Japan: Differing Conditions Between Permanent and Fixed Term Employees

On 14 September 2017, the Tokyo District Court interpreted and applied the meaning of "unreasonable differences" to the benefits enjoyed by permanent and fixed term employees at Japan Post. The decision provides guidance on which benefits are exclusively available to permanent employees and which benefits, when not provided to both categories of employees equally, will result in a breach of the Labour Contract Act. This decision is of particular significance at the moment as employers are currently expecting many long term fixed term employees applying to become permanent employees. This ruling, however, stipulates that companies will no longer be able to provide fewer benefits to fixed term employees.

Right of conversion to permanent employment contracts

In our October 2017 bulletin, we highlighted a key change to the Labour Contract Act that came into force on 1 April 2013: a fixed term employee is entitled to apply for permanent employment if they have had two or more fixed term employment contracts with the same employer and have been continuously employed by that employer for more than five years upon the expiry of the current contract.

Many companies are expecting an influx of applications for permanent employment from 1 April 2018 – five years after the law came into effect. Recent news reports indicate that employers are managing this expectation in two ways. Firstly, many employers are converting eligible fixed term employees to permanent employees. Secondly, employers are preventing their fixed term employees from becoming eligible to apply by ensuring that fixed term employees are not hired for a continuous term of more than five years. Avoiding the conversion process in this way is technically legal and is motivated by a desire to reduce costs. This is because fixed term employees are generally given fewer employee benefits as compared to their permanent counterparts.

Prohibition under Article 20 of the Labour Contracts Act

Whilst employers are not required to provide fixed term employees with the same benefits that they provide to permanent employees, Article 20 of the amended Labour Contract Act does prohibit unreasonable differences in labour conditions between fixed term and permanent employees.

The meaning of "unreasonable differences" has been the subject of extensive debate and had, prior to 2017, been unresolved. On 14 September 2017, however, the Tokyo District Court delivered a landmark decision clarifying the types of benefits that fixed term employees would be entitled to if the same were being given to their permanent counterparts. The Court ruled in favour of three fixed term employees of Japan Post and held that Japan Post was in breach of the Labour Contract Act because it provided certain benefits to permanent employees but not fixed term employees in equivalent roles. These benefits were:

• allowance for working over the New Year period;
• housing allowance;
• summer and winter holidays; and
• paid sick leave.

However, the Court also found that Japan Post was not in breach of the Labour Contract Act for exclusively providing the below benefits to permanent employees:

• allowance for early work attendance;
• national holidays;
• summer allowance;
• special allowance for late night work; and
• allowance for being proficient in internal and external postal affairs.

Japan Post was ordered to pay a total of JPY 920,000 in damages to the three employees.

Key takeaways

The amount of damages awarded in the Japan Post case may not be significant, but the ruling will have a large implication on all companies in Japan who have "unreasonable differences" in the benefits provided to permanent and fixed term employees. Considering the expected increase in permanent employment application from 1 April 2018, this decision is particularly important.

Written by Florence Cheung, Senior Associate