3. The difficulty of dismissing employees in Japan

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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.

  • Facts and words/actions that prove poor performance/lack of ability;
  • Whether the reason(s) for poor performance/lack of ability can be attributed to the employee;
  • The duration of the period in which poor performance/lack of ability had continued; and
  • To what extent the company had provided any training to promote improvement, provided instructions, and/or tried to reassign or redeploy the employee to another office or department.

Therefore, in order to dismiss an employee due to poor performance/lack of ability, it is important to do the following.

  • Before an employment agreement is concluded, to clarify the role and responsibilities of the employee under the job description, as well as the goal or purpose to be achieved by the employee (if possible, a numerical goal should be provided).
  • Written record/evidence of any personnel evaluations and/or evaluation interviews (Notice of results of any personnel evaluations is a major prerequisite).
  • Written record/evidence of any reassignment or redeployment, training, and/or instructions provided (The goal to be achieved must be specifically set, and the level of achievement must be properly evaluated).

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.

Contacts

Mail: pwcjapan.taxpr@jp.pwc.com
http://www.pwc.com/e/tax/outsourcing