Japan has no statutory severance formula, and a dismissal that fails the abuse-of-rights test is void rather than compensated. In practice, though, very few contested dismissals end with the employee going back to work. The employer pays a sum, the employee withdraws the claim and resigns, and both sides sign an agreement that usually includes confidentiality and a mutual release. That sum is the kaiketsukin.
The amount reflects risk more than any formula. The stronger the employee's case, and the more back pay would accrue if the dispute ran on, the higher the figure. Research by the Japan Institute for Labour Policy and Training on cases concluded in 2020 and 2021 found that over 96% of dismissal cases in both labour tribunals and court settlements ended in money rather than reinstatement. Medians were about 1.5 million yen in tribunals and 3 million yen in court, up by roughly 30% on a survey a decade earlier. Mediation at a prefectural labour bureau, where the employer is not obliged to take part, produces much smaller sums: a median of about 235,000 yen in cases closed at four bureaus in fiscal 2023. Senior and long-serving employees, whose monthly pay is high, sit well above all of these medians.
Proposals for a legal scheme to resolve invalid dismissals by payment have been debated for years, but no such scheme had been enacted at the time of writing.
What it means for a foreign employer
- Budget for it before you start. Most exits in Japan are negotiated. Price a settlement in months of pay, scaled by tenure and the strength of your documentation.
- Paying earlier is usually cheaper. A negotiated exit agreed before any claim costs less, in money and management time, than one agreed in a tribunal.
- Count what leaves with the person. A long-tenured employee takes relationships and institutional memory with them, and a harsh exit can prompt others to follow. Sometimes the cheaper decision is not to exit at all.
- How you settle is remembered. The talent community is small and long-memoried. A generous, dignified exit protects your employer brand with the candidates you will want to hire next.
Sources
- Japan Institute for Labour Policy and Training, Research Report No. 226 (2023), comparative analysis of employment termination cases in labour tribunals and court settlements; Research Eye No. 78 (2023).
- Japan Institute for Labour Policy and Training, Research Report No. 237 (2025), analysis of dismissal cases in labour bureau mediation.