Japan Employment Contracts

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Japan Contracts

International companies hiring employees for their expansion into Japan face extensive tax, employment, and social insurance regulations. Failure to comply, risks fines and sanctions and, in the case of Japan’s employee privacy laws, even imprisonment. The employer-employee relationship is governed by the Labor Standards Law (LSL) and its Enforcement Ordinance, the Labor Standards Inspection Office (LSIO) with guidelines from the Ministry of Health, Labor and Welfare (MHLW).

These laws add up to an extremely protective environment for employees and employers will have to avoid many pitfalls in the ‘hiring and firing’ process … especially when it comes to firing.

In drawing up their agreement, parties cannot ‘opt out’ of statutory or mandatory requirements of the law and some specific requirements should be considered.

  • It is not a legal requirement for employees to have a formal written contract, but employers must provide a written agreement detailing essential factors of the working relationship.
  • The agreement must include salary and payment schedule, working hours and vacation entitlement, termination and disciplinary procedures, grounds for dismissal.
  • The contract does not have to be in Japanese, but in the case of translations only the Japanese version may be legally valid.
  • Employee contracts are usually Permanent / Regular (Sei-sha-in) or Fixed-Term / Contract (Keiyaku-sha-in).
  • Employees continuously employed by the same employer on fixed-term contracts for more than five years are able to switch to a permanent contract under the ‘conversion rule’.
  • Where a company employs more than 10, workplace rules must be filed with the LSIO

Employment Contracts in Japan

The main types of contracts in Japan include:

  • Permanent or Regular Employee Contracts (Sei-sha-in): These are preferred by employees, but harder to terminate for employers.
  • Fixed-Term or Project-based Employee Contracts (Keiyaku-sha-in): Such contracts are for specific projects or periods, and easier for employers to terminate arrangements simply by not renewing. Employees are generally entitled to same benefits as permanent employees. A fixed-term contract should not exceed three years unless it is tied to completing a specific project. An exception includes where an employee possesses ‘highly specialized skills’ or is over 60 years old, in which case the contract can be for five years.
    Employees continuously employed by the same employer on fixed-term contracts for more than five years are able to switch to a permanent contract under the ‘conversion rule’.
  • Probationary or Trial Periods: The trial period is usually between three and six months and cannot exceed one year. The trial can be put in place before the potential employee is officially engaged but must be used to assess suitability for intended role. Employers may find it hard to justify termination at the end of the trial period as the individual will be treated under the same laws for dismissal as a full-time employee under the Labor Standards Law.
  • Temporary Staff Contracts or Agreements (Haken-shain): These apply to individuals hired out to companies by agencies and can apply to those having one or two jobs with different companies, or a person employed full-time with a company. In this case contracts are usually for three or six months and can be renewed by the company/agency up to a maximum of three years. After this the company must decide whether or not to offer their own contract to the employee.
  • Youth Employment: The Labor Standards Law bans employment of under-15s unless involved in film, theatre, or artistic performances. Under-18s may work out of school hours only in light labor roles that do not involve hazardous surroundings or working underground.
  • Collective and Trade Union Agreements: The norm in Japan is for collective agreements to be negotiated at company level and not nationwide or across different sectors or industries. An exception is the ‘spring wage offensive’ (Shunto), which aims to secure national and industry minimum wage agreements. Labor unions liaise on their joint demands before negotiations begin with employers.

The Labor Union Act bars employers from refusing to take part in collective negotiations, although the process is not formally regulated.