Investing in Japan
How to Set Up Business in JapanSection 4. Human Resource Management
4.8 Resignation and dismissal
If an employee on a labor contract with no set term of agreement wishes to resign (i.e., the employee wishes to terminate the labor contract by notifying the employer of his/her intention to do so), the employee can do so by providing two weeks' notice. Furthermore, there have been judgements made in courts that company rules stipulating that employees must give more than two weeks' notice are invalid when the rules stipulate an unreasonable notice period. If an employee on a labor contract with set terms of agreement wishes to resign, the employee 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. Even in cases where the parties have specified the terms of employment, either party may immediately cancel the contract if there are unavoidable reasons.
On the other hand, employers can only dismiss an employee (i.e., the employer terminates the labor contract by notifying the employee of its intention to do so) after satisfying several criteria. The burden of proof is on the employer in the case of a dispute.
4.8.1 Approved grounds for dismissal
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 a labor 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.
The company must prove that its business circumstances are such that redundancies are unavoidable and necessary.
- 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.
- 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.
- Reasonable process
The company must prove that it conducted sufficient consultations with workers and labor unions.
In order to help preserve jobs in situations where employees would otherwise have to be made redundant as part of company restructuring, there exists a system of "Employment Adjustment Subsidy," which is paid by the government to companies that temporarily lay off employees instead of making them redundant. The subsidy covers two thirds (one half in the case of large enterprises) of the cost of allowances paid for temporary layoffs, subject to the maximum amount of money.
4.8.2 Restrictions on dismissal
Employers cannot dismiss employees in the following situations, and are subject to penalties for infringement.
- 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.
- 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.
4.8.3 Cases where dismissal is invalid
The following cases of dismissal do not have legal effect:
- Dismissal of a female worker during pregnancy or within one year of giving birth.
- Dismissal due to a worker's having reported an illegal act committed by his/her employer to the relevant authorities.
4.8.4 Dismissal procedures
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 (this payment of wages in rule of notice is known as a "notice allowance"). However, in the situations described below, employers may dismiss employees without notice and without paying a notice allowance so long as the employer obtains the approval of the head of the chief of the relevant labour standards inspection office.
- The company is unable to continue its business as a result of natural disaster or other such unavoidable circumstances.
- The dismissal of the employee is unavoidable and the result of causes attributable to the employee.
- An employee commits an act in the workplace that constitutes a crime under the Penal Code, including theft, embezzlement or causing injury.
- An employee breaches the rules or expected standards of behavior of the workplace, or exerts a negative influence on any other worker.
- An employee makes a false statement in his/her resume that is likely to be a factor in the decision to hire him/her.
- An employee is absent without leave and without due cause for a period of (generally) two weeks or more, and fails to respond to orders to report for work.
- An employee is repeatedly late for work, leaves work early or is absent without leave, and fails to improve his/her punctuality despite repeated warnings.
4.8.5 Dismissal in practice
In Japan, there are some methods apart from taking legal steps when an employer wishes to dismiss a worker for some reason. In practice, the employer will explain to the worker the business or job situation in order to persuade him or her to resign, and ultimately the worker will be persuaded, in many cases, to resign voluntarily. However, excessive retirement recommendation may be interpreted as dismissal. It is also common for various conditions to be discussed (such as the topping up of a worker's severance pay) to encourage a worker to agree to resign. However, there are judgements of courts that if persuasion goes beyond the limits of allowance and make it difficult for the worker to make free decision of leaving the company, it goes against the law.
4.8.6 Covenant not to compete
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 ,commensurate compensation concerned, and similar restrictions are reasonable. Regarding trade secrets, both the disclosure of former employers' trade secrets by workers and wrongful acquisition of such trade secrets by enterprises are prohibited by law under the Unfair Competition Prevention Act.
4.8.7 Termination of office, resignation and dismissal of directors
The office of directors of Kabushiki-Kaisha (joint-stock corporations) terminates upon expiration of their term of office. Moreover, 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.
Section4: Table of Contents
Section4: Samples of documents businesses are required to submit to authorities
These materials contain samples of documents regarding registration, visa, taxation, personnel and labor matters that are necessary when a foreign company establishes a corporation or other entity in Japan as well as descriptive examples of how to fill them out. A portion of the English content has been updated through a provisional translation. These documents are not published by competent authorities and therefore are not official. For those who are going through the official procedures, please download the latest official documents from the competent authorities and related bodies or consult a person who specializes in advising on such information and procedures.
The information contained in this documents should be used at the reader’s independent discretion. While JETRO makes every effort to ensure the accuracy of the information it provides, no responsibility is accepted by JETRO for any loss or damage incurred as a result of actions based on the information provided in these documents or provided by the external links listed on these pages.