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Japan Human Resource Overview

Japan has a number of laws pertaining to labor and the protection of workers. These include: the Labor Standards Law which sets forth the minimum standards on working conditions; the Industrial Safety and Health Law which sets forth the minimum standards on working conditions regarding health and safety; and the Minimum Wage Law. These laws apply in principle to all enterprises in Japan, regardless of whether the employer is Japanese or foreign, or the company is a foreign or Japanese-registered corporation. They also apply to foreign workers in Japan provided that the foreign workers meet the definition of workers under these laws. Japan has a government-run employment agency known as "Hello Work" with offices throughout Japan. Hello Work offers free support for people looking for work and companies looking for workers; all industries are covered by the agency. Similarly, some regional public organizations and education institutions such as universities also provide employment services for free. There are also many privately-run employment agencies; these come in several types, including executive search-type agencies, as well as those which build up a database of registered potential employees and employers, and where the agency collects fees on a contingency basis (i.e., when someone from their database is successfully employed with a company). Japan also has a wide range of newspapers, magazines (e.g., job-transfer magazines, industry-specific magazines, etc.), and Internet websites through which companies can find employees. As far as labor contracts are concerned, the principle of freedom of contract applies to the hiring of workers, and allows an employer to decide what kinds of workers and how many to hire. There are, however, some restrictions. For instance, under the Equal Employment Opportunities Law, employers must afford equal opportunities regardless of sex when recruiting and hiring workers. For that reason, employers may not specify male or female employees when advertising situations vacant, with the exception of a few specific positions.

 

When hiring workers, companies enter into labor contracts with each worker. At that time, the employer must notify the employees in writing of the following employment conditions. Any part of a labor contract that does not meet the standards laid down by law is invalid. For example, a contract containing provisions such as "the company may dismiss the worker at any time for any reason," "the basic wage shall include all overtime pay," and "social insurance fees shall be borne entirely by the worker" (in the case of a business establishment covered by social insurance) is invalid insofar as these provisions are concerned. It is also illegal to impose a penalty for non-fulfillment of a labor contract. For example, it is illegal to include a clause such as the following: "If a worker retires within two years of joining the company, he/she must pay to the company the sum of 500,000 yen." However, this does not preclude an employer from claiming damages from a worker for losses actually incurred. Labor contracts generally do not stipulate a term. Where a term is specified, however, it must be no longer than three years except in a few special cases. However, a worker may resign by notifying his/her employer at any time as long as at least one year has elapsed since the date of the start of the contract term.

 

Working conditions such as wages, working hours, etc. may be changed by agreement between the company and the worker. Although the company may not change the working conditions in principle in a manner disadvantageous to the worker by changing the rules of employment, if the change to the rules of employment is reasonable in light of the extent of the disadvantage to be incurred by the worker, the need for changing the working conditions, the appropriateness of the contents of the changed rules of employment, the status of negotiations with a labor union or the like, or any other circumstances pertaining to the change to the rules of employment, the working conditions that constitute the contents of a labor content shall be in accordance with such changed rules of employment.

 

Employers are allowed to set a limited period of probation prior to fully employing somebody, so as to see whether or not the probationary employee is able and suitable for the job. Probation periods generally last for about three months. However, it should be noted that if the employer decides not to fully employ somebody during or after the probation period, this refusal to employ is treated in the same manner as dismissal of an employee; in order for such a refusal to be legally allowed, valid reasons for refusal (which were not evident at the time of probationary employment) must have come to light during the period of probation, and it must be objectively reasonable for the employer to refuse to fully employ that person for the aforementioned valid reasons. When hiring a worker, a company may require that a guarantee of good conduct be provided by a relative of the worker or similar guarantor, and such a guarantee is held to be legally valid. The term of this guarantee is deemed to be three years if not specified, and up to a maximum of five years where a term is specified.

 

The contractual relationship between a company and directors, etc. is, as a rule, considered to take the form of an engagement agreement as opposed to a labor contract. Accordingly, the relationship is, as a rule, subject to the Companies Act rather than labor law. If a director, etc. does not have the right to represent a company and is employed in a manner very similar to that of a worker, he/she may be simultaneously subject to labor law as a dual worker/director, etc.

Wage System Overiew

Principles of wage payment: employers must pay wages in legal tender, directly to the employee, not less than once per month, and on a specified date. However, employers are allowed to remit wages into a bank account specified by the employee where the employee agrees to that method of payment, and may also deduct social insurance premiums, taxes and similar expenses from wages. The minimum wage is determined according to region and industry. Where an employee is subject to two different minimums, the employee is entitled to the higher of the two minimum wages. The employer must pay the employee a wage that is not less than the minimum wage. It is typical for Japanese companies to pay wages on a monthly basis, and to pay employees summer and winter bonuses.

 

Working hours, breaks, days off: Working hours must, in principle, not exceed 40 hours per week or eight hours per day excluding breaks (this is known as "statutory working hours"). However, some businesses are permitted to have their employees work up to 44 hours per week at a maximum of eight hours per day. These businesses include retail and beauty services, cinemas and theatres, businesses related to health and hygiene, as well as restaurants and entertainment businesses with less than 10 regular employees. In the event that an employee works six hours, the employer must give that employee not less than a 45 minute break; this increases to a one hour break where working hours exceed eight hours. Employers must grant employees at least one day off per week, or four days off in any four-week period (this is known as "statutory days off"). Sundays or public holidays need not necessarily be days off, and other days may be selected as employees' days off instead by agreement between the employer and employees. Any employer that requires workers to work in excess of statutory working hours or on statutory days off must submit a Notification of Agreement on Overtime and Work on Days off to its local Labor Standards Inspection Office. If employers force employees to do overtime work or work on days off without submitting a Notification of Agreement on Overtime and Work on Days off, they may be penalized. Even if employers submit a Notification of Agreement on Overtime and Work on Days off, there are limitations for overtime work and work on days off. The Labor Standards Act contains provisions on working hours, holidays, nighttime overtime work, and other working conditions. Employers are therefore under an obligation to properly ascertain and control working hours.

 

Companies must pay an increased rate of wages as set forth in the table below to employees who work in excess of statutory working hours, work on statutory days off or work late at night (between 22:00 and 05:00):

Work in excess of statutory working hours -- 25% increase

Work in excess of statutory working hours exceeding 60 hours in a month -- 50% increase

Work on statutory days off -- 35% increase

Work late at night (between 10 p.m. and 5 a.m.) -- 25% increase

Work late at night in excess of statutory working hours -- 50% increase

Work late at night in excess of statutory working hours exceeding 60 hours in a month -- 75% increase

Work late at night on statutory days off -- 60% increase

 

Persons in positions of management or supervision and persons handling confidential administrative work who are closely involved in management are not subject to the regulations on working hours, breaks and days off (with the exception of regulations on night work). Whether he or she is regarded as a manager/supervisor is comprehensively judged by facts.

 

Employers must grant 10 days' paid leave to employees that worked for six consecutive months from the time of hiring and who worked on not less than 80 per cent of all schedule work days. This paid leave may be taken consecutively or separately. Where an employee's application to take paid leave will hinder the normal business operations, the employer may require the employee to take such paid leave at a different time. The right to annual paid leave expires after two years. In other words, annual paid leave left over from one year may be carried over and taken the next year only. Employees that have been continuously employed at the same company for not less than seven years and six months can take a maximum of 40 days' paid leave in any one year, including days that became available within that year and those carried over from the previous year. Employers are not required to grant paid leave days in addition to those described above to cover days on which employees did not work as a result of any non-work-related illness or injury. It should also be noted that most Japanese companies grant a few additional paid leave to employees for marriage, death of close relatives, and childbirth by the employee's spouse, etc.. In additon, employers must have all regular employees undergo a health check-up by a doctor once per year (or at least once every six months in the case of employees engaged in specific kinds of work which may damage the employees' health including late night work and work involving X-rays).

 

An employer is only allowed to dismiss an employee if there are objectively reasonable grounds for dismissal, and dismissal is deemed to be appropriate in light of socially accepted ideas. Furthermore, all possible grounds for dismissal must be clearly stated in the work rules if the dismissal of an employee is to be valid. In Japan, moreover, termination of an employment contract by the payment of a certain amount of money is not recognized as a matter of course by law (except where an amicable settlement is reached between the parties concerned). As it is exceedingly difficult to judge the validity of dismissal in concrete cases, it is recommended that employers first obtain the advice of a specialist in labor law (such as an attorney or labor and social security attorney). There is considerable precedent in case law to the effect that it is necessary to meet the following four criteria when making employees redundant as part of company restructuring (i.e., dismissal of employees in order to reduce staff numbers as a result of deteriorating business performance) in order for the redundancies to be deemed reasonable:

1 Necessity -- the company must prove that its business circumstances are such that redundancies are unavoidable and necessary.

2 Effort to avoid redundancy -- the company must prove that it has made serious managerial efforts to avoid redundancies such as by re-assigning staff and advertising for voluntary redundancies.

3 Reasonable selection -- the company must prove that the standards by which it selected those to be made redundant are reasonable, and that redundancies were carried out fairly.

4 Reasonable process -- the company must prove that it conducted sufficient consultations with workers and labor unions.

 

Employers cannot dismiss employees in the following situations, and are subject to penalties for infringement:

1 While an employee is on leave from work as a result of illness or injury incurred in the course of work, or for 30 days following the completion of such leave.

2 While an employee is on maternity leave of six weeks prior to (14 weeks in the case of multiple pregnancy) and eight weeks after the childbirth, or for 30 days following the completion of such leave.

The following cases of dismissal do not have legal effect:

1 Dismissal of a female worker during pregnancy or within one year of giving birth.

2 Dismissal due to a worker's having reported an illegal act committed by his/her employer to the relevant authorities.

If an employer wishes to dismiss an employee, the employer must give the employee at least 30 days' notice. If the employer wishes to dismiss the employee summarily and without notice, the employer must pay the employee 30 days' wages at the time of dismissal (notice allowance).

 

In Japan, freedom of choice of occupation is guaranteed by the Constitution. Accordingly, an agreement that prohibits working for a competitor for a certain period after leaving his/her former employer is only valid if the term, geographical scope, professional field concerned, and similar restrictions are reasonable and commensurate compensation is provided. Regarding trade secrets, both the disclosure of former employers' trade secrets by workers and questioning by enterprises of workers about such trade secrets are prohibited by law under the Unfair Competition Prevention Act.

 

The directors of Kabushiki-Kaisha (joint-stock corporations) terminates upon expiration of their term of office. Moreover, the directors may resign at any time at their own discretion. However, if it causes a vacancy in the position, the directors may not be released from their obligations as directors until new directors take office. Directors might be dismissed upon a resolution of the General Meeting of Shareholders at any time and regardless of the reasons. However, if the company dismisses the directors before the expiration of the term of office without any justifiable reason, the company must indemnify for damage caused by that dismissal.

Japan Social Security System Overview

Japan has a universal insurance system whereby everybody residing in Japan must, in principle, take part in the public health (medical) insurance and pension insurance system. Japan has four different kinds of insurance system which companies are legally obliged to take part in; all workers that meet certain criteria are covered by the insurance:

1 Employees' Pension Insurance: provides for benefits to workers in their old age, or in the case of death or disability.

2 Health Insurance and Nursing Care Insurance: cover medical and nursing care expenses incurred by workers.

3 Employment Insurance: provides for workers that become unemployed and helps to maintain stable employment such as by providing financial aid and subsidies.

4 Workers' Accident Compensation Insurance: covers any illness or accident incurred by workers as a result of work or while commuting to or from work.

A company must enter these insurance systems when first incorporating or hiring staff by submitting labor and social insurance notification forms to the relevant authorities. The company usually pays insurance premiums by deducting the portion of the premiums payable by employees from their wages, and paying these together with the portion of the premiums payable by the company to the relevant authorities.