As I wrote in this space last year, layoffs for economic circumstances exist under Japanese law, but are exceedingly difficult to achieve without constituting wrongful dismissal. One major international airline is learning this the hard way.

Three years ago, the airline terminated three Japan-based employees in connection with the closing of its call center in Osaka (the functions of which were relocated to China as a cost-saving measure). The employees fought back by filing an administrative complaint and a civil suit. While these proceedings were pending, they staged regular public protests in the check-in area at Narita Airport, distributing flyers in English and Japanese that called on the airline to obey Japanese law.

Last October, the Osaka Prefectural Labor Commission issued an administrative order stating that the dismissal was wrongful and ordering the airline to withdraw it. This week, the Osaka District Court issued a civil judgment against the airline, ordering the reinstatement of the employees and the payment of 41 million yen (about $360,000) in unpaid wages and bonuses, and making headlines in newspapers around the country.

The airline argued that its Japan routes were not profitable and that it needed to reduce costs by closing the call center and dismissing its staff. Both the commission and the court looked at the airline’s global financial statements, which showed a global profit of over 100 billion yen. The court also heard testimony from the airline’s Japan branch manager that the airline calculated its profits and losses on a global rather than territorial basis, undermining the airline’s own argument. Both tribunals concluded that there was no economic need for the restructuring.

The employees had joined a labor union about a year and a half prior to their dismissal, through which they had raised allegations of unpaid overtime, harassment and other infractions by the airline. The Commission found that the dismissal appeared to be a form of disguised retaliation against the employees for joining the union. The court did not go into this analysis, on the basis that the economic necessity issue alone was dispositive.

This is not the first case of a foreign airline falling afoul of Japan’s harsh restrictions on downsizing. Another major international airline lost a wrongful dismissal suit in the Tokyo District Court in 2001 after dismissing two local middle managers through a personnel reduction process mandated by its aircraft lessors. According to the court, the airline passed the economic necessity test as it had incurred severe losses worldwide, but had failed to make efforts to avoid downsizing, to reasonably select employees, and to adequately explain the process to them.