Redundancy is the case where Japan's general dismissal rule bites hardest, because the employee has done nothing wrong. The test grew from case law, starting with the Toyo Sanso case in 1979, in which the Tokyo High Court set out conditions for dismissals following the closure of a business division. Later courts organised them into four elements, now usually treated as factors weighed together.
The first is the need to reduce headcount. The business reason must be real, though courts accept more than imminent insolvency. The second is effort to avoid dismissal: cutting overtime and hiring, not renewing temporary staff, reducing executive pay, redeploying or seconding staff, and usually offering a voluntary early retirement programme first. The third is fair selection, on objective and reasonable criteria applied consistently. The fourth is procedure: explaining the situation and consulting in good faith with the union or the employees affected.
There are also administrative duties. Where 30 or more employees at a workplace will leave within a month for business reasons, the employer must notify Hello Work at least a month before the last departure, normally by preparing a re-employment assistance plan. Smaller numbers can still trigger a notice for older employees: where five or more employees aged 45 to 69 leave a workplace within a month through dismissal or other company reasons, the employer must file a mass separation notice with Hello Work in advance.
Closing a whole business is different. Where an entity genuinely shuts down, courts are more accepting, though procedure still matters. A sham closure followed by the same business in a new entity gets no such leeway.
What it means for a foreign employer
- "Headquarters decided" is not a reason. A global headcount cut at a profitable Japan entity is weak on the first factor. Show the Japan-specific numbers.
- Run the voluntary programme first. Skipping a voluntary early retirement offer is one of the most common reasons redundancy dismissals fail.
- Write selection criteria down before choosing names. Criteria picked to match a list of unwanted individuals do not survive scrutiny.
- Plan for months, not weeks. Consultation, a voluntary window and the Hello Work notice take time. Announcing a Japan reduction on a global timeline creates the procedural weakness.
Sources
- Labour Contract Act, Article 16.
- Tokyo High Court, Toyo Sanso case, 29 October 1979.
- Act on Comprehensive Promotion of Labour Policies, Articles 24 and 27.
- Act on Stabilisation of Employment of Elderly Persons, Article 16, and its Enforcement Ordinance, Article 6-2 (mass separation notice for workers aged 45 to 69).
- Ministry of Health, Labour and Welfare, guidance on re-employment assistance plans and mass separation notices.