When a Japanese employee reaches the retirement age, usually 60, their employment ends. Under the continued-employment route most employers use, the company then offers a new contract, typically renewed year by year until 65. The employee often does the same or similar work, and is often paid considerably less, sometimes with a new title that reflects advisory rather than line responsibility.
The pay cut has been tested in court under the equal-pay rules for fixed-term workers. The courts have held that retirement and re-employment are circumstances an employer may take into account, but not without limit: the reasons for each element of the pay difference matter, and cuts to base pay need to be justified.
What it means for a foreign employer
- Good people are available at 60. Experienced managers on re-employment contracts at Japanese companies are often doing their old job for less money. For the right role they are an under-used talent pool.
- Mind the cost of your own system. If your entity re-employs at 60, the pay and terms need a justification that would stand up under the equal-pay rules.
- Ask senior candidates where they are on the curve. A candidate at 58 may be weighing your offer against two years of full pay and five years of reduced pay at their current company.
Sources
- Act on Stabilisation of Employment of Elderly Persons, Article 9.
- Part-Time and Fixed-Term Employment Act, Article 8 (balanced treatment); Supreme Court, Nagasawa Unyu case (2018) and Nagoya Jidosha Gakko case (2023).