Jurisdiction - Japan
Reports and Analysis
Japan – Amendments To Fixed-Term Labour Contracts.

27 February, 2013

On August 10, 2012, amendments to the Japanese Labor Contract Act were enacted that establish three new provisions regarding fixed-term employment contracts. They are to come into force on April 1, 2013. In Japan, where dismissal is extremely difficult and equal pay for equal work is not an established principle, many companies hired a large number of fixed-term employees as a form of labor adjustment and to control labor costs. As a result, the number of fixed-term employees in Japan currently exceeds 20 percent of all employees, creating a social problem of unstable employment and lower wages. The amendments seek to resolve this issue.

 

The first provision states that if the aggregate period of a consecutive fixed-term employment contract under the same employer exceeds five years, and the employee submits a request to be converted to an undetermined-term employee, the employer will be deemed to have accepted and the conversion will take effect the day after expiration of the fixed-term contract. Requests for conversion must be submitted by the expiry date of the fixed-term contract that will exceed five years. Previously, many companies chose not to renew a fixed-term employment contract after three to five consecutive years since the possibility the court would rule that its nonrenewal is ineffective would increase substantially after repeated renewal over three to five years. It is now expected that the number of companies that refuse to renew a fixed-term employment contract before it exceeds five years will increase, which would actually lead to occupational instability for fixed-term employees.

 

The second provision is the adoption of a doctrine on nonrenewal of fixed-term employment contracts, analogous to the precedent doctrine on abuse of right of dismissal. Specifically, nonrenewal of an employment contract will not be accepted and the fixed-term contract will be deemed to have been renewed under the following conditions:

 

1. If termination under the fixed-term employment contract is deemed to be equivalent to termination under an undetermined-term contract due to repeated renewals; or
2. if the employee has a reasonable expectation that the fixed-term contract shall be renewed after expiration, and nonrenewal by the employer is not considered socially acceptable.

 

The third provision prohibits unreasonable working conditions resulting from the difference in work period of a fixed-term employee compared to an undetermined-term employee. Whether or not employment conditions are “unreasonable” will be determined based on the following:

 

1. The content of the work;
2. the scope and content of work due to assignment change; or
3. other factors (standard employment affairs).

 

This provision is based on the concept of equal pay for equal work, but because different and unfavorable working conditions are allowed only on fixed term employees, as long as they are reasonable, it is expected that it will only apply under limited circumstances. In the future, companies will have to pay even more attention to contracts with fixed-term employees in order to prevent cases where the companies are forced to continue employment beyond the agreed terms.

 

 
For further information, please contact:
 
Elizabeth Cole, Partner, Orrick

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