawa-Unyu decisions (please see the November 2016 issue), the Supreme Court (Second Petty Bench) interpreted Article 20 of the Labor Contract Act prohibiting unreasonable differences in the working conditions of fixed-term employees (non-regular employees) and indefinite-term employees (regular employees). These are the first Supreme Court decisions interpreting Article 20, which is of great interest considering the government's promotion of work style reform (please see the May 2018 issue).

In the Hamakyorex decision, the Court held that unreasonable differences in the working conditions of fixed-term employees and indefinite-term employees violate Article 20 when these differences arise because of the fixed or indefinite nature of the employment. It also found that the differing working conditions of fixed-term employees that violate Article 20 are invalid. Further, the Court upheld the lower court in its finding that the employer was liable where there were unreasonable differences in the payment/nonpayment and in the amounts of four types of allowances, including commuting allowances.

In addition, the Court found the nonpayment to non-regular employees of perfect-attendance allowances, which were paid to regular employees, to be unreasonable, since the need to ensure the attendance of employees does not differ based on the employees' duties. In contrast, the Court found that it was not unreasonable to pay housing allowances only to regular employees because regular employees are subject to transfers requiring relocations that increase housing costs.

The Nagasawa-Unyu decision involved differences in the working conditions between those of contract drivers rehired as fixed-term employees after reaching retirement age and those of regular employees, with both groups having the same duties. The Court held that the fact that the fixed-term employees were rehired after reaching retirement age could be taken into consideration in deciding the reasonableness of the differences in working conditions. Further, the Court found to be unreasonable differences in perfect-attendance allowances and overtime allowances (calculated based on such perfect-attendance allowances). In contrast, the Court held that the nonpayment of performance-based pay and duty allowances to the contract drivers was not unreasonable, on the grounds that the base salaries of the contract drivers were higher when the drivers were rehired than when they were at retirement age.

These decisions will serve as important guidelines for businesses that are considering the working conditions of their fixed-term employees.

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