Basic Legal Information on Japan – Employment Law in Japan

Basic Legal Information on Japan – Employment Law in Japan

This is the 4th in a series of articles from GVA LPC providing basic legal information to foreign companies and individuals that are planning to do business in Japan. This series of articles will highlight Japanese laws and regulations which are central to their need to smoothen their business venture into the Japanese market.


In Japan, there is two types of employment status: regular employment (正規雇用) and non-regular employment (非正規雇用).


Regular employment is generally considered where an employee is hired directly by his/her employer without a predetermined period of employment and works for scheduled hours. This type of employment has the characteristic of (i) open-ended employment, (ii) fulltime employment, and (iii) direct employment. An employee under regular employment would receive benefits on public insurance systems including workers' compensation, unemployment, health care, and retirement pension.


On the other hand, non-regular employment is where an employee does not meet one of the conditions for regular employment, where it does not fulfill one of the characteristics of regular employment. In general, the type of non-regular employment includes (i) contract employee, where they are hired for short period (e.g. 3, 6 or 12 months), where, the company does not have the right to terminate the contract before the agreed-upon time is over except for unusual circumstances, (ii) temporary staff where they are not employed by the company they work at. Instead, they have a contract with a dispatching company who assigns them a job at another company, and (iii) Part-time workers where they are paid daily or hourly wages, while they cannot expect much in terms of benefits, transportation costs are mostly covered and do they have the right to take paid leave.


In Japan, the Labor Standards Act ("LSA") is one of the main legislations that regulates employment in Japan. LSA provides a set of basic standards for employee benefits and conditions which include a comprehensive rule regarding hiring and termination of employment. LSA also acts as a regulatory where criminally penalties may be imposed on employers that violate this act. The act prescribed that employers must provide employees with certain terms of employment in writing. In practice Japanese employment contracts are short and simple, and usually supplemented by the written working rules. It should be noted that under the LSA there is no requirement that the contract should be in the Japanese language.


The LSA governs both regular employment and non-regular employment, however, the Act does differentiate these two types of employment in terms of the benefit. For a company that employed regular employment employees, the LSA and other laws prescribe benefit that is required by the employer to provide to their regular employment employees, which included, among others, the obligation for the employer to provide:(i) unemployment insurance and workers’ accident compensation insurance and (ii) health and pension insurance (an employer that is a corporation or that hires five or more employees), where the premium for the pension scheme is divided equally between employee and employer.


The LSA also regulated the legal working hours where it prescribed the statutory working hour of eight (8) hours daily and forty (40) hours weekly. Working in access of the statutory working hours is only permitted if the employer complies with the certain procedure prescribed by the law and extra payment is made for the excess hours where the calculation is at a 25% or 35% (on a public holiday) or more of the wages payable for the normal working. Besides, the LSA prescribed for a minimum hourly wage, where the act prohibits an employer to employ an employee for less than the legal minimum wage. The act does not provide a standard value for the minimum wage but prescribed that the minimum hourly wage is set by region. For references purpose, Tokyo's minimum hourly wage is ¥1,013 as of January 2020.


In terms of holidays, LSA stipulates a statutory holiday of one (1) day a week or four (4) days or more in a four (4) week period, where the LSA also prescribe statutory annual paid leave to be taken at any time. The law prescribed annual paid leave of 10 working days, either consecutive or divided up into portions, to an employee who has been employed continuously for 6 months calculated from the day of hiring and who has reported for work on at least 80% of the total working days.


In addition, to stipulate the working condition of employees, the LSA also prescribed the obligation for the employer to draw up working rules of employment if the employer continuously employs ten or more and must file this rule with the Labor Standards Inspection Office. The working rules must include certain terms and conditions of employment, such as working hours and leave, termination, discipline, matters on computation and payment of wages, matters on retirement, and matters concerning safety and health.


For foreign entities that intend to set up operations in Japan, where the employment of workers is locally necessary for the operation of their business, it is wise that they should observe the LSA in order not to commit any offense that may adversely affect their business operation in Japan. Other than the LSA, other labor-related laws should also be taken into consideration, such as (i) the Employment Security Act, which regulates the market for job applications and recruitment; (ii) Part-Time Work Act, which regulate part-time workers; (iii) Worker Dispatch Act; (iv) Law on Promoting the Resolution of Individual Labor Disputes, which sets out special procedures for the settlement of labor-related disputes; (iv) Equal Employment Opportunity Act; (v) Industrial Safety and Health Act; and (vi) Security of Wage Payment Act. Please be informed that this article is merely for reference purposes, it is advisable to consult a legal professional to understand in detail the implication of LSA and other laws with regards to the employment of workers in Japan.