Amendments to the "Ordinance for Enforcement of the Act on
the Succession to Labor Contracts upon a Company Split"
("Succession Act Ordinance") and the "Guideline for
Appropriate Implementation of Measures to be Taken by a Split
Company or Succeeding Company Related to the Succession to Labor
Contracts or Collective Agreements Executed by a Split
Company" ("Succession Act Guideline") came into
effect as of September 1, 2016.
Under the Japanese laws, labor contracts are automatically
transferred upon a company split (Kaisha-Bunkatsu) without
requiring the individual consent of the employees, pursuant to a
company split agreement. However, employees who do not engage in
the primary activities of the successor business
("Non-Essential Employees") may choose not to have their
labor contracts transferred pursuant to the company split.
The Act on the Succession to Labor Contracts upon a Company
Split ("Succession Act"), Succession Act Ordinance, and
Succession Act Guideline all contain procedures designed to
increase employee awareness of the effect of employment transfers.
They encourage communication between employers and employees by
imposing obligations on companies to consult with their employees
and ensure they are well informed before embarking on the company
split process. Specifically, companies must: (i) consult with the
union or other representative that represents the majority of
employees and inform them about the reasons for the company split
(and any other relevant matters); (ii) conduct individual
consultations with relevant employees regarding the succeeding
company and the impact of the company split; and (iii) issue
notices to the employees who will be transferred, outlining any
changes to their employment conditions as a result of the company
Under the previous Succession Act Guideline, companies were not
required to conduct individual consultations with Non-Essential
Employees under the step in (ii) above but were required to issue a
notice under the step in (iii). The amended Succession Act
Guideline includes Non-Essential Employees among the employees with
whom companies are required to individually consult, and as a
result, Non-Essential Employees will be given greater notice of the
intended transfer and more time to determine whether or not to
consent to it.
In addition, the "Guideline for Matters to be Noted by
Company Carrying Out Business Transfers or Mergers"
("Business Transfer Guideline") also came into effect as
of September 1, 2016. Under Japanese law, an employee's
individual consent is required to transfer a labor contract upon a
business transfer (Jigyo-Joto). However, since there were
previously no rules governing how employee consent should be
obtained, employees often consented without being fully informed
about the business transfer. The Business Transfer Guideline now
provides a number of requirements with which companies must comply
in obtaining employee consent to a transfer of their contract.
These procedures are similar to those stated above in respect of
company splits and are similarly designed to increase employee
awareness regarding business transfers. For example, the Business
Transfer Guideline requires that the assignor company fully explain
the business transfer to employees whose employment will be
transferred and to consult with them so as to gain their informed
These ordinances and guidelines have not made any fundamental
changes to the laws governing succession to labor contracts upon a
company split, but they do impose stricter procedural requirements
on companies. Companies should be careful to ensure they comply
with these ordinances and guidelines in order to avoid any doubt as
to the validity of employment transfers.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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