It is exceptionally difficult – and very risky – for companies to terminate employees in Japan. Unlike the US, Japan is not an “at-will” employment jurisdiction. This means that Japanese employers cannot fire staff without cause.
Employment in Japan is seen as essential to social stability and hence employers are placed in the position of having to be incredibly careful in how they go about dismissing an employee.
Unless an employee is caught in a flagrant act such as stealing from the company, dismissals based on an employee’s poor performance require the company to demonstrate why this was necessary. Alternatively, a company can justify a termination based on its own financial losses, but this is also difficult to do. A common method for terminating a relationship with an employee is to convince them to voluntarily resign.
Employees themselves may also seek redress through a tribunal or a union, where collective bargaining is required. And where two or more aggrieved employees join together, they may form a union or go outside a union and pursue a legal case.
It’s important to note that legal cases in Japan between employees and their employers last an average of two years. If those cases continue to a court of appeals, the process can even last longer than two years.
A Nightmare Scenario Your Company Should Avoid
In 2014, a major foreign international airline fired three Japan-based employees after closing a call center in Osaka to reduce costs. The employees fought these terminations by filing an administrative complaint as well as a civil lawsuit. While the legal proceedings were pending, the terminated employees conducted regular public protests at Narita Airport check-in. They distributed flyers in both English and Japanese, calling on the airline to “obey Japanese law”.
In 2016, Osaka’s Prefectural Labor Commission ruled the dismissal was wrongful, ordering the airline to withdraw it. And in 2017, Osaka’s District Court issued a civil judgement against the airline to reinstate the employees and pay them $360,000 USD in unpaid wages and bonuses. Both the court and the commission ruled that the airline’s argument that its lack of profitability in Japan was insufficient to support a claim for dismissal because the airline was profitable in its global operations.
More than one year before their dismissal, the employees joined a labor union where they raised allegations of multiple labor law infractions by the airline. The commission ruled the action by the airline to dismiss the employees, therefore, was in retaliation to these actions.
Select an EOR (Employer of Record) Service That is Truly Local
Employers must, therefore, be incredibly careful when navigating Japan’s employee dismissal rules to avoid costly mediation proceedings or lawsuits. When you are planning to enter Japan through an EOR or wish to transition to a superior solution, ensure the local EOR will help you mitigate the expensive and time-consuming risk through experience versus what the book says.