Disciplinary dismissal is the top of the disciplinary ladder and the most serious mark an employer can put on a career in Japan. It is used for conduct such as embezzlement, serious harassment, a criminal conviction that damages the employer, falsified career history, or prolonged unauthorised absence. Because it is both a sanction and a dismissal, it has to pass two tests. It must be a ground listed in the work rules and proportionate under Article 15 of the Labour Contract Act, and it must have objectively reasonable grounds and be socially appropriate under Article 16. Courts often find the conduct real but the sanction too severe. Many work rules therefore include a slightly lighter step, the recommendation to resign, under which an employee who resigns within a set period avoids dismissal and may keep some or all of their retirement pay. It carries less legal risk.
Two financial consequences follow. First, notice. The Labour Standards Act still requires 30 days' notice or pay in lieu, unless the Labour Standards Inspection Office certifies that the dismissal is for a reason attributable to the employee. Calling a dismissal disciplinary does not by itself remove the notice duty. Second, retirement pay. Most work rules say a disciplinarily dismissed employee forfeits all or part of the retirement allowance. Courts allow full forfeiture only where the conduct effectively cancels out the value of the employee's years of service. In the Odakyu Electric Railway case in 2003, the Tokyo High Court upheld the dismissal of an employee convicted of groping on trains but ordered the company to pay 30% of his retirement allowance, because the offences were outside work.
The employee also loses out on unemployment benefit: a dismissal for serious misconduct is treated like a voluntary resignation without good cause, with a restriction period before payments begin.
What it means for a foreign employer
- It is rarely the right tool. Unless the misconduct is serious and well evidenced, a negotiated exit is usually cheaper and faster than defending a disciplinary dismissal.
- Apply for the notice exemption, or pay in lieu. Dismissing on the spot without the inspection office's certification is itself a breach.
- Do not assume retirement pay is forfeited. Budget for a partial payment unless the conduct directly harmed the business.
- It matters at hiring. A falsified CV is a common ground. Background and reference checks for senior hires reduce the chance of having to use it.
Sources
- Labour Contract Act, Articles 15 and 16.
- Labour Standards Act, Articles 19 and 20.
- Tokyo High Court, Odakyu Electric Railway case, 11 December 2003.
- Employment Insurance Act, Article 33.