OUTLINE
Notice period in Japan
Termination procedure in Japan
Non-compete clause in Japan
Waivers in Japan
Transfer of undertakings in Japan
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End of employment in Japan
The regulations around end-of-employment in Japan can be complicated. As an employer, you need to manage this process carefully to avoid facing legal disputes that could hurt your company’s reputation.
In this guide, we will provide everything you need to know about end-of-employment, such as notice periods, post-termination restraints, transfers of undertakings and more.
Lifetime employment in Japan
Embedded in Japanese work culture, lifetime employment is a concept that refers to traditional employment practices where companies hire employees with the expectation that they will stay with the company until retirement.
In Japan, employees often enjoy a high level of job security, as companies typically do not lay off workers except in extreme circumstances. Promotions and pay raises are often based on how long someone has been with the company, which encourages loyalty and commitment.
With this practice, employers typically hire new staff straight from school or university with an unwritten understanding that they will remain with the company until they retire. This lifetime employment system offers benefits like a stable work environment, a strong company culture, and a mutual commitment between employees and employers. When done well, it can help companies save on recruitment costs and reduce turnover rates.
Notice period in Japan
Under the Labour Standards Act, both employers and employees must give at least 30 days’ notice before ending employment. If either party fails to provide this notice, they may be required to compensate the other party for the equivalent of 30 days’ wages.
Some companies may have specific policies or employment contracts that require longer notice periods, particularly for higher-level positions or permanent employees. In cases of severe misconduct, employers can terminate employment immediately without notice.
Leave notice under probationary period in Japan
Even during the probationary period, if an employee in Japan has been working for a company for 14 days or longer, all regulations for dismissal, including the notice period, apply just like for regular employees. This means employers need to provide 30 days’ notice before ending employment. If they choose to dismiss the employee without giving the full notice, they must pay at least 30 days’ worth of average wages.
Severance pay in Japan
There is no legal requirement for severance pay in Japan. It typically depends on the contractual agreement between the employer and the employee. However, many larger companies tend to offer severance pay, or where company-specific regulations stipulate such payment upon termination of employment.
While it is not mandatory, some businesses choose to provide severance payments based on tenure or other internal policies. On the other hand, terminated employees are not entitled to receive severance pay in Japan, unless otherwise specified in their individual employment contract or company’s labour policy.
Probationary period in Japan
Most probationary periods in Japan typically range from 3 to 6 months. This period is established to allow both the employer and the employee to evaluate the suitability of the employment relationship.
Employers should remember that even during the probation period, if an employee has worked for 14 days or more, all dismissal regulations apply. This means that the employer must either provide 30 days’ notice before terminating employment or pay at least 30 days’ worth of average wages if they end the employment without giving notice.
Termination procedure in Japan
The termination process in Japan depends on the employment agreement and any collective agreements in place. It can vary based on the job role, location, type of contract, and reason for termination.
Since the rules about dismissals can be complicated, it is common for terminations to happen through mutual agreements, with most of the time employees receiving additional compensation.
Fixed-term contract termination in Japan
According to the Labour Contracts Act, an employer cannot terminate a worker under a fixed-term labour contract without a legitimate cause. If either party wishes to terminate the contract before the end date, they must usually provide a valid reason. Common reasons might include misconduct or inability to perform job duties.
While fixed-term contracts typically do not require a notice period if the contract simply expires, if the contract is being terminated early, a notice period (usually around 30 days) is recommended unless otherwise specified in the contract.
Non-fixed term contract termination in Japan
When terminating a non-fixed term contract, the employer must have a valid reason, such as poor performance, misconduct, or company downsizing.
If employers terminate a non-fixed term or open-ended contract for economic reasons, such as downsizing, they need to meet the following criteria:
- Demonstrating the need to for staff reduction: It is essential to clearly justify why reducing the workforce is necessary for your business.
- Termination as a last resort: You must show that all other alternatives have been considered before deciding to terminate employment contracts.
- Fair selection process: The criteria for selecting employees for termination should be reasonable and transparent.
- Engagement in meaningful dialogue: There should be open communication with the employee or their representative throughout the process.
Non-compete clause in Japan
Non-compete clauses are typically allowed in employment contracts, but there are some conditions to make sure they do not unfairly limit an employee’s future job opportunities. A non-compete clause is more likely to be enforceable if it is reasonable in terms of duration, geographic limitation, and the types of employment it restricts.
In addition, the employer and employee must clearly agree on terms for a non-compete agreement to be valid after employment ends.
Customer non-solicitation clause in Japan
Customer non-solicitation clauses in employment contracts are similar to non-compete clauses. Their legality and enforceability depend on certain factors. The main thing that determines if these clauses are valid is whether they are reasonable. This includes considering how long the restrictions last after employment and what geographic area they cover.
To enforce these clauses, there should be balance between the employer’s need to protect their business and the employee’s right to seek new job opportunities.
Employee non-solicitation clause in Japan
Employee non-solicitation agreements can be part of employment contracts. These agreements can stop an employee from trying to recruit former coworkers after leaving the company. To include a non-solicitation clause, it should be clearly stated in the work rules or the specific employment agreement.
While courts do not often discuss how enforceable these clauses are, there have been some cases where courts viewed a former employee soliciting coworkers as interfering with the former employer’s business. So, while employee non-solicitation clauses are generally allowed, whether they can be enforced may depend on the specific situation and how courts interpret their intent and impact.
Waivers in Japan
For a waiver to be valid, the employee must give it voluntarily and knowingly. The employee should have a reasonable amount of time to review the waiver and should not face pressure or termination threats for not signing.
To prevent claims that the waiver is not valid, here are the key things you should keep in mind:
- Vol untary agreement: Ensure that when an employee signs a waiver, they do so by choice and fully understand what they are agreeing to.
- Have a brief discussion: When talking about waivers, keep the meetings as brief as possible and involve only one or two managers.
- Reasonable time to review: Give your employees enough time to review the waiver document thoroughly.
- No coercion: It is important to make clear to employees that their job is not at risk if they choose not to sign the waiver.
Transfer of undertakings in Japan
Employment contracts are not automatically terminated or transferred during a business transfer. Instead, to transfer an employment contract, one would typically terminate the contract with the old employer (transferor) and enter a new contract with the new employer (transferee).
In a business transfer, employees from the selling company remain with that company. If their roles are to be transferred to the buyer, the employees typically need to resign from the selling company and then be hired by the buyer with a new employment contract.
In a merger, the merged company will no longer exist, and the surviving company will take on its contracts, including employment agreements. This means that employees from the merged company automatically become employees of the surviving company, keeping their original terms and conditions of employment.
In a statutory company split, the transfer of employees must follow the Labour Contract Succession Act. Some employees may automatically move with the business that is being sold. The company must give written notice about the split plan to the employees who will be transferred at least two weeks before the split is approved.
Employees have the right to object within two weeks of receiving this notice if they are:
- Primarily assigned to the business being sold but not included in the transfer to the buyer, or
- Not primarily assigned to the business being sold but included in the transfer to the buyer.
Minimise risk and missed opportunities with our end-to-end employment solutions
There are many ways an employment contract can come to an end. But whatever the situation, you need to understand the rules that cover the end of employment in Japan — or you could end up facing legal issues.
Our solutions ensure your business is protected from risks when a relationship with a worker comes to an end — whatever the reason. We can also help you to avoid missed opportunities by re-deploying talent where possible.
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