It is more difficult to dismiss employees in Japan than in western countries. Chiefly, there is a big difference between the U.S. and Japan, where the former is able to dismiss employees at will under the principle of employment-at-will.
Article 16 of the Labor Contract Act in Japan sets forth the Employment Dismissal Regulation established by the Supreme Court in Japan as follows: “A dismissal shall, if it lacks objectively reasonable grounds and is not appropriate under general societal terms, be treated as an abuse of right and be held invalid.” Under this rule, the employer will have the burden of proof as to facts underlying the evaluation of abuse of right that are overwhelmingly large in number.
For example, in order to dismiss an employee for poor performance/lack of ability, the following elements are generally required to be established in court under a burden of proof.
Therefore, in order to dismiss an employee due to poor performance/lack of ability, it is important to do the following.
Because objective evidence/facts such as the above must be maintained and provided, the bar is set high for an employer to actually be able to dismiss an employee in Japan.
In the event of dismissing an employee for any reasons that can be attributed to the management situation of the company, the 4 conditions that must be met for a dismissal for the purposes of reorganization, which had been established in case precedents include the following.
(1) The necessity of staff reduction;
(2) Efforts to avoid staff reduction;
(3) Rational criteria for selecting any staff to be dismissed; and
(4) Propriety/reasonableness of the dismissal procedure.
Although recently, there had been an increase in the number of cases in which dismissal shall be allowed if the 4 elements above are met on a comprehensive basis, whereas cases similar to the ones in the past where dismissal was disallowed even if one of the elements above failed to be met had become fewer, the bar for dismissal is still set high, where dismissal for the purposes of reorganization by large companies, in particular, who are careful in their dealings with labor-related issues, are still few.
In light of the above, in Japan, an employer generally suggests early retirement to the employee instead of dismissing him/her for the purpose of cancelling/terminating the employment agreement for any reasons attributable to the company.