Authors: Kensuke Otsuki, Shota Asao

Firm: Anderson Mori & Tomotsune

On 6 July 2018 Japan introduced new legal measures to address the issue of overwork and long working hours. This article gives an overview of the amendments to employment related laws, including regulations on long working hours and moves to promote flexible working.

Overview of the amendments to the Employment Measures Act

Establishing basic policy

The act states that the national government is responsible for determining basic policy concerning the promotion of labour measures to allow employees to exercise their capabilities effectively.

Employers’ responsibility

A new provision establishes that employers must endeavor to develop an environment that allows employees to work according to their willingness and capabilities while maintaining life-work balance through measures such as shortening prescribed working hours and improving other working conditions.

Name change

As a result of this amendment, the ‘Employment Measures Act’ has been renamed the ‘Act on Comprehensive Promotion of Labour Measures and Stabilization of Employment of Employees and Enrichment of Their Working Lives, Etc.’.

Regulation of long working hours

Maximum legal limit on overtime work

Under the amended Act, the maximum limit on overtime hours that can be provided for in an overtime agreement (i.e. an agreement that is required in order for an employer to ask employees to work more than eight hours a day or 40 hours a week) will be regulated by law as described below.

In principle the maximum number of overtime hours permitted in an overtime agreement is 45 hours per month and 360 hours per year.

If there is a temporary and particular reason for the overtime, the limit on overtime work under an overtime agreement can be extended up to 720 hours per year. The following additional requirements also apply:

  • The exception can only be applied for a maximum of six months per year.
  • Average overtime hours per month (including work on holidays) cannot exceed 80 hours in any period of two, three, four, five or six months.
  • Total overtime hours in any month (including work on holidays) must be less than 100.

If an employee works overtime in excess of the limit provided in an overtime agreement, the employer will receive instruction or corrective guidance from a local Labour Standards Supervision Office or face a criminal penalty (imprisonment or a fine). This is the same as under the current laws.

Exemptions from (or transitional measures regarding) the regulation on overtime work described above are provided for certain occupations (i.e. research and development work, automobile drivers, construction work, physicians and workers in the sugar production business in Kagoshima and Okinawa).

Obligation to ensure employees use annual paid leave

Under the amended Act, when an employee is entitled to ten days or more of annual paid leave, the employer must ensure they use at least five days of paid leave per year. When an employee takes annual paid leave on dates he or she designates or in accordance with a labour-management agreement, this obligation on employers ceases to exist for that employee for the year in question.

Awareness of employees’ working hours (Industrial Safety and Health Act)

Under the amended Act, employers are required to be fully aware of employees’ working hours by using methods set out in a Ministry of Health, Labour and Welfare ordinance pursuant to the Industrial Safety and Health Act (various Ministry and cabinet ordinances are used to set out the practical details of provisions of the amended Act. They are referred to in this article as ‘ministry ordinance’). These methods include confirming working hours on the spot or using objective methods such as clock-in/clock-out ID cards or log-in/log-out time on computers). In addition, although the Labour Standards Act states that employers do not have to pay for overtime or holiday work for supervisors or managers, employers are also required to fully monitor the working hours of supervisors and managers under the amended Act.

Removal of the transitional period for introducing increased overtime pay

An amendment to the Labour Standards Act in 2010 provided that employers had to pay wages for overtime work in excess of 60 hours per month at a rate of + 50% (25% higher than the normal rate). However, the amendment also established a transitional period ‘for the time being’ for small and medium-sized enterprises. This means that currently small and medium-sized enterprises are exempted from paying the increased overtime compensation rate and only have to pay wages for overtime work at the normal rate of + 25%.

Under the amended Act, the transitional period for small and medium-sized enterprises will end on 1 April 2023 and small and medium-sized enterprises will have to pay wages for overtime work that exceeds 60 hours per month at a rate of + 50%.

Rest periods for employees (Act on Special Measures for Improvement of Working Hours Arrangements)

An ‘Interval Period’ is a rest period of a specified duration after a period of work, intended to ensure employees have a certain amount of non-working hours or hours of sleep.

Under the amended Act, employers are required to endeavor to establish an Interval Period between periods of work in order to ensure the health and well-being of employees. Business owners are also instructed to make efforts to be careful not to impose short lead-time orders or frequently change the content of orders, which can have an impact on employee working time.

Strengthening the role of workplace doctors and healthcare (Industrial Safety and Health Act)

The amended Act has provisions for strengthening the role of industrial doctors and industrial healthcare, including provisions requiring information be provided to industrial physicians and the obligation to report the content of any recommendation from industrial physicians to any health committee or equivalent within a company.

The development of flexible and varied working

Flexible Time System

The ‘Flexible Time System’ is a system:

  • that allows employees to determine the starting and finishing time of each working day; and
  • under which overtime payment is only made if an employee’s average working hours per week for a certain period (the ‘Unit Period’) reach a certain level.

Under the current laws, the upper limit of the Unit Period for the flexible time system is one month. Under the amended Act, the upper limit for the Unit Period will be extended to three months, and employees will be able to manage their working time flexibly in accordance with fluctuations in workload.

White Collar Exemption (‘Highly Skilled Professional System’)

The Highly Skilled Professional System exempts employees who meet a certain annual income requirement, who are assigned a specific scope of work, and who have highly vocational skills from the application of regulations on working hours (rules on working hours, breaks, holiday and late night work and overtime allowance payments). The requirements for the application of the system are set out below.

1.Covered work (designated by ministry ordinance)

Covered work is:

‘work that requires highly professional knowledge and is designated by the ministry ordinance as a duty with a generally low correlation between working time and compensation.’

For example, employees working in the development of financial instruments, dealing in financial instruments, analyst operations and research and development are currently expected to be included as covered work.

2. Covered employees

The scope of covered employees’ duties shall be explicitly specified in an agreement between the employer and employees in writing or by some other means specified by ministry ordinance. Target employees must meet the annual income requirement designated by the ministry ordinance (i.e. substantially exceeding three times the average annual income: this is currently expected to be at least JPY 10 million or more.).

3. Management of Health Care Time (time spent in the office and working time out of the office)

‘Health Care Time’ is the term used to describe the total time covered employees spent in the office and worked out of the office cumulatively. Employers must keep track of their covered employees’ Health Care Time.

4. Holidays

Employers must provide at least four days off in a four-week period and at least 104 days off in a one-year period. Days off include weekends (i.e. Saturday and Sunday).

5. Measures for guaranteeing break time

Employers must take one of the following measures:

  • Use an Interval Measure (a measure guaranteeing an uninterrupted break for the amount of time specified in the ministry ordinance (or more) and limiting late-night work to the number of times specified in the ministry ordinance).
  • Limit the upper limit of Health Care Time, both in one month and in three months as specified in the ministry ordinance.
  • Grant an uninterrupted two-week period of holiday at least once per year (or an uninterrupted one-week period of holiday at least twice per year upon the request of employees).
  • Provide occasional medical examinations (depending on the amount of Health Care Time).

6. Measures for protecting health and welfare

Depending on the amount of Health Care Time of a covered employee, an employer must take measures to protect that employee’s health and welfare (e.g. by providing paid leave, medical examinations, etc.).

7. Procedures for withdrawal of consent

The procedure for the withdrawal of employees’ consent (to the application of the Highly Skilled Professional System) must be specified.

8. Complaint handling measures

Employers must take measures to handle complaints from covered employees.

9. Administrative requirements

  • The matters above must be resolved by a four-fifths majority of members of the employer’s Labour-Management Committee.
  • Employers must notify the above resolution to an administrative agency.
  • Employees must consent (to the application of the Highly Skilled Professional System) in writing.
  • Employers who notify employees regarding the adoption of the Highly Skilled Professional System must report the implementation status of points 5, 6 and 7 above to the applicable directors of the Labour Standards Inspection Offices as provided by ministry ordinance.

When does the amended Act take effect?

The name change provision took effect on 6 July 2018 (the date the Act was promulgated). The other provisions take effect on 1 April 2019, with the exception of amended provisions pertaining to restrictions on the upper limit of overtime work in small and medium-sized enterprises, which starts on 1 April 2020, and the review of the premium overtime pay rate in small and medium-sized enterprises, which starts on 1 April 2023.