Labour and employment law in Japan

Introduction

Japanese employment laws mainly cover employer-employee relationships. These laws apply to all employees working in Japan regardless of their nationality. However, board members as defined under the Company Act (2005) as well as independent contractors are not categorised as employees subject to Japanese employment laws, in principle, and therefore are not protected under Japanese employment laws.

Key Points

• Japanese employment laws mainly cover employer-employee relationships. Board members and independent contractors are, in principle, not categorised as employees.
• Unlike US-style “at will” employment, termination in Japan is heavily restricted. Japanese law requires that termination of regular employment shall be considered objectively, deemed reasonable, and appropriate upon social convention, which is read rigidly in light of Japanese judicial precedent.  Termination risk is generally high for employers, and therefore negotiated exits and settlement arrangements are commonly used in practice.
• In principle, overtime work, work on statutory public holidays and late-night work require extra allowances in addition to normal wages. Employees in managerial and supervisory positions as defined under the Labour Standards Act are exempt from the abovementioned overtime regulations; however, the late-night work allowance is still applicable.
• Japanese law provides various protections against discriminative treatments not only by reason of nationality, creed, social status or gender, but also due to the association with union activities, or taking child care or nursing care leave. There is also a prohibition against unreasonable differences between full-time permanent employees and non-regular employees. Furthermore, employers are faced with the need to strengthen their protections against harassment in line with recent legislative amendments obliging employers to enhance their whistleblower systems.
• Dominant majority unions in Japan are deemed as enterprise unions. The unionisation rate in Japan has been considerably and continuously declining.
• In addition, amendments to the Whistleblower Protection Act (2004), which came into effect in 2022, have strengthened employers’ obligations to establish internal whistleblowing systems and expanded the scope of protected whistleblowers. These developments have led to an increase in whistleblowing cases in practice, particularly in relation to harassment.

Legal framework

Employment law in Japan is predominantly based upon the following sources:

• the Constitution (1946);
• laws, in particular, compulsory laws including but not limited to the Labour Standards Act (1947), the Labour Contract Act (2007), the Minimum Wage Act (1959), the Industrial Safety and Health Act (1972), the Industrial Accident Compensation Insurance Act (1947), the Act on Securing, etc. of Equal Opportunity and Treatment between Men and Women in Employment (1972) (the “Equal Opportunity Act”), the Act on the Welfare of Workers Who Take Care of Children or Other Family Members Including Child Care and Family Care Leave (1991) (the “Child Care and Nursing Care Act”), the Act on Improvement of Personnel Management and Conversion of Employment Status for Part-Time Workers and Fixed-Term Workers (1993) (the “Part-Time/Fixed-Term Employment Act”), the Labour Union Act (1945), the Employment Security Act (1947) and the Act for Securing the Proper Operation of Worker Dispatching Undertakings and Improved Working Conditions for Dispatched Workers (1985) (the “Worker Dispatch Act”);
• government ordinances and implementation regulations;
• collective bargaining agreements;
• company’s work rules; and
• employment contracts.

Furthermore, administrative authorities have published various guidelines relating to labour laws. The purpose of these guidelines is to assist in the legal interpretation of the applicable laws. These guidelines are not legally binding, however, they are widely accepted as the social standard and/or best practices in Japan. In particular, Supreme Court precedent has the potential to have considerable influence on the application of labour and employment laws in market practice and Japanese custom.

New Developments

Under recent amendments to the Labour Standards Act and related regulations, employers are now required to provide more detailed information on working conditions at the time of hiring. In particular, employers must clearly specify not only the place of employment and job duties, but also the scope of any potential changes to such place of employment and duties. In addition, where fixed-term employment is used, employers must disclose matters such as the existence and details of any renewal limits and the opportunity for conversion to an indefinite-term employment contract. These requirements have had a significant impact on employment contract drafting and HR practices, particularly in relation to job rotation and transfer arrangements.

Further amendments to the Child Care and Nursing Care Act have been introduced in recent years, including those already in effect as well as additional measures coming into force in 2025, to enhance flexibility in working arrangements for employees. These include the introduction of childcare leave that male employees can take immediately after childbirth, the ability to take childcare leave in installments (including on an alternating basis between parents), the availability of child nursing and family care leave on an hourly basis, and the extension of childcare leave eligibility to fixed-term employees. In addition, upcoming amendments will further strengthen employees’ rights by expanding childcare-related leave and accommodations, introducing enhanced obligations on employers to provide individual notification and confirm employees’ intentions regarding childcare and nursing care measures, and requiring the implementation of additional measures to promote flexible working styles (such as telework and reduced working hours). These developments require employers to review and update their work rules and internal practices, and are expected to increase the administrative and operational burden on employers.

Under the Act on Stabilisation of Employment of Elderly Persons (1971), to ensure employment of older workers, employers that have set the retirement age to less than 65 years of age are obliged to take one of the following measures in respect of such employees until they reach the age of 65: (i) raise the retirement age; (ii) abolish the retirement age; or (iii) introduce a continuous employment system (e.g. re-hirement or extension) for all employees who wish to stay. Starting April 2025, the above measures will be mandatory for all companies, including small and medium-sized companies. Furthermore, under recent legislative amendments, an employer whose employees have reached the age of 65 shall endeavor to apply one of the following measures to such employees until they reach the age of 70: (a) raise the retirement age; (b) abolish the retirement age; (c) introduce a continuous employment system; or (d) bring in measures other than employment by executing a labour-management agreement (specifically, a system for continuous outsourcing contracts or a system allowing for employees to engage in social contribution activities on a continuous basis). It is important to note that the measures for  employees until the age of 70 are only an obligation for employers to make such efforts and are not mandatory. There are no sanctions imposed on employers for not implementing any of the measures (a) to (d) outlined above.