Labor Contracts

As a general rule, Japanese laws concerning labor apply to all employees in Japan, regardless of nationality. It means that the Labor Standards Law, the Minimum Wage Law, the Industrial Safety and Health Law, the Workers’ Accident Compensation Insurance Law, the Employment Security Law and others also apply to foreigners.

The Labor Standards Law stipulates that an employer shall not engage in discriminatory
treatment with respect to wages working hours or other working conditions by reason of
nationality or another status of any worker.
(Article 3, Labor Standards Law, hereafter referred to as Article XX).

In the past, there have been many problems such as wages not being paid as promised or a
penalty being deducted from wages on retirement. To prevent these troubles relating to labor contracts, the Labor Standards Law stipulates the following matters.

(1) Working conditions must be stated clearly

An employer shall clearly state the working conditions when a labor contract is drawn up.
The following matters shall be written and handed to an employee.

① the period of the labor contract

② the working place and job duties

③ existence of overtime work

④ the time at which work begins and at which work ends, breaks, days off, and leave

⑤ the amount of wages, the methods of computation and payment, the date of closing
accounts and of payment

⑥ matters pertaining to separation (including reasons for dismissal)

An employee may immediately cancel his/her labor contract, if the working conditions as
clearly stated differ from the actual fact (Article 15).

Therefore, it is advisable for an employee to obtain a written contract, rather than an oral
one. When a contract is made, an employee must examine the contents of the contract.
In cases where he/she cannot understand the contract written in Japanese, it may be possible to have it translated into his/her own language. It is also desirable to check the details of the rules of employment which are laid down by the company.

(2) A contract violating the Labor Standards Law is invalid

A labor contract which does not meet the standards of this law is invalid with respect to such portion. In such a case the sections which are invalid are governed by the standards set forth in the Labor Standards Law (Article 13).

(3) Period of contract

①Labor contracts shall be made for a period of no longer than three years except for those
without a definite period. However, a contract may exceed three years wherein the period for completing a specified project is determined. ②It is also permissible to draw up a contract of up to five years in cases where an employee has highly specialized knowledge/skills, or,
the employee is aged 60 years or above (Article 14).

However, an employee with a contract for a defined period (other than those who were
contracted for a specific period to complete certain projects and those who come under item ②) may resign at any time after fulfilling the first contract year, by submitting his/her request of leave to the employer (Article 137).

With regards to the extension, renewal, or cancellation of a contract with employees of
defined working periods, an employer must clearly state the basis of the decision made.

(4) Ban on pre-determined indemnity

An employer can not make a contract which fixes in advance either a sum payable to the
employer for breach of contract or an amount of indemnity for damages (Article 16).
For example, matters such as the following can not be fixed in the contract: the amount of
damages for breach of contract because an employee quits before his/her contract expiration date; compensation payable to the employer if an employee damages machines, etc.
However, an employee may be still under obligation to pay damages if he/she inflicts a loss on the firm due to intentional act or negligence.

(5) Ban on offsets against advances

An employer should not offset monthly wages against advances of credit made as a condition for work (Article 17).

(6) Ban on compulsory savings

An employer can not require a contract for compulsory savings. However, it is possible for the employer to take charge of employees’ savings entrusted to the employer by the employees. But the employer should conclude a written agreement with them and submit it to Labor
Standards Inspection Office (Article 18).

(1) The rules of employment

Rules of employment stipulate working conditions and office regulations. Any company
which employs ten or more workers on a steady basis must set such rules of employment
(Article 89), and submit them to the Labor Standards Inspection Office. A company is also
required to make these rules known to the employees (Article 106). It is therefore desirable
for employers to do so in a language that their employees understand if they do not
understand Japanese.

Rules of employment shall not infringe any law and any collective agreement. A labor
contract, in which the working conditions are inferior to the rules of employment standards,
shall be invalid. In such a case, the parts of the contract, which are invalid, shall be governed by the standards stipulated in rules of employment.
(Article 92, Labor Standards Law/Article 12, Labor Contract Law)

(2) Items of rules of employment

The following items must be stated in the rules of employment;

① Matters pertaining to the time at which work begins and at which work ends; rest periods; rest days and leave; and matters pertaining to the change in shifts,

② Matters pertaining to the methods of determination, computation, and payment of wages
(excluding extraordinary wages), the date of closing accounts and of payment and increases
in wages,

③ Matters pertaining to retirement (including reasons for dismissal). Others are;

i) in the event that there are stipulations for retirement allowances, extraordinary wages,
and safety and health, matters pertaining such items,

ii) in the event that there are stipulations for having employees bear the cost of food and
other such expenses, matters pertaining to such items.

In the Labor Standards Law, “wage” means the wage, salary, allowance, bonus and every
other payment to the employee from the employer as remuneration for labor, regardless of
the name by which such payment may be called (Article 11).

When drawing up a labor contract, the employer must state clearly matters concerning wages and hand a statement to the employee (Article 15).

The Law also stipulates the principle of payment of wages in order to ensure that the wages
are handed to the employee as follows (Article 24);

① Wages must be paid in cash except in cases provided for by law or ordinance,
or by union agreement

② Wages must be paid directly to the employees themselves

③ Wages must be paid in full. Partial deduction may not be permitted with the exception
of taxes, social insurance premiums and others according to the written agreement

④ Wages must be paid at least once a month on a definite date, except extraordinary wages
such as a bonus, etc.

As wages are the most important matter for employees’ life, the Labor Standards Law
stipulates guaranteed payment as follows;

① In the event of suspension of business for reasons attributable to the employer,
the employer should pay an allowance equal to or more than 60％ of the employee’s
average wages (Article 26). 

② With respect to employees employed under a piece-work system or other sub-contracting
system, the employer should guarantee wages at a fixed amount proportionate to hours of
work (Article 27).

③ In the event, an employee requests the payment of wages to cover emergency expenses
for illness, accident or other emergency circumstances, an employer should pay accrued
wages prior to the normal payday (Article25).

④ No employer can hire an employee for less than the legal minimum wage
(Article 28, Minimum Wage Law). The minimum hourly wage is set by region and that for
Tokyo is￥958 as of Ｏct 1, 2017. Higher rates are set for certain industries by region as well.

⑤ Claims for wages, accident compensation and other claims will lapse if not made within
2 years; and claims for retirement allowances will lapse if not made within 5 years.
(Article 115). 

A company may “decrease wages as a sanction,” in order to maintain discipline at the firm.
This is different from deducting wages which amount is according to the hours of lateness
or absence. The company should state the details about decreases as sanctions in the rules
of employment.

In the event the rules of employment provide for a decrease in wages as a sanction,
the amount of a decrease for a single deduction shall not exceed 50％ of the daily average
wage, and the total amount of decrease shall not exceed 10％ of the total wages for a single
pay period (Article 91).

The annual salary system is the pay system in which a company decides the annual lump
payment of its employee(s) by evaluating as a whole the ability, work achievements,
potential, and so on, of the subject employee.

Companies are also to pay overtime pay to employees in this system. Even if a given amount of overtime pay is already included in an annual salary, unless the breakdown of that salary is stated (e.g. annual salary of X yen; extra pay of X yen, etc.), an employer is obliged to
remunerate overtime work separately.

Also, if an employee has worked more hours than pre-designated, the employer must
compensate the difference. 

Legal working hours per week are 40 hours. The Labor Standards Law stipulates that an
employer shall not make an employee work more than 8 hours per day. The fixed working
hours of each firm shall not be longer than the legal hours (Article 32).

However, as an exception, working up to 44 hours a week is allowed for companies with
less than 10 employees in the industries of commerce, cinema/theater, health care and
service/entertainment.

Several kinds of modified working hours systems which can accommodate working hours to
business fluctuations are also allowed under specified conditions. (For instance; one-month
unit modified working hours system, one-year unit modified working hours system and a
flex-time system.)

With regard to holidays, Labor Standards Law stipulates that an employer shall provide
employees with at least one holiday per week. Otherwise, an employer can provide at least
4 holidays during a four-week period (Article35).

With regard to work breaks, the law stipulates that an employer shall provide the employees with at least 45 minutes of break time for a work day of over 6 hours, and one hour of break
time for a work day of over 8 hours (Article34).

So-called “36 agreement” (a written agreement about overtime work and work on holidays)
should be concluded between an employer and employees and submitted to the Labor
Standards Inspection Office, when the employer wants to extend working hours or have an
employee work on holidays. The employer should pay increased wages for such work. 
(Article 36).

The rate of premium for overtime work and late-night work (defined as work between 10pｍ
and 5am) is 25％ or more and it is 35％ or more for work on a statutory holiday.

An employee must be paid time and a half or more for any hours worked over 60 in a month (Section 1 of Article 37). (Not applied to small and medium-sized enterprises for the time
being (Article 138).)

An employer is not under obligation to pay increased wages for overtime work, if working
hours per week during a modified period or a settlement period are not over the legal working hours, in cases where the company is under the modified working hours system. If you do not understand the method of calculation of hours and pay, you should ask your company.

The Labor Standards Law stipulates the annual paid leave system so that employees may take leave at any time and enjoy a pleasant life.

“An employer shall grant annual paid leave of 10 working days, either consecutive or
divided up into portions, to an employee who has been employed continuously for 6 months
calculated from the day of hiring and who has reported for work on at least 80％ of the total
working days” (Article 39).

Part-timers can also take annual paid leave depending on the number of their working days,
even if their fixed working days are relatively few. Even though the contract period of
employment is for one month or 3 months, if employees have worked for more than
6 months as a result of the renewal of contacts, they may take annual paid leave.

The number of paid holidays is as follows:

An employer may introduce a preplanned annual paid leave system when there is a rule set
regarding the appropriate time of granting paid leave stated in the labor-management
agreement. However, the system can be applicable only to the portion exceeding 5 days of
paid leave allocated to each employee.

Expectant female employees can take 6 weeks (14 weeks for twins or more) of maternity
leave before childbirth and 8 weeks after giving birth (Article 65). Female employees who
are nursing an infant of up to 12 months are also entitled to take nursing time twice a day,
each for at least 30 minutes aside the legally allowed break times. They can take nursing
time by showing up 30 minutes late or leaving work 30 minutes early or take 60 minutes off
at one time (Article 67).

Maternity leave may be paid or unpaid as there are no laws and companies set their own
policies. For those who are not paid by their companies, however, a maternity allowance
equal to approximately two-thirds of their pre-maternity wages is paid by the health
insurance system during the leave (refer to "Health Insurance Benefits" for maternity-related allowances).

In addition, it is prohibited for an employer to dismiss an employee or force an employee
to accept change in employment contract details based on an employee’s pregnancy,
childbirth or taking of maternity leave. Dismissal of a female employee during her pregnancy or within one year from childbirth is invalid unless the employer proves that the dismissal
is not based on the fact that the employee became pregnant, gave birth or took maternity
leave (Article 9, Equal Employment Opportunity Act for Men and Women).

Child care leave allows an employee, either male or female, to take off up to one year to look after an infant under one year of age. If both parents decide to take a leave, up to one year
for each parent is allowed until the child is 14 months old (“Additional Leave for Mom & Dad”; Section 2 of Article 9, Child Care and Family Care Leave Act). In special situations, such as
when a child is on a wait list to enroll in a daycare center, the leave may be extended until the child is 18 months old (Articles 2 and 5, Child Care and Family Care Leave Act). An employee on a fixed-term contract is eligible for child care leave if he or she had been continuously
employed for a period of one year or more prior to taking the leave and is expected to remain employed after the child turns one year old (Article 6, Child Care and Family Care Leave Act).

An employee receives 40% (50% for the time being) of the wages (daily wage at the start of
leave multiplied by 30 days) as child care leave benefits when certain conditions are met.
An employee on childcare leave may be exempted from social insurance premiums by
applying to Japan Pension Office while on leave. 

Sick/injured child care leave allows an employee to take days off (up to 5 days per year if one child and 10 days for two or more children) to look after a child below school age in the event of injury to or sickness of the child. As no law articulates guidelines with reference to payment during the leave period, companies should make clear their policy on such allowances offered or not, in some form such as in their rules of employment.

Employees who take care of a family member requiring full-time care are entitled to family
care leave. The leave can be taken up to 93 days in total per subject family member.
Employees on a fixed-term employment contract, who have been employed for one straight
year or more, are eligible for family care leave if they are expected to be employed
continuously well after returning from their leave of 93-days (Article 2 paragraph 2, Article 11 paragraph 1, Article 15 paragraph1, Child Care and Family Leave Law).

As no law articulates guidelines with reference to payment during the leave period, companies should make clear their policy on such allowances offered or not, some form such as in their
rules of employment.

During family care leave, an employee can receive about 40％ of the wages as the benefits
from the Employment Insurance if he/she fulfills certain conditions.

An employee with one or more family member(s) in need of nursing care may take nursing
leave up to 5 days, if with one such family member, and 10 days, if with two or more such
family members, per year upon request to his or her employer.

Individuals are guaranteed freedom of choice of their employment and are, therefore,
free to resign from their employment anytime. An employee should, however, follow specified procedures when he or she chooses to leave a job. The procedures for employees on a
fixed-term contract are different from those for employees without a fixed-term contract.

In cases where an employee is contracted to work for a specified period of time,
he/she should resign when the period of the contract expires and the contract of employment will be terminated.

Resignation during the specified contract period is not allowed in principle without any proper, unavoidable reason (Article 628, Civil Law). In cases where the contract prescribes regulations concerning resignation, the employee should follow these. It is possible that compensation
for damages due to non-performance of obligation may be claimed by the company.
An example would be in a case where an employee suddenly quits, regardless of regulations
concerning advance notice in the contract, and the company is damaged by his/her early
resignation.

Some employers include an article imposing the payment of fines for the breaching of a
contract, such as resigning in the middle of a contract period given in the employment
contract. However, such a contract is invalid, because it goes against Article 16 of the
Labor Standards Law which stipulates a “ban on predetermined indemnity“. 
(Refer to “The Principles of Labor Contracts” ).

An employment contract is terminated with two weeks’ notice to an employee without
a fixed-term contract unless provided otherwise in working regulations.
However, an employee on monthly salary needs to give notice in the first half of a salary
period to resign at the beginning of the next salary period (Article 627, Civil Law).

It is advisable to speak with the company in advance in order to effect a smooth handing over of duties on the resignation.

Dismissal is when an employer unilaterally terminates his/her employee’s employment
contract. In accordance with Civil Law, an employer as one party of an employment contract
has a right to propose to terminate it. However, as dismissal affects an employee’s life,
Japanese labor laws impose severe restrictions on dismissal.

Laws prohibit dismissal in the following situations or for the reasons:

① An employer shall not dismiss an employee during a period of absence from work for
medical treatment with respect to injuries or illnesses in the course of employment nor
within 30 days thereafter, and shall not dismiss a female employee during a period of absence from work before and after childbirth nor within 30 days thereafter.
(Article 19, Labor Standards Law).

② An employer shall not dismiss an employee by reason of such employee’s having reported
a violation of the Labor Standards Law to the relevant supervisory agency.
(Section 2 of Article 104, Labor Standards Law).

③ An employer shall not dismiss an employee by reason of the employee’s gender.
(Article 6, Equal Employment Opportunity Act).

④ An employer shall not dismiss a female employee for marriage, pregnancy, or requesting
maternity leave (Article 9, Equal Employment Opportunity Act).

⑤ An employer shall not dismiss an employee for having tried to organize a labor union.
(Article 7, Labor Union Act).

⑥ An employer shall not dismiss an employee for whistleblowing.
(Article 3, Whistle-Blower Protection Act).

“A dismissal shall, if it lacks objectively reasonable grounds and is not considered to be
appropriate in general societal terms, be treated as an abuse of right and be invalid 
(Article 16, Labor Contract Act)”. This is known as the “doctrine of abuse of right of dismissal” and restricts employers’ right of dismissal.

A dismissal of an employee, even if he or she is at no fault, is valid in certain cases, however.

(1) When the continuance of the enterprise has been made impossible by natural disasters
or other inevitable causes, such as a major earth quaked or an eruption, and the dismissal
is approved by the Head of Labor Standards Inspection Office.

(2) When an employee who has received medical treatment compensation for an accident
while on duty is paid compensation for discontinuance, and the dismissal of the employee
is approved by the Head of Labor Standards Inspection Office.

(3) Any dismissal for the purpose of reorganization if the following conditions, established
based on the precedents, are met.

① the reduction in personnel is necessary for the company’s existence and maintenance.

② the company has made efforts to avoid dismissals by not hiring new employees or by
encouraging early retirement.

③ the criteria for reduction must be objective, rational, and fair, and the selection process
(of persons to be dismissed) must be fair.

④ the company has also made efforts to explain to the employees’ satisfaction the rationale
of staff reductions and the necessity of dismissal.

According to Labor Standards Law, the following standards should apply when an employer
dismisses his/her employee:

① An employer should provide at least 30 days advance notice if he/she wishes to dismiss
an employee. If an employer fails to do so, he/she must pay the average wage for a period
of not less than 30 days in lieu of advance notice of dismissal. The number of days of advance
notice may be reduced by the number of days for which the employer pays average wages.
(Article 20).

Even an employee in a probationary period shall be given advance notice as mentioned above when he/she has been employed consecutively for more than 14 days (Article 21). 

② Exceptional cases are:

(1) if the continuance of the enterprise has been made impossible by a natural disaster or
other unavoidable cause (excluding failure to pay tax or financial difficulties),

(2) when the reason is attributable to an employee, and an employer applies and obtains an
approval of the head of Labor Inspection Office for an exception of dismissal notice.
In this case, the employer is able to dismiss the employee without notice or compensatory
payment (Article 20).

Employees have the right to request a written certification of reasons for their dismissal.
(Section 2 of Article 22, Labor Standards Law).

An employer is not allowed to dismiss employees with a fixed period of contract before the
contract expires, except for in cases with an unavoidable reason. (Section 1 of Article 17,
Labor Contract Act), or when a company goes bankrupt (Article 631, Civil Law).

In case of an employment contract with a fixed period, termination comes with its expiry.
However, the so-called “termination of consecutive employment” has become a serious
problem. This is where a contract with a specified period has been renewed several times
and a company has continued to employ an employee for a certain period, only to suddenly
terminate the contract (upon its expiration) and displace him/her.

The “doctrine of abuse of right of dismissal” does not always apply to fixed-term employees.
To avoid trouble associated with the termination of the contract, a ministry notification sets
the following requirements for employers;

① Employers are to clearly state the renewal or cancellation of contracts, and the criterion
for contract renewal.

② Employers are to give at least 30 days prior notice when terminating contracts for
employees who have been employed for over one year on a contract for a specified period.

③ When employees request a clear statement on the reason(s) for the termination of their
employment, employers must comply promptly in writing.

④ When a fixed-term contract employee, who has already been employed for over one year
through contract renewal, arrives at a new contract term, the employer must make an effort
to extend the contract period as much as possible, according to the substantiality of the
contract and employees’ wishes.

Past judicial precedents (concerning legal conflict involving contract termination) show that
some contract terminations were recognized depending on certain surrounding elements
(e.g., objective overview of business, procedures and realities of contract renewal, etc.)
as seen as a whole by the court.

Equal Employment Opportunity Act for Men and Women is designed to create an employment environment in which employees are not discriminated based on gender and female
employees can exercise their abilities with due respect for maternity, and the law sets the
following stipulations.

Employers shall not discriminate employees based on gender with regard to the following
matters(1)～(5);

(1) Provision of equal opportunity with regard to recruitment and employment

(2) Prohibition of discrimination on assignment, promotion, demotion, and training

(3) Prohibition of discrimination on fringe benefits

(4) Prohibition of discrimination on change in job type and employment system

(5) Prohibition of discrimination on encouragement to retire, mandatory retirement, dismissal and renewal of an employment contract.
(Articles 5 and 6, Equal Employment Opportunity Act).

“Indirect discrimination” is when an employer takes measures which ①apply a criterion other than the person’s gender and ②place an employee belonging to one particular gender group
at a considerable degree of disadvantages compared to a peer(s) of the other gender group
③ without a legitimate reason.

As the following (1)～(3) could be deemed discriminatory based on gender in effect,
employers shall not take these measures unless they are especially crucial in conducting
business. (Article 2, Ordinance of Enforcement of the Equal Employment Opportunity Act)

(1) Establishing requirements on height, weight or physical strength when recruiting or
employing workers.

(2) Establishing the requirement of accepting job transfers involving a move for those
on the main career track when recruiting or employing workers in a dual career system of
a company.

(3) Establishing the requirement of job transfer experience for promoting employees.
（Article 7, Equal Employment Opportunity Act).

It is not against the Equal Employment Opportunity Act for Men and Women when female
employees are given favorable conditions in order to eliminate existing disparities between
male and female employees (Article 8, Equal Employment Opportunity).

An employer shall not stipulate marriage, pregnancy or childbirth as a reason for retirement, dismissal or mistreatment of a female employee.
(Article 9, Equal Employment Opportunity Act).

There are two types of sexual harassment in the workplace. One is compensational sexual
harassment and the other is environmental sexual harassment. Compensational sexual
harassment is when an employee is inflicted disadvantageously in his/her working condition
with response to sexual language and behavior of others in the workplace. Environmental
sexual harassment is when that sexual language and behavior disturbs the environment of
that workplace.

Employers shall establish necessary measures in terms of employment management in order
to prevent sexual harassment, including sexual harassment against male employees,
in a workplace (Article 11, Equal Employment Opportunity Act).

Employers shall secure the necessary time off so those female workers they employ may
receive the health guidance and medical examinations prescribed in the Maternal and Child 
Health Act. Moreover, employers shall take necessary measures, such as change of working
hours and reduction of work, in order to enable the female workers they employ to comply
with the directions they receive based on aforementioned health guidance and medical
examinations (Articles 12 and 13, Equal Employment Opportunity Act).

The Minister of Health, Labor and Welfare and the directors of Prefectural Labor Bureau, when they find it necessary with regard

to the enforcement of the Equal Employment Opportunity Act for Men and Women,
may request reports and give employers advice guidance and recommendations, and if an
employer has not complied with the law, may make a public announcement of such violation.

Any employer who has not made a report required or who has made a false report shall be
liable to an administrative fine of not more than \200,000.
(Articles 29, 30 and 33, Equal Employment Opportunity Act).

Foreign employees have the right to organize a labor union, bargain and act collectively,
in order to keep and improve their working conditions. The organization of a labor union and
its activities are guaranteed as basic labor rights by the Constitution of Japan and the Labor
Union Law stipulates these rights in detail.

The Labor Union Law stipulates that the requirements of a labor union that can be protected
by the law (Article 2, Labor Union Law) are as follows:

A labor union shall be；

① formed voluntarily and composed mainly of employees.

② for the main purposes of maintaining and improving working conditions and raising the
economic status of the employees.

If voluntarily organized (by two or more employees) and operated democratically, neither an
approval by the employer nor a notification to a government agency is required to form a
labor union.

In order to carry out its functions fully, it is desirable that a labor union is formed by as many employees of the company as possible.

Of labor unions in Japan, enterprise unions account for the largest portion. Other types of
unions that exist in Japan include joint unions, formed by industry or region with an individual
membership, and trade unions formed by people with the same occupation

An employee can solve problems at work by collective bargaining after joining a joint labor
union as an individual, if there is no labor union in the company, or if it is difficult to organize a labor union together with at least two co-employees. There are some joint unions providing a labor advisory service in Tokyo.

(1) Collective bargaining

Collective bargaining is a forum for employees and employers to negotiate working conditions from an equal standpoint. A labor union shall have the right to bargain collectively with the company for which its members work，regardless of the number of members (Article 6, Labor Union Law).

There is no system in Japan like the exclusive negotiation representative system in the United States of America (where only a labor union that has a majority of employees is endowed with the right to bargain collectively).

An employer shall not refuse to bargain collectively without proper reasons. If so，it shall lead to an unfair labor practice (Article 7, Labor Union Law).

(2) Unfair labor practice

It is prohibited by law as an unfair labor practice for an employer to infringe the employees’ right to unite. If an employer commits an unfair labor practice, employees of the company or the union may petition the Labor Relations Commission for redress. The Labor Relations Commission will examine the matter based on the petition and will issue an order to stop the practice if it recognizes the employer’s unfair labor practice. The following practices are forbidden as unfair practices (Article 7 Labor Union Law).

① to discharge or discriminate against an employee by reason of his/her being a member of a labor union, having tried to join or organize a labor union, or having performed proper acts of a labor union;

② to make it a condition of employment that an employee must not join or must withdraw from a labor union;

③ to refuse a request for collective bargaining without proper reasons;

④ to control or interfere with the formation or management of a labor union by employees;

⑤ to give financial support in defraying the labor union’s operational expenditure;

⑥ to treat in a disadvantageous manner an employee by reason that he/she, made a complaint to the Labor Relations Commission.