In an earlier bulletin, we looked at a landmark Tokyo District Court decision that clarified the circumstances under which benefits given to permanent employees but not to fixed term employees could amount to “unreasonable differences” in labour conditions, which are prohibited by Article 20 of the Labour Contract Act.

On 1 June 2018, the Supreme Court of Japan delivered its first judgment on this issue.

Hamakyo Rex

Hamakyo Rex is a logistics company. At one of its branch companies, trucker drivers were given different types of employee allowances depending on whether they were permanent or fixed term employees.

The claimant was a fixed term employee. He claimed compensation for the differences in treatment. The differences are summarised below:

Type of allowancePermanent employeesFixed term employees
No-accident allowanceJPY 10,000 per monthNone
Work allowanceJPY 10,000 to JPY 20,000 per monthNone
Meal allowanceJPY 3,500 per monthNone
Commute allowanceDepends on the commute distance, but if the claimant in this case had been a permanent employee, he would have been entitled to JPY 5,000 per monthJPY 2,000 to JPY 3,000 per month
Accommodation allowanceJPY 5,000 to JPY 20,000 per monthNone
No-absence allowanceJPY 10,000 per monthNone

Lower Courts

On 16 September 2015, the Otsu District Court held that the difference in the commute allowance was the only unreasonable difference in labour conditions between Hamakyo Rex’s permanent and fixed term employees. The District Court ordered the company to pay the claimant JPY 10,000 to make up the difference.

On appeal, the Osaka High Court held on 26 July 2016 that in addition to the commute allowance, the differences in the no-accident allowance, work allowance and meal allowance also constituted unreasonable differences in labour conditions, but held that the differences in accommodation allowance and no-absence allowance were reasonable. The High Court ordered the company to pay the claimant JPY 770,000 to make up the differences.

Supreme Court

On further appeal, the Supreme Court of Japan held on 1 June 2018 that other than the accommodation allowance, differences in all the other types of allowances constituted unreasonable differences in labour conditions in breach of Article 20 of the Labour Contract Act. In so ruling, the Supreme Court took the view that providing an accommodation allowance to the permanent employees and not to the fixed term employees was reasonable because the accommodation allowance was provided on the basis that permanent employees were subject to job relocation to different parts of Japan and might therefore incur higher accommodation costs compared to fixed term employees who were not subject to such job relocations.

The Court remitted the matter back to the Osaka High Court to calculate damages on this basis.

What to be aware of

The Courts have increasingly been finding in favour of fixed term employees in cases where employers provided more favourable labour conditions to their permanent counterparts. Going forward, companies are recommended to review their compensation packages for their permanent and fixed term employees and should ensure that any differences in treatment can be reasonably justified.