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.

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.

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.

Employers cannot dismiss employees in the following situations, and are subject to penalties for infringement.

The following cases of dismissal do not have legal effect:

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.

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.

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.

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.