A number of amendments to Japan's labour and employment laws recently took effect. Among other things, the amendments concern the monitoring of employee working hours, paid annual leave, the so-called 'highly professional system' and overtime limits. Employers should ensure that their policies and practices comply with the amendments to ensure an easy transition to Japan's new employment framework.
Under Japanese law, employers must – in principle – pay an allowance to employees who work more than eight hours per day or 40 hours per week. As such, from an employer's perspective, it is practical to include an employee's overtime allowance in their base salary where possible. However, for an employee's overtime allowance to be validly included in their base salary, certain requirements must be satisfied. These requirements are a hot topic in Japanese legal practice.
The National Diet recently enacted a bill relating to work style reform, which has amended the Labour Standards Act, the Industrial Safety and Health Act and relevant laws. Most amendments will come into effect on 1 April 2019. The amended Labour Standards Act stipulates that the upper limit for overtime will be, in principle, 45 hours a month and 360 hours a year. However, there are exceptions for certain business sectors.
One of the controversial issues regarding Japan's so-called 'lifetime employment system' is whether and to what extent employers can impose different working conditions (eg, salaries, bonuses and allowances) when they rehire employees who were once non-fixed-term employees as fixed-term employees. The Supreme Court recently handed down a significant decision addressing this issue.
Article 20 of the Labour Contract Act prohibits the imposition of unreasonable employment conditions on fixed-term employees in order to ensure their fair treatment. In light of two recent Supreme Court decisions on this matter, Japanese employers with both fixed-term and permanent employees should carefully review whether differences in the individual employment conditions of each type of employee are not unreasonable.
An amendment to the Labour Contracts Act states that if an employee with a fixed-term employment contract has been continuously employed by the same employer for more than five years, the employee will have the right to convert his or her fixed-term employment contract to an indefinite term employment contract. As the amendment applies only to employment contracts that commenced on or after April 1 2013, a significant number of employees became eligible to exercise this right on April 1 2018.
In September 2017 the Ministry of Health, Labour and Welfare issued the Outline of the Act for Revising Related Acts for the Promotion of Work Style Reform. Once the National Diet passes the bill in 2018 and the revised Labour Standards Act takes effect at a later date, companies will be required to implement a new scheme to manage working hours which is substantially different from the existing scheme. As such, the proposed amendment will continue to garner significant attention going forward.
In recent years, the government-established Council for the Realisation of Work Style Reform has frequently discussed how to realise the international trend of equal pay for equal work in Japan. Further, the Japanese courts have rendered some noteworthy judgments regarding the equal pay for equal work principle. As such, the government is in the process of amending the rules on equal pay for equal work, which will significantly affect Japanese employment practice.
The Council for the Realisation of Work Style Reform recently approved its action plan. To implement the plan, which the government has since adopted, certain legal amendments must be enacted. A number of related bills are expected to be tabled before the National Diet in 2017 and will likely garner significant attention.
In recent years, excessively long overtime hours have been an issue in Japan. In accordance with the Labour Standards Act, the maximum working hours are eight hours a day, 40 hours a week, and company directors who violate this article are subject to imprisonment with labour or a fine. While an employer can extend its employees working hours in certain circumstances under a so-called '36 agreement', the Ministry of Health, Labour and Welfare has set out the upper limits for such overtime work.