In Japanese labor law, problems regarding the definition of “workers” arise mainly in two contexts. The first context is the definition of “workers” in the Labor Standard Act and the Labor Contract Act. In such case, “workers” means employees who work for employers. The second context is the definition of “workers” in the Labor Union Act (“LUA”), where ostensibly independent contractors may have certain rights alongside traditional employees. If individuals are considered to be “workers” under the LUA, they can organize a labor union and exercise collective bargaining for the purpose of concluding collective agreements regulating relations between the employers and workers. Japanese law defines the term “workers” under the LUA to include not only employees who have entered into labor contracts with employers but also other workers who should be protected by being given the right to exercise collective bargaining. The question then is whether independent contractors performing work that they previously had performed as employees may still be considered “workers” with collective bargaining rights under the LUA. In its ruling of April 12, 2011, the Japanese Supreme Court held that customer engineers (“CEs”) who were engaged in the repair of housing equipment under outsourcing contracts with INAX Maintenance Corporation (“INAX”) are “workers” under the LUA. In the case in question, the Supreme Court adopted the framework previously established in practice, which considers five factors when deciding whether labor suppliers in question are “workers” who should be accorded the right to engage in collective bargaining:
- Whether labor suppliers are included in the organization of the company as indispensable labor to perform its business and for the purpose of ensuring such labor on a permanent basis;
- Whether terms and conditions of work are decided unilaterally by the company;
- The extent to which compensation for such work is similar to wages or salaries;
- Whether labor suppliers can freely accept or reject offers from the company; and
- Whether work is performed under instruction, supervision, and restrictions regarding time and place provided by the company.
In the case before it, the Supreme Court made the following determinations:
- INAX relied on the CEs as a means of providing needed services on a permanent basis;
- INAX decided terms and conditions of contracts with the CEs unilaterally;
- INAX compensated the CEs by adding an amount corresponding to overtime work payments to the invoice to iNAX’s customers;
- The CEs basically had to accept assignments from INAX as a matter of practice between the CEs and INAX based on the common understanding as such; and
- INAX specified how the CEs would perform their services and generally supervised their work.
This Supreme Court decision suggests that even if a company converts its workforce into ostensible independent contractors, the contractors may still be able to exercise their collective bargaining rights.