Compliance check: Japan: Additional mandatory terms of employment

The Labour Standards Act (LSA) requires employers to provide employees with key employment terms on wages, working hours and other working conditions when they are hired. These requirements are further detailed in the Ordinance for Enforcement of the Labour Standards Act (Ordinance), which specifies mandatory terms for fixed terms employees, and for all employees generally. From 1 April this year, additional mandatory terms must be provided to employees.

For all employees

The Ordinance requires employers to clearly specify "matters concerning the place of work and the contents of duties", essentially, the work location and job scope. 

From 1 April, this requirement was expanded by adding the phrase "(including the scope of changes in the place of employment and the contents of duties)". Employers are now required to expressly notify employees of potential changes that may be made to their work location and job scope during the course of their employment. 

For fixed term employees

The Ordinance requires employers to provide employees with criteria for renewing their fixed term contract. From 1 April, employers are also required to notify employees of:

• the number of potential renewals and the total contract duration;
• their right to apply to convert the contract to a permanent employment contract (under the Labour Contracts Act, an employee on a fixed term contract with more than five years' service has the right to apply to convert the contract to a permanent employment contract); and
• the terms and conditions of employment after the contract is converted to a permanent employment contract.

Employers are required to notify employees of the above information:

• when entering into a fresh employment contract;
• upon renewal of the contract after the expiration of the original term; and 
• upon re-employment after reaching mandatory retirement age. 

If the employer seeks to introduce a new limit of renewal when the initial contract does not provide a limit or to provide a lower limit of renewal when the contract is being renewed, the employer must explain the rationale for doing so. Even if the employee consents to the new or lowered limit, the court will likely scrutinise the genuineness of the consent. 

Penalties

Failure to clearly indicate the above terms and conditions of employment carries a potential fine of up to JPY 300,000 or approximately USD 1,900.

Key Takeaways

Employers will need to strike a balance when defining the scope of changes to work location and job duties. To justify a unilateral termination of employment, employers are expected to exhaust all possible alternatives to termination, including reassigning employees to different roles or work locations. Defining too broad a scope might make it harder for the employer to demonstrate that they have done everything possible to justify termination. Conversely, a scope that is too narrow might restrict the employer's discretion when business needs change.

On renewals, employers should note that even if there is a limit on renewals, it does not necessarily mean that an employee can never have reasonable expectations for renewal beyond that limit, or that termination of employment upon reaching the limit is automatically deemed to be fair.

Herbert Smith Freehills LLP has extensive experience in advising employers on employment structures and conducting deep dive employment conditions audit for employers. To find out more, contact fatim.jumabhoy@hsf.com.