A fixed-term contract ends on its end date, and in principle the employer does not have to renew it. Japanese courts have long qualified that. In the Toshiba Yanagicho Factory case in 1974, the Supreme Court held that where short contracts had been renewed so routinely that they were in substance open-ended, refusing renewal had to be judged like a dismissal. In the Hitachi Medico case in 1986 it extended protection, in a weaker form, to employees who had a reasonable expectation of renewal. Article 19 of the Labour Contract Act wrote both rules into statute from 10 August 2012.
The rule works in two steps. First, does the contract fall into either category: renewed repeatedly so it is effectively open-ended, or one where the employee has a reasonable expectation of renewal? Courts look at the nature of the work, how many times and how mechanically the contract was renewed, what was said at hiring, and how other staff were treated. Second, if so, and the employee has asked for renewal, the employer's refusal must have objectively reasonable grounds and be socially appropriate. If it does not, the contract is deemed renewed on the same terms.
Procedural rules sit alongside. Where a contract has been renewed three or more times, or the employee has worked more than a year, the employer must give at least 30 days' notice of non-renewal unless it was made clear at the outset. Since April 2024, any cap on the number of renewals or on total length must be stated in the terms of employment, and introducing or lowering a cap later requires an explanation to the employee in advance.
What it means for a foreign employer
- Repeated renewals create a quasi-permanent employee. Three or four automatic renewals and a "we usually renew" conversation at hiring are enough to put the contract under Article 19.
- State the cap at the start. A limit written in the first contract is far more defensible than one introduced as the five-year conversion point approaches.
- Budget pressure is judged more leniently, but not ignored. Courts allow employers somewhat more room to drop fixed-term staff before cutting permanent ones in a downturn, but still expect reasons.
- Give notice and reasons in writing. An employee who is not renewed can ask for the reason, and the employer must provide it.
Sources
- Labour Contract Act, Article 19 (in force 10 August 2012).
- Supreme Court, Toshiba Yanagicho Factory case, 22 July 1974; Hitachi Medico case, 4 December 1986.
- Ministry of Health, Labour and Welfare, Standards on the Conclusion, Renewal and Termination of Fixed-Term Labour Contracts (2003, as amended in force April 2024).