Elsewhere an employer that wants to cut a benefit can often give notice and change the contract. In Japan there are three routes, and each is narrow.
The first is individual consent. Article 8 of the Labour Contract Act allows the parties to change terms by agreement. Courts are wary of consent obtained on the employer's terms, however. In the Yamanashi Prefectural Credit Union case in 2016, the Supreme Court held that a signature agreeing to a cut in retirement benefits was not enough. The question is whether, given the size of the disadvantage, the explanation given and how the consent was obtained, there were objectively reasonable grounds to find it was given of the employee's free will.
The second is changing the work rules. Article 9 says an employer cannot worsen terms by changing the work rules without employees' agreement, and Article 10 sets the exception. The change binds employees if it was made known to them and is reasonable, judged on the extent of the disadvantage, the necessity of the change, how appropriate the new terms are, the state of negotiation with the union or employees, and other circumstances. This codifies a line of cases from the Shuhoku Bus case in 1968 through the Daishi Bank case in 1997. Changes to core terms such as pay and retirement benefits need a highly compelling business necessity. In the Michinoku Bank case in 2000, a wage system change that hit older employees hard was held unreasonable as applied to them, despite union agreement, because there were no transitional measures. Terms that employer and employee specifically agreed would not be changed through the work rules cannot be overridden this way.
The third is a collective agreement, which binds union members, as discussed under that entry.
What it means for a foreign employer
- Global harmonisation is not a reason on its own. Aligning Japan benefits with a group standard is a business choice, not the kind of necessity courts accept for a cut in core pay.
- Phase it and compensate. Transitional measures, grandfathering and offsetting improvements are what make a work rule change reasonable.
- Consent forms need real explanation. Show the effect in yen for each employee, give time to consider and keep the record. A signature collected in a team meeting may not hold.
- The issue arises after acquisitions. Integrating an acquired Japanese company's richer benefits is a classic disadvantageous change. Price it into the deal.
Sources
- Labour Contract Act, Articles 8, 9 and 10.
- Supreme Court, Shuhoku Bus case, 25 December 1968; Daishi Bank case, 28 February 1997; Michinoku Bank case, 7 September 2000.
- Supreme Court, Yamanashi Prefectural Credit Union case, 19 February 2016.