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02. Employment Contracts

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02. Employment Contracts

Minimum requirements

While an employment contract may be in written or verbal form, when concluding an employment contract, the following conditions must be clearly provided in written form:

  • term of employment;
  • place of employment and job description;
  • start and finish time, overtime work, rest period, days off, leave and change in shifts;
  • determination, calculation and payment of wages (except retirement allowances and special wages); and
  • resignation and exit policies and procedures (including grounds for dismissal).

Fixed-term/Open-ended Contracts

Generally, the maximum duration of a fixed-term employment contract is three years. However, there is an exception for employees who possess expert knowledge, skills or experience, or who are 60 years of age or older, in which case the maximum term of the employment contract is five years.

A similar exception exists for employees who possess expert knowledge, skills or experience, or who are continuously employed after the mandatory retirement age, subject to approval by a Director General of the relevant Labour Bureau.

In the situation where a fixed-term employment contract with the same employer has been repeatedly renewed, and its total contract term exceeds five years, the employee is entitled to apply for conversion of his/her fixed-term employment into an indefinite term, from the day following the date of expiration of the fixed-term employment contract, and the employer is deemed to accept the application. In addition, the total contract term may be reset by setting certain cooling-off periods (e.g. six months for a one year contract).

Trial Period

In Japan, it is common practice to set a probationary period of three to six months for new hires, effective from the hiring date. While there are no legal requirements regarding the length of the probationary period, a probationary period is presumed void if it is unreasonably long, as this goes against public order and morals. The probationary period may also be further unilaterally extended in accordance with the work rules and/or the employment contract. In practice, however, probationary periods are transient in nature, temporarily allowing employers to review an employee’s qualities and abilities before the employee is able to transition into a regular employment. Consequently, an employer is expected to decide whether to accept or reject the employee as a regular employee after the probationary period has concluded.

An extension of the probationary period is only permitted if there is a reasonable and compelling need for the employer to continue to evaluate an employee’s qualities and abilities. Accordingly, an employer will face a significantly greater hurdle when the company tries to terminate an employee’s employment during the extended probationary period, compared to a termination after the expiration of the initial probationary period.

Notice Period

Advance notice of termination must be provided at least 30 days prior to dismissal. An employer may also provide a payment in lieu of such notice, which corresponds to 30 days or more of the salary amount. Notice periods can also be shortened by the number of days for which the payment in lieu of notice has been made. The advance notice period is not applicable when the employer dismisses an employee under the probationary period, within fourteen days after the date of the commencement of the probationary period.

Any questions

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