Japan: Conversion of fixed term employees to permanent employment

In a recent article published by the Ministry of Health, Labour and Welfare, the Ministry has clarified its position regarding the entitlement of dispatched workers who are employed on a fixed term basis to be converted to permanent employment upon meeting certain service thresholds. Given this and an expected increase in applications for permanent employment, this article reviews the circumstances in which fixed term employees must be converted to permanent employment.

The 2013 Amendment to the Labour Contract Act

One of the key changes to the Labour Contract Act that came into force on 1 April 2013 was the introduction of a provision entitling a fixed term employee to apply for permanent employment where they:

• have had two or more fixed term employment contracts with the same employer; and
• have been continuously employed by the employer for more than five years upon the expiry of the current contract.

Employers do not have discretion to turn down the application.

While only fixed term employment contracts entered into or renewed after 1 April 2013 will count towards this five-year period, an employee can apply for permanent employment from the time the employee and the employer enter into a renewal contract, upon the expiry of which the employee's continuous employment will reach five years. The permanent employment will commence upon the expiry of that contract.

For example, where a three-year fixed term employment contract was entered into on 1 April 2013 and the contract was renewed for another three years on 1 April 2016, the employee is eligible to apply for permanent employment at any time from 1 April 2016 until the second contract expiry date of 31 March 2019. This is because, as at 31 March 2019 when the second contact expires, the employee's continuous term of employment with the employer will be more than five years. If a permanent employment application is made, the permanent employment will commence on 1 April 2019.

On 1 August 2017, in an article published by the Ministry of Health, Labour and Welfare in Kousei Roudou, the Ministry has explicitly clarified that this rule also applies to dispatched workers who are employed on a fixed term basis by a worker dispatch agent.

Key takeaways

Depending on the employment arrangement, certain fixed term employees will be eligible earlier than others to apply for permanent employment. As we approach the five-year anniversary of this requirement being introduced, employers can expect a spike in permanent employment applications in the coming months, and particularly after 1 April 2018. Companies are advised to review the contract terms of their existing workforce and to take steps to prepare for the conversion process when requested by eligible employees.

Written by Florence Cheung, Senior Associate