What the court decided
Two driving instructors at Nagoya Jidosha Gakko retired at 60 and were re-employed on one-year contracts, doing the same work without their supervisor title. Their monthly base pay fell from about 180,000 and 167,000 yen to about 75,000 and 73,000 yen, below even that of regular staff with under five years' service. Their bonuses fell similarly.
The Nagoya High Court held that the part of the base pay below 60% of their pay at retirement, and the matching part of the bonus, was an unreasonable difference under the former Article 20 of the Labour Contract Act (now the Part-Time and Fixed-Term Employment Act).
The Supreme Court, First Petty Bench, unanimously set that aside and sent the case back. Differences in base pay and bonuses can be unreasonable, but a court must first identify the nature and purpose of each: whether regular staff base pay rewards service, the job or ability, and what the retirees' base pay was for. It must also consider not only the outcome of labour-management negotiations but how they actually went. The High Court had done neither.
Why it matters
The ruling rejects a simple percentage test in either direction. Large cuts on re-employment are not automatically lawful, and not automatically unlawful.
Action for employers
- Document what each pay element is for. Write down the purpose of base pay, bonuses and allowances for regular staff and for re-employed staff.
- Check re-employment pay against junior staff. Pay below new or short-service regular employees doing similar work is the hardest to defend.
- Keep a record of consultations. How you responded to union or employee requests is now part of the test.
- Review your 60-to-65 offer. Re-employment terms at a Japan entity should be designed, not inherited.
Sources
- Supreme Court, First Petty Bench, judgment of 20 July 2023, Case No. 2022 (Ju) 1293 (Nagoya Jidosha Gakko case).
- Labour Contract Act, former Article 20; Act on Improvement of Employment Management for Part-Time and Fixed-Term Workers, Article 8.