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The employment relationship

Country specific laws

What laws and regulations govern the employment relationship?

The main laws governing the employment relationship are the Labour Standards Law and the Employment Contract Law. Other relevant laws include:

  • the Civil Code;
  • the Law on Securing Equal Opportunity and Treatment between Men and Women in Employment;
  • the Employment Measures Law;
  • the Law concerning the Stability of Employment of the Elderly;
  • the Part-Time Workers Employment Improvement Law;
  • the Law concerning the Proper Operation of Worker Dispatch Undertakings and Improved Wording Conditions for Dispatched Workers;
  • the Law on Special Measures to Improve Work Hours Arrangements;
  • the Law on the Improvement of Employment Management for Part-Time Workers;
  • the Law on Childcare Leave, Caregiver Leave and Other Measures for the Welfare of Workers Caring for Children or Other Family Members;
  • the Industrial Safety and Health Law;
  • the Labour Tribunal Dispute Resolution Law;
  • the Labour Union Law; and
  • the laws governing labour insurance and social insurance.  

Who do these cover, including categories of worker?

In principle, the employment laws apply equally to all employees. The government is trying to reduce status inequalities between the various categories of worker (eg, regular employees and non-permanent contract staff).

Regular employees are usually hired pursuant to an indefinite contract. Fixed-term contracts are usually used for irregular employees and temporary workers, although they can be used for long-term employees. Part-time workers can have fixed-term or indefinite contracts; their working hours are shorter than those of regular full-time employees. Within the part-time category, workers who can be hired by the day or hour (the so-called ‘arubaito’ class) belong to the most precarious class of worker. Fixed-term contracts may not exceed three or five years, depending on the circumstances.

Employers need not renew fixed-term contracts. However, if a contract has been renewed several times and the employee can reasonably expect renewal, the courts can require the employer to justify a refusal. The Employment Contract Law provides that, unless the employer has objective and socially acceptable reasons, it cannot refuse to renew a fixed-term employment contract which has been repeatedly renewed, as refusal may be construed as termination of an indefinite employment contract (ie, dismissal). The same applies where the employee can reasonably expect his or her contract to be renewed. A fixed-term employment contract that is renewed for more than five years can be converted into an indefinite contract at the employee’s request.

Since 2015, fixed-term employees/part-time employees must be treated at least the same as comparable permanent/full-time employees in relation to the terms and conditions of their employment (eg, job descriptions, level of responsibilities and human resources management systems in relation to changes to job descriptions and reassignment).

In order to further reduce the status inequalities between the various categories of worker (eg, regular employees, contract workers, non-permanent contract staff and temporary work agency staff workers), the government introduced legislation concerning the so-called ‘equal pay for equal work’ rule in June 2018 for the purpose of improving the working conditions of non-regular employees (see below). 

On 1 June 2018 the Supreme Court rendered two significant decisions on the interpretation of Article 20 of the Employment Contract Law which prohibits the imposition of unreasonable disparities in employment terms by hiring employees on a fixed-term basis. The Hamakyorex and Nagasawa-Unyu decisions provide useful guidance on how to determine the reasonableness of differences in the working conditions of fixed-term employees (non-regular employees) and indefinite-term employees (regular employees). The Nagasawa-Unyu decision involved differences in the working conditions of employees rehired as fixed-term employees after reaching retirement age and those of regular employees. The fact that the fixed-term employees had been rehired was a key factor in deciding the reasonableness of some (but not all) of the differences.

As mentioned above, one of the three pillars of the 2018 work-style reform bills is the equal work, equal pay principle across ‘regular’ and ‘non-regular’ employees. The Law on the Improvement of Employment Management for Part-Time Workers and Fixed-Term Contract Workers, the Employment Contract Law and the Workers Dispatch Law were amended to address the issue of discrimination between regular and non-regular employees.


Are there specific rules regarding employee/contractor classification?

In principle, a representative director of a joint stock company may not be an employee of the company that he or she is heading. As such, a contract for services or an entrustment agreement is generally advisable to clarify the representative director’s rights and obligations. Directors are regulated by the Companies Act.

The Workers Dispatch Law has become increasingly restrictive over the years. If a temporary agency staff contract with a temporary staffing agency is in breach of the law (eg, the temporary agency is not licensed, an employee has been dispatched beyond the maximum statutory term or there is a disguised outsourcing arrangement), the employee will be deemed to be directly employed by the host company as a regular employee.

Depending on the circumstances, an independent contractor may apply to have a contractual relationship requalified as employment in order to get the benefit of employment law protection.


Must an employment contract be in writing?

Employment contracts may be made orally or in writing. A written contract or an employment letter is advisable. Contracts can be minimal if supported by work rules.

By law, employees must be provided with key employment terms and conditions (eg, relating to salary, place of work and working hours) in writing when they are hired. These particulars can be set out in a written contract to the extent that they are not already set out in the work rules remitted to the employee.

‘Work rules’ are specific rules for the workplace. They set out working conditions, including in relation to:

  • wages;
  • working hours and breaks;
  • holidays; and
  • rules with which employees must comply, including disciplinary procedures.

Employers with 10 or more employees at a given workplace must adopt work rules and file them with the local Labour Standards Inspection Office. Employers with fewer employees can create work rules on a voluntary basis.

Are any terms implied into employment contracts?

In general, contracts cannot remove statutory employee protections. Case law protects employees – in particular, with regard to dismissals. Implied terms are found in the relevant laws and regulations. In addition, where they exist, work rules are considered to be incorporated (expressly or impliedly) in employees’ employment contracts. Contract provisions (except for better terms) are considered invalid if they do not align with the work rules. Further, contracts cannot lower the standards outlined in the work rules. Terms that are favourable to the employee within the work rules or the law will override less favourable terms in the employment contract.

Collective agreements between an employer and a labour union may be incorporated (expressly or impliedly) in the employment terms.

Are mandatory arbitration/dispute resolution agreements enforceable?

Private arbitration is uncommon in employment disputes. Arbitration agreements are enforceable, provided that they are made after a dispute has arisen. 

How can employers make changes to existing employment agreements?

The answer depends on the nature of the changes and the structure of the employment terms (ie, whether they are contained in a standalone contract or a contract supplemented by work rules).

Employers and employees can agree to changes. An agreement between a labour union and employer can affect individual agreements without the employee’s consent, but this is unusual. Compensation or base salary cannot be reduced unilaterally, regardless of what the contract states. However, employers generally have a right to:

  • make changes to job descriptions and positions (when clearly described in the contract); and
  • reassign and redeploy employees (except in relation to restricted permanent employees).

These rights are often supported by the work rules. Such decisions must consider the employee’s circumstances.

If an employer has established work rules, individual employment contracts need not include the employee’s working conditions (ie, wages, working hours and breaks, holidays and disciplinary procedures). However, this does not mean that altering the rules is a simple process.  

Under the Employment Contract Law, unless agreed with the employee, an employer cannot make detrimental changes to the working conditions set out in an employee’s employment contract by changing the work rules. However, changes to an employee’s working conditions will be permitted if:

  • the employer informs the employee of the changes; and
  • the changes are reasonable and consider:
    • any disadvantage to the employee;
    • the need for the change;
    • the appropriateness of the revised rules;
    • the status of any negotiations with labour unions or the like; and
    • any other relevant circumstances.

This does not apply to individual contract and provisions that the employer and employee have agreed cannot be amended by revising the rules.

Foreign workers

Is a distinction drawn between local and foreign workers?

Foreign workers must satisfy immigration requirements in order to work in Japan. Visa requirements do not apply to nationals of countries with which Japan has reciprocal exemption arrangements. Foreign nationals who wish to work in Japan must select their residence status based on their circumstances and qualifications. A foreign worker’s residence status is the basis on which he or she can stay in Japan and carry out the activities listed in the Immigration Control and Refugee Recognition Act (eg, perform duties as an investor, manager, accountant, engineer, humanities or international services specialist or skilled labour). The employer must inform Hello Work (a government-run agency with offices throughout Japan) if it hires a foreign employee.

Japan has entered into social security agreements with a number of countries, including Germany, the United Kingdom, the United States, Belgium, France, Switzerland, Canada, Australia, South Korea, Brazil, India, the Netherlands and China. Individuals who are insured under pension and social security schemes from one of these countries may depending on their scope be exempt from enrolling in Japan’s pension scheme and paying social security insurance premiums depending on the scope of the bilateral agreement.

Foreign nationals working in Japan are subject to Japanese employment laws, even if the laws of another jurisdiction govern their contract.

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