by：Mai Miyamoto、Poom Kerdsang、Saiful Aziz
This article is the third in a series of articles from GVA GLOBAL LPC providing basic legal information to foreign companies and individuals 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, the Labor Standards Act and the Labor Contract Act stand as principal laws that delineate the rights of workers and the duties of employers. These laws, while prioritizing the protection of workers’ rights, aim to foster a conducive working environment. Given that they prescribe the obligations employers must adhere to, they are crucial laws for anyone conducting business in Japan to understand. In this article, we will delve into the key provisions outlined in these laws.
1. Overview of the Labor Standards Act
The Labor Standards Act (“LSA”) stipulates the basic rights of workers and the obligations of employers. Specifically, it covers areas such as working hours, breaks, holidays, overtime, vacations, wages, and restrictions on dismissals. Employers, when entering into an employment contract, must clearly state various working conditions. If the stated conditions in the employment contract differ from actual working conditions, the worker can immediately terminate the contract. The details covered by the LSA are:
Working Hours: Employers are prohibited from making workers work more than 40 hours a week, excluding break times. Additionally, workers shall not be made to work beyond 8 hours daily, excluding breaks.
Breaks: For work periods exceeding 6 hours, a break of at least 45 minutes is mandatory, and for those exceeding 8 hours, a break of at least 1 hour is required.
Holidays: Employers are mandated to grant workers at least one day off per week.
Wages: There is a stipulated minimum wage that workers must receive. The specific amounts are outlined in the “Minimum Wage Act”. Each prefecture sets its own minimum wage. As of October 2023, the minimum wages for Tokyo and Osaka are set at 1,113 yen and 1,064 yen, respectively.
Termination of employment: In Japan, stringent criteria must be met to terminate an employment of a worker. Furthermore, if employers wish to terminate an employee, they must provide at least a 30-day notice. Failing to do so will necessitate the employer to pay an amount equivalent to or more than 30 days’ average wages.
2. Overview of the Labor Contract Act
The Labor Contract Act (“LCA”) sets the rules governing the contractual relationship between workers and employers. It focuses primarily on the specifics of the contract. The LCA introduces the concept of “fixed-term employment contracts”, distinguishing them from contracts without a set term. Below, we delve into the unique aspects of the fixed-term employment contracts.
Dismissal in Fixed-Term Employment Contracts: E Employers cannot terminate workers under a fixed-term employment contract before the end of the stipulated date of the contract unless there are compelling reason to do so.
Conversion from Fixed-Term to Indefinite-Term Contract: Fixed-term contracts can sometimes be renewed. A worker, who has been employed with an employer for a cumulative period exceeding 5 years, may request to enter into an indefinite-term contract before the end date of their current fixed-term contract. Upon the time the request is made, the employer is deemed to have accepted the request. In such cases, the terms of the employment will be identical to those of the preceding indefinite-term contract.
In conclusion, when conducting business in Japan, it is vital to establish a labor structure that complies with all labor-related laws. 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, and the LCA in order not to commit any offense that may adversely affect their business operation in Japan. Other than the LSA and LCA, 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) the Part-Time Work Act, which regulates 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 implications of LSA and other laws concerning the employment of workers in Japan.
Supervisor：
Mai Miyamoto
（Joined GVA LPC in 2020. Provides legal support to clients going through various business cycles from the establishment to IPO. Seconded to a listed company handling a business platform for one year (2021) and worked in their legal department. Focuses on providing support in the field of international legal structures (inbound and outbound).）
