The government proposes to specify certain organisations, namely those with a high proportion of employees who are foreign nationals, and those which have been trading for less than five years, and which are located in “special zones” (likely to be major urban cities such as Tokyo, Osaka and Nagoya) (Companies) as targets for initial roll-out of the proposed reforms. A draft bill is expected this autumn.

The proposals include:

• enabling Companies to terminate employment contracts of professional workers (such as lawyers) unilaterally where the contract sets out the terms on which the employer may terminate unilaterally and the employer pays financial assistance for securing an alternative position;
• exempting Companies from their current obligation to pay compulsory overtime pay to their workers; and
• exempting Companies from the law giving the right to non-permanent staff members to convert their employment contract into a permanent contract once they have worked for the same employer for longer than five years, by allowing agreements with fixed-term employees whereby employees waive the right to conversion to permanent contract.

There is, reportedly, a wide gap between the Cabinet’s position and the views held by the Ministry of Health, Labour and Welfare (Ministry) which is against the introduction of “special zones” on the basis that this may undermine the principle of fairness and equality for workers. Further, the Ministry is concerned that exemptions from the obligation to convert fixed-term contracts to permanent contracts may result in employers effectively forcing employees to waive their right to potential permanent employment due to their inherent unequal bargaining position.

Action For Employers

Employers should be aware of this potential change to employment contracts and be prepared to adjust their practices in the event that labour laws are amended, especially if they fall within the initial target company profile.

For further information, please contact:

Mark Johnson, Partner, Herbert Smith Freehills
[email protected]

Gareth Thomas, Herbert Smith Freehills
[email protected]

Justin D’Agostino, Herbert Smith Freehills
justin.d’[email protected]

Priya Aswani, Herbert Smith Frehills
[email protected]