Labour and Employment Comparative Guide

1 Legal framework

1.1 Are there statutory sources of labour and employment law?

The main laws governing employment relationships in Japan are the Labour Standards Act and the Employment Contract Act. Other relevant laws include:

• the Civil Code;
• the Act on Securing Equal Opportunity and Treatment between Men and Women in Employment;
• the Act on the Comprehensive Promotion of Labour Measures and Stabilisation of Employment of Workers and Enrichment of their Work Lives, Etc;
• the Act Concerning the Stability of Employment of the Elderly;
• the Act on the Improvement of Employment Management for Part-Time Workers and Fixed-Term Contract Workers;
• the Act on the Arrangement of Related Acts to Promote Work Style Reform amending the Labour Standards Act;
• the Act Concerning the Proper Operation of Worker Dispatch Undertakings and Improved Working Conditions for Dispatched Workers;
• the Act on Special Measures to Improve Work Hours Arrangements;
• the Act on the Improvement of Employment Management for Part-Time Workers and Fixed-Term Contract Workers;
• the Act on Childcare Leave, Caregiver Leave, and Other Measures for the Welfare of Workers Caring for Children or Other Family Members;
• the Industrial Safety and Health Act;
• the Labour Tribunal Dispute Resolution Act;
• the Labour Union Act;
• the Labour Relations Adjustment Act;
• the Employment Security Act;
• the Minimum Wage Act;
• the Act on Promoting the Resolution of Individual Labour-Related Disputes;
• the Act on the Succession to Labour Contracts upon a Corporate Split;
• the Act to Facilitate the Employment of Persons with Disabilities;
• the Act for Eliminating Discrimination against Persons with Disabilities;
• the Act on the Promotion of Citizens' Understanding of Diversity of Sexual Orientation and Gender Identity;
• the Act on Improvement of Transactions between Freelancers and Undertakings; and
• the laws governing labour insurance and social insurance

1.2 Is there a contractual system that operates in parallel, or in addition to, the statutory sources?

Statutory sources of labour law supplement contractual terms and conditions of employment, including work rules. Generally speaking, employers and employees are free to negotiate terms and conditions of employment. However, contractual terms must comply with statutory standards and obligations, which are implied by law as a matter of public policy. Contracting parties cannot contract out of, or under, these statutory standards or work rules adopted by the employer (see question 1.3), except for the benefit of employees.

1.3 Are employment contracts commonly used at all levels? If so, what types of contracts are used and how are they created? Must they be in writing must they include specific information? Are implied clauses allowed?

Employment contracts may be made orally or in writing. A written contract or an employment letter is advisable (or required in the case of a fixed-term relationship). Contracts can be minimal if supported by work rules. By law, employees must be provided with key employment terms and conditions (eg, relating to salary, place of work and working hours) in writing when they are hired. Following amendments to the Labour Standards Ordinance, the list of matters concerning terms and conditions of employment to be notified by employers to employees when concluding and renewing an employment contract was expanded with effect from 1 April 2024. Among other things, where a fixed-term employment contract with the same employer has been renewed for a total of more than five years, the contract can be converted into an indefinite-term employment contract upon the employee's request (the conversion rule). Upon the renewal of a contract that gives rise to the right to request conversion, employers must clarify the following points to fixed-term employees concerning the conversion rule:

• their eligibility to request the conversion; and
• the terms and conditions of employment which will apply following the conversion.

The conversion rule does not apply to contracts made after retirement age under the Act concerning the Stability of Employment of the Elderly.

The terms and conditions of employment can be set out in a written contract to the extent that they are not already contained in the work rules remitted to the employee. Work rules are specific rules for the workplace setting out working conditions, including in relation to wages, working hours, holidays and other matters, including disciplinary procedures. Employers with 10 or more employees at a given workplace must adopt work rules and file them with the local Labour Standards Inspection Office. Employers with fewer employees can create work rules on a voluntary basis.

In general, contracts cannot remove statutory employee protections. Case law protects employees – in particular, with regard to dismissals. Implied terms are found in the relevant laws and regulations. In addition, where they exist, work rules are considered to be incorporated (expressly or impliedly) in the employment contracts. Contract provisions (except for better terms) are considered invalid if they do not align with the work rules. Further, contracts cannot lower the standards outlined in the work rules. Terms that are favourable to employees in the work rules or the law will override less favourable terms in the employment contract. In addition, collective agreements between an employer and a labour union may be incorporated (expressly or impliedly) in the employment terms.

Regular employees are hired under an indefinite contract, while fixed-term contracts are used for non-regular employees and temporary workers (although they can be used for long-term employees, subject to certain judicial and statutory safeguards). Part-time workers can have fixed-term or indefinite contracts and their working hours are shorter than those of regular full-time employees. Part-time workers who are categorised as 'arubaito' can be hired by the day or the hour.

2 Employment rights and representations

2.1 What, if any, are the rights to parental leave, at either a national or local level?

Female employees are entitled to six weeks' unpaid maternity leave before giving birth (14 weeks for multiple pregnancies). In principle, employers cannot require a female employee to work for eight weeks after delivery.

Employees are entitled to unpaid leave until their child's first birthday (or until the child's second birthday if certain conditions are met), but employees taking such leave can be paid 67% of their salary through labour insurance, subject to certain conditions. An employee with a pre-school-aged child or family member who is sick or injured and in need of full-time nursing is entitled to up to five days of unpaid leave (10 days for two or more children or family members). An employee may work reduced hours to care for his or her child under three years old. Employers may introduce limitations on eligibility under a labour management agreement.

An employee with a family member in need of full-time nursing is entitled to up to 93 days of unpaid leave to provide care. Employers may also introduce limitations on eligibility in a labour management agreement. Employees taking family care leave can be paid 67% of their salary through labour insurance subject to certain conditions.

Revisions to the Act on Childcare Leave, Caregiver Leave and Other Measures for the Welfare of Workers Caring for Children or Other Family Members aim to promote participation by men in child rearing and support the continued employment of women by giving fathers more flexibility when taking paternity leave soon after childbirth. Under the scheme, which was launched in 2022, fathers can:

• take a total of four weeks off within eight weeks of a child's birth; and
• give shorter notice of their intention to go on leave.

Up to 67% of their pre-leave salary is guaranteed through the payment of employment insurance benefits. In addition, since 2022, employers must:

• take measures to facilitate childcare leave (eg, by offering training or through a help desk); and
• disseminate the childcare rules and take measures to confirm employees' intentions when they inform the employer of a pregnancy, childbirth or similar.

Since April 2023, employers with more than 1,000 employees must disclose certain data on how their employees take childcare leave. From April 2025, this obligation will extend to employers with more than 300 employees. Further revisions to the Act on Childcare Leave, Caregiver Leave and Other Measures for the Welfare of Workers Caring for Children or Other Family Members will come into force in April 2025 (save exceptions), including a requirement to provide flexible working hours to employees raising children aged three years or older before elementary school entry by adopting and implementing at least two of the following measures:

• a change in start time;
• teleworking;
• shorter working hours;
• extra paid leave; or
• the establishment and operation of childcare facilities in the workplace.

These employees will also be eligible to an exemption from overtime work (which already applies to those with children below the age of three). Changes will also affect nursing care leave.

2.2 How long does it last and what benefits are given during this time?

Please see question 2.1.

2.3 Are trade unions recognised and what rights do they have?

Although labour unions are still relatively strong in certain industries, their importance has declined in the last 30 years. Relationships between unions and employers are often peaceful and cooperative. In general, unions are sensitive to employers' economic circumstances.

Enterprise-based bargaining is more common than industry-based bargaining. A labour union has the authority to enter into enterprise agreements with the employer and to conduct other collective negotiations on behalf of member workers. The employer is obliged to hold collective bargaining sessions. Collective agreements between employers and labour unions regulate matters such as:

• working conditions;
• salary and benefits;
• working hours;
• holidays;
• health and safety;
• dispute resolution procedures;
• redundancies or secondments; and
• the re-employment of elderly employees.

Collective agreements may also regulate the relationship between employers and unions – for example, they may require labour management consultation or prior consent before certain decisions are made (eg, redundancies, closures or business transfers). Labour management agreements are designed to:

• exempt employers from criminal penalties under the Labour Standards Act (eg, the obligation to make and file a so-called 'Article 36' agreement to have the right to request overtime from employees); or
• deal with the special treatment of employees (eg, restrictions on care leave eligibility).

The breakdown of negotiations may sometimes result in labour dispute actions being taken. Provided that the action taken is not beyond the pale and within the justified acts of a labour union, it will not give rise to civil or criminal sanctions. Engaging in so-called 'concerted activities' is a right guaranteed under the Constitution and the Labour Union Act. Generally speaking, the following are deemed to constitute fair labour dispute actions:

• strikes;
• walkouts;
• slowdowns (occupation of the workplace); and
• picketing without the use of physical force.

By contrast, the following are considered beyond the scope of fair labour dispute actions:

• physical violence;
• sabotage or destruction intended to damage facilities or machinery or wilfully cause product defects; and
• invasion of the privacy of members of management (eg, distributing leaflets or using loudspeakers outside the premises or the residence of management members to damage their reputation).

2.4 How are data protection rules applied in the workforce and how does this affect employees' privacy rights?

The Personal Information Protection Act (PIPA) regulates, among other things, the collection, storage and use of personal information, including employee-related information. The Ministry of Health, Labour and Welfare has issued guidelines on handling employees' personal data. Infringements of the guidelines can lead to:

• fines;
• compensation claims from aggrieved employees; or
• regulatory action.

Sectoral guidelines have been issued.

The monitoring of employee email, internet and telephone usage and closed-circuit television recording are permissible, provided that they are carried out in accordance with PIPA and its guidelines. The Personal Information Protection Commission's guidelines on PIPA state that employers should:

• specify the purpose of the monitoring and cover such monitoring in internal rules such as the work rules;
• appoint a person responsible for the monitoring; and
• enforce these rules.

No express statutory rules address the protection of social media passwords or employer monitoring of social media accounts.

Under PIPA, an entity handling personal information which has an employee who handles personal information must exercise proper supervision of that employee to ensure data security. PIPA requires employers to disclose the personal data they keep on an employee at the employee's request, unless the data falls within one of the exceptions to disclosure (eg, where disclosure may seriously impede the proper execution of the business).

Cross-border transfers of personal information and third-party transfers are restricted under PIPA.

2.5 Are contingent worker arrangements specifically regulated?

Independent contractor relationships are not covered by labour law. Depending on the circumstances, an independent contractor may apply to have a contractual relationship requalified as employment in order to get the benefit of employment law protection based on the true nature of the relationship. If the court determines that the individual is in fact an employee, that employee will be afforded employment law protection and benefits. In principle, a representative director of a joint stock company may not be an employee of the company that he or she is heading. As such, a contract for services or an entrustment agreement is generally advisable, to clarify the representative director's rights and obligations. Directors are regulated by the Companies Act.

Due to the rapid growth of the gig economy, the number of freelancers in Japan has increased dramatically. In addition to the Act on Prohibition of Private Monopolisation and Maintenance of Fair Trade and the Act against Delay in Payment of Subcontract Proceeds, etc to Subcontractors, freelancers are now protected under the Act on Improvement of Transactions between Freelancers and Undertakings, which came into force on 1 November 2024. This act applies to any 'business consignment' by a consignor to a freelancer (ie, an individual without employees or a company with no officer other than a legal representative and no employees). Related rules, ordinances and guidelines have been published by the Japan Fair Trade Commission and the Ministry of Health, Labour and Welfare. A 'business consignment' is defined as one entrepreneur's agreement to entrust another entrepreneur with the manufacture of goods, the creation of information-based products or the supply of services as a part of its business. The act:

• imposes obligations to clearly state certain terms in writing or by electromagnetic means (terms and conditions, including payment date and remuneration); and
• prohibits certain acts and terms that cannot be imposed on freelancers.

The scope of obligations depends on the consignor (no employees, more than one employee or more than one employee and the consignment period exceeding one month). Payment must be made within 60 days of the date on which the consignor receives the work or service. Some of the obligations mirror some of those that benefit employees – for example, the consignor must:

• consider circumstances such as pregnancy, childbirth, childcare or family care where the consignment period exceeds six months, if requested;
• give 30 days' notice of termination or non-renewal of a contract; and
• organise protection against harassment.

The Workers Dispatch Act has become increasingly restrictive over the years. If a temporary agency staff contract with a temporary staffing agency is in breach of the law (eg, if the temporary agency is not licensed, an employee has been dispatched beyond the maximum statutory term or there is a disguised outsourcing arrangement), the employee will be deemed to be directly employed by the host company as a regular employee.

3 Employment benefits

3.1 Is there a national minimum wage that must be adhered to?

The Minimum Wage Act provides for a minimum wage. Wages differ per region and industry and the minimum hourly wage in Tokyo is JPY1,163 (as of October 2024).

3.2 Is there an entitlement to payment for overtime?

The statutory working week is 40 hours per week or eight hours per day, excluding breaks. There are a number of business-related exceptions, under which 44-hour working weeks are acceptable. Employers must file a labour management agreement (an Article 36 agreement) with the Labour Standards Inspection Office if they wish employees to work over the statutory working hours or on statutory days off. Employees working over the statutory working hours on statutory days off or late-night hours (between 10:00 pm and 5:00 am) must receive overtime pay. The following enhanced rates apply for overtime work and for hours worked on statutory holidays:

• Overtime exceeding the statutory working hours: An additional 25% of the normal rate of pay.
• Overtime exceeding the statutory working hours which also exceeds 60 hours in one month: An additional 50% of the normal rate of pay.
• Work on statutory days off: An additional 35% of the normal rate of pay.
• Late-night work (between 10:00 pm and 5:00 am) conducted within the statutory working hours: An additional 25% of the normal rate of pay.
• Late-night work conducted in excess of the statutory working hours: An additional 50% of the normal rate of pay.

Overtime is capped at 45 hours a month and 360 hours a year. If there is a temporary surge, the annual limit can be increased to 720 hours, subject to:

• a monthly maximum of 80 hours (averaged over a period of two, three, four, five and six consecutive months); and
• an absolute maximum of 100 hours a month.

Specific businesses are exempted, including those involved in the research and development of new technologies. Criminal penalties may apply in case of breach.

The Labour Standards Act provisions on working hours, rest days and days off do not apply to employees in managerial positions (Article 41, item 2). However, the term 'manager' is very narrowly interpreted in this context and even if an employer treats an employee as a manager for organisational purposes, the courts may decide otherwise and order the employer to pay extra wages to that employee regardless of title.

Special rules apply to willing high-level professionals (the so-called 'white-collar exemption'). These employees can be exempted from overtime allowance, holiday work and late-night work compensation requirements by agreement, subject to certain formalities, including:

• a labour management committee resolution;
• filing with the authorities; and
• individual consent.

To qualify, employees must:

• earn at least JPY10.75 million per annum; and
• be engaged in clearly defined work requiring specific skills; and
• take not less than 104 days off a year.

They are also subject to other measures to secure their wellbeing and good health, including health checks for those working in excess of certain working hours.

The working hours averaging system is another collective scheme – subject to a labour management agreement or work rules – under which the employer can ask employees to work more than eight hours a day or 40 hours a week without overtime pay, provided that the average number of prescribed hours does not exceed the weekly legal standards within a given period. Individual schemes include:

• discretionary working hours;
• deemed working hours; and
• similar systems.

The discretionary work system is one of the flexible work arrangements regulated by the Labour Standards Act. Working hours are calculated based on the hours determined by a labour management agreement or by resolution of a labour management committee, rather than actual working time, when the nature of work requires employees to exercise considerable discretion in how to perform their tasks. There are two systems:

• One system applies to professional work – that is, specialised duties as defined under the Labour Standards Ordinance and by government notification; and
• The other applies to planning work – that is, planning, drafting, researching and analysing matters relating to business operations for which the nature of the work is such that, in order for it to be carried out properly, the methods through which it is carried out must be left largely to the discretion of the employees.

Employers must track the working hours of all employees by using methods prescribed by:

• ministerial ordinance; and
• the 2017 Guidelines for Measures to be Taken by Employers to Properly Monitor Working Hours.

3.3 Is there an entitlement to annual leave? If so, what is the minimum that employees are entitled to receive?

Employees who have been employed continuously for six months and have worked at least 80% of all working days are entitled to 10 days of annual leave. The entitlement increases over time in proportion to length of service – for example:

• after one-and-a-half years of service, employees are entitled to 11 days; and
• after two-and-a-half years, employees are entitled to 12 days.

After serving more than six-and-a-half years, the entitlement is 20 days.

Employers can be more generous. Also, most Japanese companies grant additional paid leave:

• for weddings;
• for the death of close relatives; and
• when a spouse has given birth to a child.

However, they do not often grant sick leave.

Japan has designated 16 national holidays. Although this is common practice, employers do not necessarily have to give a day off to employees on a national holiday.

3.4 Is there a requirement to provide sick leave? If so, what is the minimum that employees are entitled to receive?

Employees are generally covered by workers' accident insurance in case of injury, illness, disability or death resulting from an employment-related cause or commuting. In the case of work-related accidents, insurance benefits include, among other things:

• medical compensation benefits;
• temporary disability compensation benefits (60% of the average wage paid after three days of absence from work);
• permanent disability compensation;
• injury and illness compensation; and
• pension.

In principle, employees who are absent from work due to non-work-related sickness or injury are not entitled to pay from their employer. Under national health insurance coverage, employees are entitled to two-thirds of the applicable standard wage (calculated according to a specific formula) as illness/injury allowance after three days of absence up to a period of 18 months. If the employer offers any wage during this period, the allowance is reduced accordingly.

3.5 Is there a statutory retirement age? If so, what is it?

Under the current system, employers must provide any of the following options to employees who reach the retirement age of 60 and wish to continue working:

• Abolish the age limit;
• Extend the employee's retirement age to 65; or
• Introduce some form of post-retirement employment (typically one-year fixed-term contracts, which are renewable).

The Act Concerning the Stability of Employment of the Elderly requires employers whose employees have reached the age of 65 to make efforts to apply certain measures to continue to employ these employees until they turn 70. These measures include:

• raising the mandatory retirement age to 70;
• abolishing the employer's mandatory retirement age;
• introducing a continuous employment system that allows those reaching mandatory retirement age to continue to be re-employed until they turn 70; and
• adopting alternative measures agreed under a labour management agreement to allow elderly employees to engage in social contribution activities, whether in-house or outsourced.

4 Discrimination and harassment

4.1 What actions are classified as unlawfully discriminatory?

The Act on Securing Equal Opportunity and Treatment between Men and Women in Employment prohibits discrimination based on gender in relation to:

• recruitment;
• treatment during employment (eg, in relation to assignments, promotions, demotions, dismissal, training, housing loans and fringe benefits); and
• termination.

Under the Labour Standards Act, men and women must receive equal pay. The Act on the Comprehensive Promotion of Labour Measures and Stabilisation of Employment of Employees and Enrichment of their Work Lives, Etc prohibits discrimination based on age in connection with recruitment, except in certain circumstances. The Act Concerning the Stability of Employment of the Elderly addresses the employment of senior citizens until the statutory retirement age of 65. The Worker Dispatch Act protects dispatched workers from discrimination based on several factors. The Labour Standards Act prohibits discrimination based on nationality or ethnic or national origin during employment and for termination. The Act on the Elimination of Discrimination against Persons with Disabilities prohibits discrimination against people with disabilities. The Labour Standards Act prohibits discrimination based on social status, religion or political beliefs during employment and in relation to termination. Discrimination against an employee on the grounds of membership in a trade union is unlawful.

Fixed-term contract employees/part-time employees should be treated no less favourably in respect of their terms and conditions of employment than comparable permanent/full-time regular employees.

The Act on the Improvement of Employment Management for Part-Time Workers and Fixed-Term Contract Workers, the Employment Contract Act and the Workers Dispatch Act were amended to address the issue of irrational disparities and discrimination between regular and non-regular employees, including dispatched workers.

4.2 Are there specified groups or classifications entitled to protection?

Please see question 4.1. Certain historical minorities and pariah communities are also entitled to certain protection.

4.3 What protections are employed against discrimination in the workforce?

The Act on the Comprehensive Promotion of Labour Measures and Stabilisation of Employment of Employees and Enrichment of their Work Lives, etc prohibits discrimination based on age in connection with recruitment, except in certain circumstances. The Act Concerning the Stability of Employment of the Elderly addresses the employment of senior citizens.

The Labour Standards Act and the Constitution prohibit discrimination based on nationality or ethnic or national origin during employment and in relation to termination of employment.

Disabled individuals should represent a certain percentage of an employer's workforce (hire or pay). The Act on Eliminating Discrimination against Persons with Disabilities prohibits administrative bodies and private businesses from unduly discriminating against people with disabilities. The latest amendments, applicable as from 1 April 2024, require certain public entities and government agencies and companies to provide 'reasonable accommodation' to people with disabilities – not only employees, but anyone involved in the business activities of the employer, including customers and business partners – in order to eliminate social barriers. The obligation, which is conditional on several factors, applies as long as the duties imposed on the employer are not disproportionately onerous, in accordance with the sex, age and disability of the person concerned, such that the latter's rights and interests are not violated.

The Act on Securing Equal Opportunity and Treatment between Men and Women in Employment and the Constitution prohibit discrimination based on gender in relation to:

• recruitment and treatment (eg, in relation to assignments, promotions, training, housing loans and fringe benefits); and
• termination.

Men and women must receive equal pay.

The Labour Standards Act and the Constitution prohibit discrimination based on social status, religion or political belief during employment and in relation to termination.

No law expressly prohibits discrimination based on sexual orientation or medical condition. The Act on the Promotion of Citizens' Understanding of Diversity of Sexual Orientation and Gender Identity only promotes citizens' understanding of the diversity of sexual orientation and gender identity without an express prohibition sanctioned by penalties.

Discrimination on the ground of trade union membership is unlawful. The Worker Dispatch Act prohibits a recipient of dispatch services from cancelling a worker's dispatch contract on the basis of, among other things, the worker's:

• nationality;
• creed;
• gender;
• social status; or
• involvement in legitimate labour union activities.

Fixed-term contract employees/part-time employees must be treated no less favourably in respect of their terms and conditions of employment than comparable permanent/full-time employees.

Employers must take measures to prevent sexual and power harassment, harassment or bullying on account of:

• pregnancy;
• delivery; or
• taking childcare leave or family care leave.

4.4 How is a discrimination claim processed?

Employers must provide a safe and proper working environment (Employment Contract Act and Labour Safety and Health Act). Sexual harassment and power harassment claims can have severe consequences for employers. Claims can be made based on:

• tort;
• breaches of the Equal Opportunity Act;
• breaches of the employment contract; and
• breaches of the Workmen's Accident Compensation Act (which can include criminal penalties as well as civil claims).

Most cases are dealt with internally without legal action. With regard to sexual harassment, the Equal Opportunity Act provides that employees should be able to have careers while raising children. Employers must ensure that:

• appropriate measures are in place to deal with sexual harassment allegations in the workplace;
• employees suffer no disadvantage at work as a result of making allegations of sexual harassment; and
• no harm comes to employees as a result of sexual harassment in the workplace.

The Act on the Comprehensive Promotion of Labour Measures and the Stabilisation of the Employment of Employees and the Enrichment of Their Working Lives, etc is intended to tackle workplace harassment and prevent bullying/power harassment in particular. The law defines 'power harassment' as "remarks or behaviour by people taking advantage of their superior position that go beyond business necessity, thereby harming the workplace environment".

Employers must:

• take HR management action and preventive measures to combat power harassment, including setting up structures necessary to offer internal consultation services and respond to claims; and
• provide training to develop employees' awareness and understanding and ensure that the relevant employees pay attention to their verbal and physical behaviour.

Employers are prohibited from:

• dismissing employees reporting harassment cases (or cooperating in an investigation or consultation process); or
• treating them unfavourably.

The director general of a prefectural labour bureau can give advice, instructions or recommendations to assist with dispute resolution; employers that fail to comply with a recommendation or a related administrative notice can be publicly named and shamed. Guidelines issued by the Ministry of Health, Labour and Welfare elaborate on the measures to be taken.

4.5 What remedies are available?

Different remedies are available, depending on the circumstances. Remedies may include a court judgment ordering:

• payment of damages to compensate for breach of contract and mental distress;
• payment of damages for specific financial loss attributable to the discrimination (ie, lost wages and expenses incurred, including medical expenses);
• that the employer cease and desist from the discriminatory practice;
• reinstatement of the complainant employee, if he or she has been wrongly dismissed; and
• the introduction of measures to ensure a safe and proper working environment.

4.6 What protections and remedies are available against harassment, bullying and retaliation/victimisation?

See questions 4.4 and 4.5.

The Whistleblower Protection Act protects those who expose corporate or government misconduct from unfair treatment and retribution (eg, dismissal, demotions or salary cuts). Under the act, a 'public interest disclosure' involves the disclosure of relevant disclosure information by a worker to his or her employer, a government agency, an official with relevant jurisdiction or any other person in order to prevent a matter from occurring or worsening. Disclosures cannot be made for illegitimate purposes. 'Relevant disclosure information' means information regarding criminal conduct or statutory violations relating to the protection of:

• consumer interests;
• the environment;
• fair competition;
• the life, body and property of the general public; or
• workplace health and safety.

Companies with more than 300 employees in Japan must:

• establish a whistleblowing system; and
• appoint a person in charge of whistleblowing-related matters.

5 Dismissals and terminations

5.1 Must a valid reason be given to lawfully terminate an employment contract?

Employers may terminate an employment contract for just cause only. Dismissed employees can claim reinstatement and salary based on the invalidity of the dismissal or compensation for unfair dismissal, unless the employer can show that there was a serious and objective reason for dismissal (eg, misconduct, incapacity, illegality, redundancy or some other substantial reason). The misconduct or breach of law must be serious enough to meet the stringent Japanese court standards. Unless the employer's case is strong, a safer alternative to dismissal is for the employer to request that the employee resign. Resignation requests by the employer are made on an individual basis and employees need not accept them. Financial incentives are offered to encourage employees to accept the offer to resign. The arrangement is typically documented in a separation agreement covering:

• the separation (severance) package;
• waivers and releases; and
• restrictive covenants.

Redundancies: Employers can terminate employees for compelling reasons only – for example, where the employer faces significant economic necessity or reasonable operational necessity and a reduction in workforce is thus unavoidable. The Supreme Court has established the following conditions, which employers must meet to lay off employees in this context:

• The employer must be in a poor financial situation, making the need to act imperative;
• The employer must attempt to cut costs and expenses and reassign employees to other positions within its organisation;
• The employer must establish appropriate and rational selection criteria; and
• The employer must provide proper explanations to the employees concerned.

Where a company is being liquidated, the employer has greater flexibility.

Where the above Supreme Court conditions for redundancy are met, employers must provide affected employees with a minimum of 30 days' notice (or payment in lieu). As mentioned, there is no specific statutory provision which makes the payment of compensation mandatory. However, compensation payments are usually made to smooth out the process. When these conditions are not met, employers can try alternative approaches (eg, voluntary termination). Early retirement plans allow employers to offer financial packages to employees in order to encourage them to leave. In contrast, in more customary voluntary retirement plans, employees are offered a financial package to encourage them to resign within a short period (eg, a couple of weeks). The key to success is to:

• determine which package to offer;
• target employees without discrimination; and
• get the timing right.

This can be a costly process. Packages vary depending on the employees' industry, rank, age and length of service. Certain compensation figures are published which can be used as a benchmark. As a simpler and relatively cheaper alternative, voluntary termination (at the employer's request) should be considered where the number of redundancies is limited.

5.2 Is a minimum notice period required?

There is a minimum 30-day notice period before an employer can dismiss an employee under the Labour Standards Act. If the employer does not wish the employee to work any part of this notice period, it can pay his or her salary in lieu of notice. Unlike in certain other jurisdictions, there are few procedural requirements. In the case of an individual dismissal, a discussion will generally take place with the employee, followed by dispatch or hand delivery of a termination notice. However, employers generally seek to obtain the employee's 'resignation' before doing so (see question 5.1). Although this procedure is cumbersome and is seldom used in practice, no notice is required where the employer summarily dismisses the employee for serious misconduct, provided that it has obtained the local Labour Standards Supervision Office's consent.

5.3 What rights do employees have when arguing unfair dismissal?

Following a dismissal, an employee will have several options, including litigation – either through the traditional longer route before the district court or before the popular labour tribunal (shorter timeframe; greater visibility for employers; but if the employee does not agree with the ruling, he or she can take the matter before the district court – back to square one).

If a dismissal is ruled unlawful by the district court, the possible consequences are as follows:

• Reinstatement of the employee: Although most cases are settled by paying monetary compensation, there have been cases in which the court has ordered the reinstatement of the employee.
• Payment of unpaid wages (and default interest) from the time of dismissal until reinstatement (or until the parties reach an out-of-court settlement agreement): As a result of the nullification of the dismissal, the employer will be required to pay the employee his or her salary for the period from the time of the attempted dismissal to the time of the reinstatement. However, any income earned by the employee from another employer while the litigation is pending will be deducted from the payment by the employer with respect to that portion of the earned income which exceeds 60% of the average wages of the employee (ie, the employer will be required to pay at least 60% of the average wages regardless of any temporary income earned by the dismissed employee).
• Court costs and legal fees: These will also be payable by the employer.

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

• file for a provisional injunction order for provisional reinstatement and provisional payment of wages;
• file a petition for proceedings before the labour tribunal under a system aimed at resolving disputes reasonably quickly and in a flexible manner; or
• participate in a labour union (the unions being fairly flexible in regard to new memberships), which will then compel the employer to engage in collective bargaining for:
• • withdrawal of the proposed dismissal; or
  • payment of compensation.

The labour tribunal is a customary option favoured by most parties. The upside for the employer is that there is an unwritten rule limiting compensation awarded to the employee to 12 months' salary. On top of this will be added salary for the period until the end of the procedure (eg, three to four months maximum) or the time a settlement can be agreed upon, as well as court costs and legal fees (including those of the employee). However, one may often not anticipate where the employee will bring proceedings (court or tribunal).

5.4 What rights, if any, are there to statutory severance pay?

There is no right to statutory severance pay. If the dismissal is not justified from a legal standpoint, it is simply invalid. Severance pay is more often than not the result of negotiations between the employer and employee. If the termination is legally justified, then only notice or payment in lieu must be paid.

6 Employment tribunals

6.1 How are employment-related complaints dealt with?

Complaints are usually settled amicably between the parties and litigation is a last resort. The main dispute resolution procedures include civil litigation before the courts and labour tribunal proceedings. In addition, labour bureaus provide non-binding conciliation services through proceedings conducted by a committee comprised of labour specialists.

6.2 What are the procedures and timeframes for employment-related tribunals actions?

Generally speaking, a claim is commenced once a statement of claim or complaint is filed with the district court or labour tribunal. Proceedings are typically initiated by the employee. District court and labour tribunal processes and timeframes vary, as do the specific rules of procedure and other factors. Plaintiffs that intend to resolve their dispute quickly tend to bring proceedings before the labour tribunal or otherwise to the district court (civil litigation; the Tokyo and Osaka District Courts have divisions that specialise in labour disputes, due to their large caseload).

Civil litigation: At first instance, the process starts with the submission of pleadings, followed by oral proceedings and the examination of evidence. It can take a year to a year and a half for a judgment to be entered. Should either party appeal, it can take another six months or more until a judgment is rendered by the second instance court. Further appeal lies to the Supreme Court.

In practice, the courts strongly encourage the parties to settle. This can be done at any time during the proceedings and cases are often resolved through judicial settlement. Where a settlement is reached, it is put on record and has the same effect as a final and binding judgment. In certain cases, an employee may seek a preliminary injunction to maintain the status quo until the district court has issued a final ruling in the case.

A small claims action with only one court hearing is available for petty claims. Summary courts have jurisdiction over such actions.

Labour tribunal: Proceedings before a panel including a judge and two commissioners are a mixed bag of lawsuit and conciliation. The labour tribunal is usually favoured by employees who seek a speedy resolution to their dispute. The proceedings should be concluded in three meetings, unless there is some reason to hold more meetings and pursue discussions, and the process is generally wrapped up within two to three months. Should the parties fail to reach an agreement while disregarding the panel's recommendation, the panel will make a decision. The parties have two weeks to file an objection thereto, in which case the decision ceases to be effective and the case is transferred to an ordinary civil court (most often a district court). In the absence of objection, the decision becomes valid and binding on the parties.

7 Trends and predictions

7.1 How would you describe the current employment landscape and prevailing trends in your jurisdiction? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?

The workstyle reform bills are a package of legislation enacted in 2018 that amended half a dozen employment-related laws in order to:

• promote work-style innovation and flexibility;
• improve employment security for non-regular employees; and
• ensure a healthy work-life balance.

New changes will be rolled out in 2025 regarding childcare leave, caregiver leave and similar matters (see question 2.1).

Strict overtime caps and criminal sanctions for non-compliance: The white-collar exemption regarding overtime pay (see question 3.2) applies to employees who engage in certain types of work and earn compensation above a certain threshold, subject to certain conditions. Stricter rules apply as to the manner in which employee working hours are tracked under the Industrial Safety and Health Act and managers are now covered by the obligation. Employers must track the working hours of all employees using methods prescribed by ministerial ordinance and the Guidelines for Measures to Be Taken by Employers to Properly Monitor Working Hours – for example, by:

• confirming working hours on the spot; or
• using objective methods such as:
• • ID card clock-in/clock-out times; or
  • computer log-in/log-out times.

If an employer cannot use one of these methods, it can confirm and record employees' starting and finishing times based on its own reporting (self-reporting).

Flex time schemes: Employers can now average an employee's working hours over a period of up to three months to deal with workload variations while minimising overtime allowance payments. Teleworking/working from home is encouraged and facilitated.

Annual paid leave: The Labour Standards Act requires employers to designate five days of annual paid leave for employees entitled to 10 days or more of annual paid leave, in order to ensure that they take at least five days a year.

Digital salary payments: Since 1 April 2023, as an alternative to payment in cash or by bank transfer to the employee's account, the payment of salaries in digital form is permitted further to an amendment to the Regulations for Enforcement of the Labour Standards Act. Digital salary payments can be made into an employee's account by a Type 2 funds transfer service provider authorised by the Ministry of Health, Labour and Welfare. Individual employee consent and a labour management agreement are required. Specific terms and conditions regulate the scheme, including a JPY 1 million cap beyond which the excess funds must be promptly transferred to a bank savings account or other alternative account.

Obligations to notify terms and conditions of work: Recent amendments to the Labour Standards Ordinance, effective as of 1 April 2024 (see question 1.3), oblige employers to notify indefinite-term employees and fixed-term employees of certain matters when concluding and/or renewing an employment contract. This includes obligations pertaining to:

• the conversion rule (fixed-term employment contract renewed for a total of more than five years); and
• points to be explicitly notified to fixed-term contract employees, such as the upper limit (maximum contract term or maximum number of possible renewals of the contracts), if any such limit is considered by the employer. To minimise the risk of disputes resulting from the setting of such a limit, the recently amended Standards for Conclusion, Renewal and Termination of Fixed-Term Employment Contracts oblige employers to provide explanations to the employee before:
• • establishing a new limit after the conclusion of the initial contract; or
  • seeking to lower a limit established at the time of conclusion or previous renewal of the initial contract.

Discretionary work systems revisited: Discretionary work systems are some of the flexible work arrangements regulated by the Labour Standards Act. Working hours are calculated based on the hours determined by a labour management agreement or by resolution of a labour management committee, rather than actual working time, where the nature of work requires employees to exercise considerable discretion as to how to perform their tasks. There are two systems:

• One system applies to professional work – that is, specialised duties as defined under the Labour Standards Ordinance and by government notification; and
• The second applies to planning work – that is, planning, drafting, researching and analysing matters relating to business operations for which the nature of the work is such that, in order for it to be carried out properly, the methods through which it is carried out must be left largely to the discretion of the employees.

The main changes to these deemed working hours schemes that took effect on 1 April 2024 are as follows:

• The scope of the specialised duties has been expanded by one category;
• Employee consent to the use of the discretionary work system for professional work is required (ie, employees can opt out) – individual consent is already required for planning work; and
• Depending on the system, changes have been made to:
• • procedural requirements;
  • retention obligations regarding records of employees' withdrawal of consent; and
  • the frequency of reporting to the Labour Standards Supervision Office.

Employers resorting to these discretionary work systems should ensure that they are up to speed regarding the implementation of the new requirements.

8 Tips and traps

8.1 What are your top tips for navigating the employment regime and what potential sticking points would you highlight?

The amendments referred to in question 7 are very broad and it is difficult to set out an exhaustive list of all key actions that can be taken. Compliance is key to minimising legal and reputational risks. Employers should ensure that:

• the HR team is fully up to speed with these changes;
• they are fully compliant regarding overtime hours and extra wages and related agreements (Article 36 agreements); and
• their work rules and HR templates are up to date regarding the new statutory requirements.

Employee termination can be a very challenging and costly process and should be carefully handled. Employers should therefore:

• ensure that they hire the right people; and
• carefully monitor probation periods.

The legal framework applicable to redundancies and dismissals has been a source of frustration for many foreign employers, especially those from employment at will jurisdictions.

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.