For most of the postwar period, the rules that decided the hardest employment questions in Japan were not in any statute. Whether a dismissal was valid, whether a transfer order had to be obeyed, whether work rules could be changed to employees' disadvantage: all of this was judge-made law, built up case by case from the 1950s onwards. The Labour Contract Act, passed in 2007 and in force from March 2008, wrote much of that case law into a short statute.
It is a different kind of law from the Labour Standards Act. It sets no minimum standards, carries no criminal penalties and has no inspectorate. It is civil law, enforced when an employee sues or goes to the labour tribunal. Its key provisions are the employer's duty to consider employees' safety (Article 5), the rules on when work rules form part of the contract and when they can be changed (Articles 7 to 10), the limits on secondment, discipline and dismissal as abuses of right (Articles 14 to 16), and the restriction on dismissing fixed-term employees before their term ends (Article 17).
A 2012 amendment added the two rules on fixed-term contracts that matter most in practice: conversion to an open-ended contract after five years (Article 18) and the codified protection against non-renewal (Article 19). A third rule from that amendment, on unreasonable differences in treatment for fixed-term staff, was moved in 2020 into the Part-Time and Fixed-Term Employment Act.
What it means for a foreign employer
- This is where most litigation risk sits. Inspectors enforce the Labour Standards Act. Employees and their lawyers enforce this one.
- The statute is short, the case law is long. Article 16 is one sentence. What counts as reasonable grounds is decided by decades of judgments, so the text alone will not tell you whether an exit will hold.
- It applies to every employee in Japan. Choosing foreign law for a Japan-based employee's contract does not remove its mandatory protections when the employee invokes them.
- Plan contract structures around Articles 18 and 19. Fixed-term hiring is not a way to keep exits easy if the contracts keep renewing.
Sources
- Labour Contract Act (Act No. 128 of 2007), Articles 3, 5, 7 to 10 and 14 to 19.
- Act partially amending the Labour Contract Act, promulgated 10 August 2012.
- Act on Improvement of Employment Management for Part-Time and Fixed-Term Workers, Article 8 (in force April 2020).