Supreme Court: base pay cuts for re-employed retirees judged by what each pay element is for

On 20 July 2023 the Supreme Court overturned a ruling that base pay below 60% of retirement-age base pay was unlawful for re-employed retirees. Base pay and bonus gaps can breach equal-pay rules, but courts must first establish what each element is for and weigh how labour-management talks actually went.

Status
Court ruling
Ruling
20 July 2023
Applies to
Employers that re-employ retirees on fixed-term contracts at reduced pay

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

Sources

General information for employers, not legal advice. Dates and thresholds are checked against the sources listed and dated above; confirm anything you act on with a Japanese employment lawyer or a licensed labour and social security attorney.