Recent Changes to Japan’s Labor and Employment Systems

The Acts on Work Style Reform passed by the Japanese Diet will start entering into effect in a phased manner on April 1, 2020, drastically altering the Japanese labor and employment systems for such purposes as shorter work hours, more diverse and flexible work styles and equitable treatment of nonregular workers. This Sidley Update describes the main characteristics of the acts that may necessitate amendment to your employment agreements, rules of employment and/or other internal rules.

The Bill for the Establishment of Acts on Work Style Reform (the Acts on Work Style Reform) was passed by the House of Councilors of the Japanese Diet on June 29, 2018. The Acts on Work Style Reform are expected to change the ways people work and wages are paid in Japan, especially because of the limit on overtime hours, the “highly skilled professionals” system and the provisions to address the less favorable and unreasonable treatment of certain types of workers, as specified below. This is a summary of the acts. Your company may need to review its operations, employment contracts, and internal rules, depending on the nature or size of its business or any other relevant factor.

I.          Correction of Long Work Hours and More Diverse and Flexible Work Style

1.         Review of Work Hour Rules (Amendment of the Labor Standards Act and the Industrial Safety and Health Act)

(1)       Limit on Overtime Hours

The maximum overtime hours shall in principle be 45 hours per month and 360 hours per year. The maximum under temporary and exceptional circumstances shall be 720 hours per year, less than 100 hours per one particular month (including work on holidays) and 80 hours per month on average (including work on holidays), provided that certain types of businesses and work shall be given a moratorium or exemption.

(2)       Review of Extra Wages Paid for Overtime Exceeding 60 Hours per Month at Small and Medium-size Companies

The moratorium for small and medium-size companies on the extra wages (50 percent and above) for overtime exceeding 60 hours per month shall be abolished.

(3)        Ensuring Workers Take a Certain Number of Paid Annual Leave Days

Employers must designate a specific time period during a year in which to take five annual paid leave days so that workers entitled to 10 or more such days are able to take five such days (except that employers need not make such designation for the annual leave days taken based on workers’ own designation of the time of year or taken based on an existing paid leave plan).

(4)        Ensuring Accurate Grasp of Work Hours

Employers must accurately grasp employees’ work hours in accordance with the terms and conditions set forth in the Ministerial Order.

(5)        Review of Flex-time System

The maximum length of the “settlement period” for the flex-time system shall be three months instead of one month.

(6)       Establishment of Highly Skilled Professionals System

System for certain types of highly specialized work or result-oriented work (highly skilled professionals system): The provisions on work hours, holidays, extra wages for night work and other relevant items shall not apply to workers who earn at least 10 million JPY per year and are engaged in work the scope of which is well defined and that requires highly specialized expertise, provided that measures are taken to ensure their health and well-being (including ensuring they take at least 104 days off per year) and that workers’ consent and the resolution of the labor-management committee are in place. The House of Representatives of the Diet amended the proposed bill by adding the provisions requiring a resolution by the labor-management committee when establishing the procedures for retraction of such workers’ consent.

a.         With regard to the measures to ensure worker health and well-being, in addition to the obligation to secure at least 104 days off per year, (i) the measure to create a certain interval between the end of the previous work period and the start of the next work period (the interval measure), (ii) the measure to limit the hours spent at work per month or per three months, (iii) the measure to ensure workers take a vacation of consecutive two weeks or (iv) the measure to have workers undergo an ad hoc medical checkup in addition to a regularly scheduled checkup must be taken.

b.         Employers must ensure that doctors interview the workers staying at work over a certain number of hours.

2.         Promotion of Work Hour Interval System (Amendment of the Act on Special Measures for Work Hour Arrangements)

(1)       Promotion of Work Hour Interval System

Employers must strive to secure a certain period of rest between the end of the work hours on the previous day and the start of the work hours of the next day.

(2)       Promotion of Labor-management Efforts to Improve Work Hour Arrangement at Company Level

A resolution of the corporate committee on the improvement of work hour arrangements can substitute a labor-management agreement on planned provision of annual leave so that corporatewide labor-management efforts to improve work hour arrangements be promoted.

(3)        Consideration by Employers

The House of Representatives of the Diet amended the proposed bill to include the provisions on the obligation of employers to strive to give due consideration not to set short deadlines for orders or frequently change the details of orders.

3.         Strengthening of Functions of Industrial Physicians and Industrial Healthcare (Amendment of the Industrial Safety and Health Act and Other Relevant Acts)

Employers that have a place of business with 50 or more workers (which requires the appointment of one industrial physician) must report to the health committee the specifics of the recommendations by industrial physicians on worker healthcare and other relevant items.

Employers that have a place of business with 50 or more workers (which requires the appointment of one industrial physician) must provide to industrial physicians the information necessary for the proper conduct of industrial healthcare measures.

II.        Ensuring Fair Treatment Regardless of Types of Employment

1.         Establishment of Provisions to Eliminate Unfair and Unreasonable Difference in Treatment (Amendment of the Act on Improvement, Etc., [NOTE: As this “etc.” is part of the name of the Act, it should not be deleted. For your information, in the Japanese legal text, the use of “etc.” is very common, even in a provision of an act.]of Employment Management of Part-time Workers, the Labor Contracts Act and the Act for Ensuring Proper Operation of Worker Dispatch Business and Improving Work Conditions for Dispatch Workers)

(1)        Prohibition of Unreasonable Treatment

With regard to the prohibition of unreasonable treatment of short-term and fixed-term workers within a company, the standards for any treatment within a company of short-term and fixed-term workers that is different from that of employees must be established based on consideration of the factors deemed appropriate for the nature and purpose of such treatment.

(2)        Obligation for Equal Treatment

Any fixed-term workers must be accorded treatment equal to employees as long as the specifics of their work and the scope of their work and assignment are the same.

(3)        Obligation Concerning Dispatch Workers

With regard to dispatch workers, employers must ensure that (i) they be accorded treatment equal to employees or (ii) they be accorded treatment based on a labor-management agreement meeting certain requirements (e.g., wages equal to or more than the average paid to other workers engaged in the same line of work).

(4)        Guidelines

The provisions on the guidelines on 1 to 3 above are established.

1.         Enhanced Obligation Concerning Explanation on Treatment to Workers (Amendment of the Act on Improvement, Etc., [Please see “NOTE” above.]of Employment Management of Part-time Workers, the Labor Contracts Act and the Act for Ensuring Proper Operation of Worker Dispatch Business and Improving Work Conditions for Dispatch Workers)

The obligation to explain to short-term, fixed-term and dispatch workers the specifics of and reasons for their treatment that is different from that of employees is established.

2.         Establishment of Administrative Measures to Ensure Compliance and Alternative Dispute Resolution (Administrative ADR)

Administrative measures to ensure compliance with the obligations stated in 1 and 2 above and the Administrative ADR procedures for any dispute related thereto are established.

III.       Effective Date

1.         The amendment relevant to I. “Correction of Long Work Hours and More Diverse and Flexible Work Style” above will enter into effect on April 1, 2019 (except that the provisions on the limit on work hours at small and medium-size companies will enter into effect on April 1, 2020, and the provisions on the review of extra wages at small and medium-size companies will do so on April 1, 2023).

2.         The amendment relevant to II. “Ensuring Fair Treatment Regardless of Types of Employment” above will enter into effect on April 1, 2020 (except that the amended provisions of the Act on Improvement, Etc., [Please see “NOTE” above.]of Employment Management of Part-time Workers and of the Labor Contracts Act will be applied to small and medium-size companies on April 1, 2021).