Coronavirus redundancies at Japanese companies

Coronavirus redundancies at Japanese companies

October 16, 2020 0:52AM by , 635 views

Coronavirus COVID-19 pandemic, three words that have destroyed many companies’ finances, reduced corporate treasuries and savings accounts, and forced many companies, especially in the aerospace and travel sectors, to look closely at the Japanese subsidiary’s costs and performance. What many are finding is employees in Japan on inflated salaries, overly expensive prestige Tokyo offices now empty (but still costing monthly rent) as employees work remotely, and worse, many companies that furloughed staff in Japan are finding overall performance has been unaffected. Against the backdrop of reduced market demand and reduced cash, it’s inevitable employers will need to reduce Japanese labor costs.

Given Japan’s reputation for lifetime employment, impossible labor laws (notably Japan’s Labor Contracts Act ‘労働契約法’ and Labour Standards Act ‘労働基準法’), and judges supposedly waiting for any opportunity to overturn unfair dismissals, how does a Japanese employer legitimately reduce its workforce?

First let’s look at the root of lifetime employee (in Japanese 正社員). You won’t find those three Japanese characters in any Japanese law; both the Labour Contracts Act and Japan’s Labor Standards Act refer to ‘労働者’ (rodosha, which means worker). If there’s no mention in either the Labour Standards Act or Labor Contracts Act, why is the term lifetime employee so freely used? We need to look at Article 16 of Japan’s Labor Contracts Act:”

  • “Article 16. If a dismissal lacks objectively reasonable grounds and is not considered to be appropriate in general societal terms, it is treated as an abuse of rights and is invalid.”

It’s Japanese courts’ interpretation of Article 16 that gives rise to lifetime employment. Japanese judges tend to undo dismissals unless the dismissed employee did something that gave clear undeniable cause, such as drunkenness, lewdness, violent, or abusive acts in the workplace. As an aside, this is why it’s so important an employer doesn’t listen too carefully to a Tokyo recruiter’s oft exaggerated claims of a candidate’s performance, but instead relies upon exhaustive interviewing. Under normal circumstances, a problem employee can be very difficult to shed……but these times, with the COVID-19 pandemic in full force, are not normal circumstances. So what difference does the pandemic make to the challenge of cutting Japanese staff levels?

It’s a vagary of Japanese labour law that the potential reversal of dismissal is governed by the Labor Contracts Act, yet the process of dismissal is governed by the Labour Standards Act, specifically Article 20(1):

  • “Article 20(1) If an employer wishes to dismiss a worker, the employer must provide at least 30 days’ advance notice. An employer not giving 30 days’ advance notice must pay the worker the average wage they would earn in working for a period of at least 30 days; provided, however, that this does not apply if business continuance has become impossible due to a natural disaster or any other compelling reason, nor does it apply if the worker is dismissed for reasons attributable to the worker.”

Note the “…this does not apply if business continuance has become impossible due to a natural disaster or any other compelling reason.”

Before using Article 20(1) as justification for ending your Japanese employees’ employment, you need to be aware of some important points not stated in the Labour Standards Act but which you must follow if you want to avoid successful (from the dismissed Japanese employee’s perspective) labour litigation:

  1. A Japanese employer should actively involve its employees in the process of reducing the workforce. This means:
    • Notifying the employees in advance that the company is facing severe financial issues.
    • If practical, asking for pay reductions or voluntary resignations.
  2. If ending selected employees’ employment becomes unavoidable, a Japanese employer should:
    • Be certain there is clear justification for ending the employment of the selected employees (especially showing that economic necessity is not being used as an excuse to remove underperforming employees).
    • Pay the affected employees thirty days’ wages as severance pay.

Of course the above points will be moot if the Japanese employer is on the verge of bankruptcy.

What happens if a disgruntled Japanese employee objects strongly to dismissal? His or her first stop will probably be the Labour Standards Inspection Office, in which case an inspector will asses the above and either advise the employee to accept the dismissal or, if there seems to be the suspicion of unfair dismissal, contact the Japanese employer to start mediation. Such mediation will be directed toward the Japanese employer reinstating the employee or at least offering an enhanced severance package, but only in cases where the above outlined process wasn’t followed or the inspector considers the dismissal is unjust.

If an employee is litigious, he or she will probably bypass the Labor Standards Inspection Office and go direct to an attorney specialized in labor litigation. Assuming the attorney decides to accept the case, the Japanese employer will then receive a letter from the attorney demanding reinstatement, damages and legal fees, or possibly demanding an extended severance package. Given the average Tokyo law firm charges JPY35,000 an hour for junior attorneys and JPY55,000 an hour and up for partners, even responding to a demand letter can cost JPY250,000 or more. If litigation ensues, average monthly legal fees can easily range JPY250,000 – JPY500,000 or more, and cases can take several years to move through court. Fortunately, if redundancy is properly managed with a reasonable employee, litigation is rare.


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