In Japan, there are two types of employment contract: those with a limited and fixed period and those without. Regular employees are employed on indefinite (ie, permanent) contracts.

The basic maximum period for a fixed-term employment contract is three years. Therefore, as a rule, a fixed-term employment contract for a longer period is null and void, although both parties may renew a fixed-term contract, with no statutory limit on the number of times that they may do so. However, the government is trying to change this. Parliament is due to debate proposed amendments to the Employment Contract Act which would provide that if the period of a fixed-term contract exceeds five years as a result of its renewal, it can be converted into a permanent contract.

At present, an employer has sole discretion to refuse to renew a fixed-term employment contract when it expires - it is not a unilateral termination, but merely the expiry of the period of employment. However, a number of court judgments imply that an employee on a fixed-term contract should be protected if the contract has been renewed many times. On this interpretation, if a contract is renewed frequently, the employee may entertain an expectation of further renewals and an employer may not refrain from renewing the fixed-term contract. This tendency in the courts' practice will be codified in the amendments to the act.

The amendments would also prevent employers from setting terms and conditions in a fixed-term employment contract which are discriminatory in comparison to the contractual terms of a permanent employee.

For further information on this topic please contact Hideki Thurgood Kano at Anderson Mori & Tomotsune by telephone (+81 3 6888 1000), fax (+81 3 6888 3050) or email ([email protected]).