Employment Guidelines
The purpose of these “Employment Guidelines” is to help newly createdenterprises, global companies and others to accurately understand employment
rules in Japan, to improve foreseeability and to make it easier to expand businesswithout giving rise to labor-related disputes. The Guidelines are based on analyses
and categorization of judicial precedents concerning labor relations, in line with
Article 37 paragraph 2 of the National Strategic Special Zones Act (Act No. 107,
December 13, 2013).
These Guidelines will be used by Employment and Labor Advisory Centers
set up in National Strategic Special Zones, to assist in providing advice on
employment management and labor contract issues in response to inquiries fromcompanies and others.

CONTENTS
I Introduction・・・・・・・・・・・・・・・・・・・・・・・・ 2
II Detailed Analysis
1 Establishment of Labor Contracts(1) Freedom of hiring・・・・・・・・・・・・・・・・・・・ 6(2) Withdrawal of a tentative job offer・・・・・・・・・・・・ 7(3) Probationary period・・・・・・・・・・・・・・・・・・

9

2 Development of Labor Contracts(1) Setting and changing working conditions・・・・・・・・・ 13(2) Transfer (redeployment)・・・・・・・・・・・・・・・・

18(3) Secondment (transfer to related firms)・・・・・・・・・・

21(4) Discipline (disciplinary action)・・・・・・・・・・・・・

23(5) Disciplinary dismissal・・・・・・・・・・・・・・・・・

27

3 Termination of Labor Contracts(1) Dismissal・・・・・・・・・・・・・・・・・・・・・・・ 28(2) Ordinary dismissal・・・・・・・・・・・・・・・・・・・ 29(3) Adjustment dismissal・・・・・・・・・・・・・・・・・・ 35(4) Restrictions on dismissal when for special reasons, etc.・ ・44(5) Encouragement of voluntary retirement・・・・・・・・・・ 45(6) Termination of employment by non-renewal of fixed-term
contracts・・・・・・・・・・・・・・・・・・・・・・・ 45(7) Withdrawal of voluntary retirement・・・・・・・・・・・・ 47(8) Duty of non-competition after retirement・・・・・・・・・ 49
1

IIntroduction
The style of personnel management practiced in typical Japanese companies isoften said to bear the following “internal labor market type” characteristics.
(i) Every year, new school graduates are recruited and hired periodically,
with no limit on job duties and working location, and they continue
working for a comparatively long term under a fixed retirement age
system. Promotions and pay raises are carried out under personnel andwage systems that take account of the progress of skill levels andaccumulation of experience, among other factors.
(ii) Wide-ranging transfers (redeployment and secondment (transfer to related
firms)) are undertaken.
(iii) Working conditions are established in detail through rules of employment.
(iv) In times of recession, etc., employment adjustments are made by reducing
or canceling overtime work, reducing or canceling new recruitment,
temporary shutdowns, or transfer and secondment (transfer to related
firms), among other methods. When employment has to be terminated,voluntary early retirement is first offered and encouraged by increasing
retirement allowances and other means, following labor-management
consultation, and only then is adjustment dismissal considered.
*This description is a generalization; the actual situation will differ fro m company tocompany.

On the other hand, some employers in Japan, such as foreign-capitalcompanies and newly created companies not premised on a system oflong-term employment, practice “external labor market type” personnel
management. Such employers are often said to bear the following
characteristics.
(i) Whenever a post becomes vacant, it is filled through open recruitment
within the company and mid-career hiring from outside; long-term
continuous employment is not necessarily a prerequisite.
(ii) Job duties are clearly specified in job descriptions, while the scope of
personnel relocation is not broad.
(iii) Working conditions, such as wages in line with job duties, are set in detailfor each worker individually in labor contracts.
(iv) When a worker is employed for a specific post, the worker is dismissed
when the post becomes redundant, after undergoing fixed procedures andreceiving monetary compensation combined with job-search support(hereinafter “retirement package”).
*

This description is a generalization; the actual situation will differ fro m company tocompany.

2

In individual judgments on employment rules in Japan, value judgment
criteria including “objectively reasonable grounds” and “based on social
acceptability” (normative requirements) are used in cases such as dismissal,
under the principle of good faith and a general rule prohibiting the abuse ofrights. When using these value judgment criteria (normative requirements),
courts sometimes make judgments after taking account of factors such as
differences in personnel management between the two types of company
mentioned above – i.e. those that practice personnel management based on theinternal labor market (hereinafter “internal labor market type companies”) andthose that practice personnel management based on the external labor market(hereinafter “external labor market type companies”).
Specifically:(i) In internal labor market type companies, transfer or secondment (transfer
to related firms) undertaken by the employer does not usually constituteabuse of personnel rights, while on the other hand, efforts to avoid
dismissal (such as the broad use of transfers) tend to be expected of
employers.
(ii) In external labor market type companies, if retirement packages areprovided upon dismissal, the expectation that employers will endeavor to
avoid dismissal (such as the broad use of positional transfers) tends to besmaller than in internal labor market type companies.
The respective characteristics of “internal labor market type” and “external
labor market type” companies mentioned above are at most generalizations;
the combination of characteristics may differ according to the actual situationof individual companies. For example, an internal labor market type company
may practice personnel management resembling that of an external labormarket type company, depending on the department or post. It is notnecessarily that the general rule is to pick one or the other.
Moreover, the trends in individual judgments mentioned above are also
merely generalizations; individual judgments are made for each case, taking
account of economic and industrial circumstances, the employer ’s businesssituation and the status of labor management, among other factors. The sameis true of these Guidelines, in which judicial precedents are analyzed andcategorized.
While these Guidelines mainly analyze and categorize judicial precedents
involving so-called regular employees and describe related systems,
personnel management for non-regular employees often differs from that for
regular employees. As such, laws and ordinances (*) governing non-regular3employees are applied in some cases, while in others a judgment differingfrom that for regular employees may be made when making individual
judgments on employment rules.
*

The Act on I mprovement, etc. of Emplo yment Management for Part-Time Workers (ActNo. 76, 1993), the Act fo r Securing the Proper Operation of Worker Dispatching
Undertakings and Protection of Dispatched Workers (Act No. 88, 1985), etc.

The number of dismissals in Japan can be confirmed from the number of cases
taken for consultation to administrative agencies (*1).
Even when disputes have broken out over dismissal, relatively few cases
are contested in litigation. Instead, they are resolved quickly and flexibly
through conciliation by Dispute Adjustment Committees established in
Prefectural Labor Bureaus, mediation and advisory decisions under the labor
tribunal system established in district courts (*2), or other means.
When litigation is filed in a dismissal case, a judgment is made to confirm
whether the dismissal was valid or invalid – in other words, to confirm thecontinuation or discontinuation of the labor contract. In reality, however, few
cases go as far as a court judgment; steps are more usually taken toward a
flexible resolution, such as agreed termination by the worker in exchange fora monetary sum following a settlement procedure, etc. (*3).
Meanwhile, cases resulting in a verdict are more or less equally divided
into cases upheld and cases dismissed or rejected (*4).
*1 General Labor Consultation Corners handled 57,785 cases o f disputes o ver dismissal,
and provided mediation in 2,415 of these (FY2011).
*2 Labor tribunals received 1,747 new petitions related to dismissal, etc., and arbitration
was established in 1,242 of these (2011).
*3 926 new suits related to dismissal, etc., were filed as ordinar y litigation cases in thefirst instance (suits other than those related to money), and settlement was reached in
437 of these (2011).
*4 In 2011, verdicts were reached in 284 suits related to dismissal, etc., in ordinar ylitigatio n cases in the first instance (suits other than those related to money). Of these,
148 cases were upheld while 136 were dismissed or rejected.

*

To make it easier to distinguish between the analysis of judicial precedents
and descriptions of judicial precedents provided as reference, on the one hand,and descriptions of employment customs, legal systems, and related
information, etc., on the other, the former are surrounded bylatter by

and thein these Guidelines.

For topics particularly prone to disputes, meanwhile, the Guidelines4suggest points to bear in mind in order to prevent disputes from occurring.
As mentioned above, the analysis of judicial precedents in these
Guidelines describes general trends, but individual judgments are made after
considering the individual circumstances of each case.

5

II

Detailed Analysis

1

Establishment of Labor Contracts(1)

Freedom of hiring
In case law, companies are recognized to have freedom in entering
contracts as part of their economic activities, and to be able to decide
freely, in principle, whom to employ and under what conditions for thesake of their own business, unless there are special restrictions based on
statutes or other laws.
Relevant judicial precedent
Mitsubishi Plastics Case (Decision by the Supreme Court, Grand
Bench, December 12, 1973)◇ In this case, the company refused to grant full employment at theend of the probationary period because the worker had given false
answers in the interview as part of the hiring examination. The court
ruled that the refusal to employ was valid.
◇ Companies are free to enter contracts as part of their economic
activities, and may decide freely, in principle, whom to employ andunder what conditions when employing workers for the sake of theirown business, unless there are special restrictions based on statutes
or other laws.
Related information◇ Companies are deemed under obligation to grant equal employment
opportunities regardless of gender when recruiting and hiring
workers. Except in certain cases, moreover, they are deemed underobligation to grant equal employment opportunities regardless ofage.
*

Act on Securing, Etc., of Equal Opportunity and Treatment between Men and
Women in Emplo yment (Act No. 113, 1972; hereinafter “Gender Equality In
Emplo yment Act”) Article 5, Emplo yment Counter measures Act ( Act No. 132,
1966) Article 10, and Emplo yment Counter measures Act Enforcement
Regulations (Ministr y o f Labour Ordinance No. 23, 1966) Article 1–3.

◇ Companies are deemed under obligation not to acquire personal
information from job seekers or other individuals that will lead tosocial discrimination, except when it is necessary in order toachieve their business objectives and they acquire it from the6individual in question after indicating the purpose of gathering it.
Besides this, companies also bear certain obligations concerning theacquisition, management, use, and other aspects of personal
information.
*“Guidelines on the Protection of Personal Infor mation in the Field of
Emplo yment Management” (Ministr y o f Health, Labour and Welfare Notice
No.357, 2012), “Guidelines for Proper Handling Concerning Equal Treatment,
the Indication of Working Conditio ns, etc., Handling o f the Personal
Infor mation of Job Seekers, etc., the Duties o f Emplo yment Introduction
Agencies, Precise Indication of Recruitment Content, etc., by Emp lo yment
Introduction Agencies, Persons Recr uiting Workers, Recruitment
Subcontractors, Labor Supply Businesses, etc.” (Ministr y of Labour Notice No.
141, 1999).

(2)

Withdrawal of a tentative job offer
Under Japan’s “long-term employment system”, periodic hiring isbroadly practiced when hiring new school graduates. In many cases, time
is taken while prospective graduates are still enrolled in education to holdcompany explanation sessions as well as implementing recruitment andselection processes, in order to secure superior human resources.
Tentative job offers are then made at a time significantly earlier than thescheduled date of joining the company.
In case law, although the legal nature of a tentative job offer is deemed tovary from case to case, if there is no plan to make a special declaration of
intent with a view to concluding a labor contract (besides the notificationof a tentative job offer), a worker ’s response to a company’s recruitment
is deemed to be an application for a labor contract, and the resultant
notification of a tentative job offer from the company is deemed to be an
expression of approval. As a result, a labor contract reserving terminationrights including a time of commencement (*) is deemed to have been
established.
*

A labor contract containing an agreement to the effect that the contract may be
ter minated if so me grounds for withdrawing the tentative job offer specified in the
notification of tentative job offer or other documents have arisen, or if the prospective
new emplo yee has not managed to graduate befor e the sched uled date of joining thecompany.

As for the legality of withdrawing a tentative job offer in case law,
grounds for withdrawing a tentative job offer stated in the notification of7

tentative job offer, etc., are endorsed to justify the withdrawal of thetentative job offer when they are applied to facts that could not be known(or could not be expected to be known) when the tentative job offer was
made, and it is deemed objectively reasonable and capable of being
endorsed as being socially acceptable to withdraw the tentative job offer,in light of the gist and purpose of reserving termination rights.
The legal principle outlined above includes judicial precedents applied to
the withdrawal of tentative job offers to new school graduates, as well as
those applied to the withdrawal of tentative job offers to workers hired in
mid-career by foreign-capital companies.
Relevant judicial precedent
Dai Nippon Printing Case (Decision by the Supreme Court, Second
Petty Bench, July 20, 1979)◇ In this case, a prospective graduate received notification of atentative job offer from a company and submitted a promissory noteto the company, but the company later suddenly gave notice that it
was withdrawing the tentative job offer. The court handed down aruling deeming the withdrawal of the tentative job offer invalid andconfirming its status in labor contracts.
◇ From the outset, the company knew that the individual in question
made a gloomy impression, which was given as the reason forwithdrawing the tentative job offer, and could therefore have judged
the individual’s suitability as a worker. However, even whileconsidering the person unsuitable, it still made a tentative decision
to hire and then withdrew the tentative offer because there was noevidence to counter the lack of suitability. This action cannot beendorsed as socially acceptable, in light of the gist and purpose ofreserving termination rights.
Relevant judicial precedent
NTT Kinki Telephone Exchange Case (Decision by the Supreme
Court, Second Petty Bench, May 30, 1980)◇ A case in which, after a tentative job offer had been made, it was
revealed that the individual receiving the job offer had been arrested
for an illegal act resulting in a suspended indictment, as a result of
which the company withdrew the tentative job offer. The court
recognized the withdrawal of the tentative job offer.
◇ Although the notification of the tentative job offer merely indicatedthat the company would withdraw the job offer if an abnormality
8

were found in the medical examination, or if documents such as apromissory note were not submitted by the prescribed deadline, thereservation of termination rights is not limited to these cases.
Relevant court decision
Informix Case (Decision by the Tokyo District Court, October 31,
1997)◇ In this case, the company withdrew a tentative job offer made to aheadhunted worker on grounds of a business downturn. The court
deemed the withdrawal of the tentative job offer invalid and handed
down a temporary disposition decision, confirming the status inlabor contracts.
◇ Considering the process which gave rise to the tentative job offer,the expectation of the worker receiving the job offer, the fact thatthe recommendation to the worker to withdraw the job-offer
acceptance came only two weeks before the scheduled date ofjoining the company, that the worker had already quit the previous
job, and other factors, withdrawing the tentative job offer cannot be
deemed objectively reasonable and cannot be endorsed as sociallyacceptable, even in light of the gist and purpose of reserving
termination rights.
Related information◇ Companies are obliged to report to the chief of the Public
Employment Security Office and the school principal whenwithdrawing a tentative job offer to a new school graduate. Besides
this, the Minister of Health, Labour and Welfare may, in certain
cases, publish the content of such reports to facilitate appropriate
career choices by pupils and students, etc.
*

Ordinance for Enforcement of the Emplo yment Security Act (Ministr y of Labour
Ordinance No. 12, 1947) Article 17–4, Article 35.

(3)

Probationary period
Many Japanese companies adopt a “probationary period” system,
whereby a period of time (typically three months) after a new school
graduate, etc., is hired and has joined the company is set forth for thecompany to decide whether or not to fully employ the worker based on an
evaluation of the worker ’s personality and ability during this period.
9

Of course, in Japan’s “long-term employment system”, in which newschool graduates and others are periodically hired then trained andemployed for the long term, as stated in (2) above, hiring of new school
graduates and others is undertaken through a careful process of selection,
so that aptitude assessment during the probationary period tends to be aformality, and full employment is rarely refused.
In case law, employment contracts accompanied by a probationary period
are deemed to take effect upon conclusion of the contract, with thereservation of termination rights, whereby the employment may beterminated simply for the reason that the worker was deemed to lack
aptitude during the probationary period. Moreover, this reservation oftermination rights is construed as being established with the gist ofreserving the final decision based on subsequent investigation andobservation, and as such, is deemed to be a reasonable condition of
employment. Dismissal that is based on such reserved termination rights
is acknowledged to have a broader range of freedom than normal
dismissal.
However, considering that during the probationary period the worker
gives up opportunities for employment in other companies, and in light of
the gist and purpose of reserving termination rights, the exercise ofreserved termination rights is only permitted when there are objectively
reasonable grounds and it can be endorsed as socially acceptable.
It is deemed acceptable to exercise reserved termination rights if, as aresult of investigation after the decision to hire, or the working
performance during the probationary period, etc., facts come to be known
that could not have been known (or could not be expected to have been
known) at the outset, and if, on the basis of such facts, it is deemedobjectively appropriate to judge, in light of the gist and purpose ofreserving termination rights, that it would not be appropriate to continue
to employ the individual in the company.
Relevant judicial precedent
Mitsubishi Plastics Case (Decision by the Supreme Court, Grand
Bench, December 12, 1973)◇ In this case, the company refused to grant full employment oncompletion of the probationary period, because the worker had
given false answers in the hiring interview. The court ruled that the10refusal to employ was valid.
◇ It was ruled that in this case involving alleged concealment of facts
relating to the worker ’s potentially illegal acts in the course ofhiring, the company must make an overall judgment as to whether or
not there are reasonable grounds to exercise the reserving
termination rights by evaluating the significance of the facts related
to the existence or lack of concealed facts, the existence or lack ofpotentially illegal acts, etc., in terms of their impact on the worker ’s
behavior and attitude after joining the company as well as
evaluation of the worker ’s personality.
Relevant court decision
Japan Foundation Engineering Case (Decision by Osaka High Court
February 10, 2012)◇ In this case, a new school graduate hired as an engineer was
dismissed under reserved termination rights after only four monthsof the six-month probationary period. The court deemed thedismissal valid.
◇ As an overall judgment, based on the fact that an accident caused by
the plaintiff (worker) was an act that endangered the life and limb of
the plaintiff as well as others nearby and could not be overlooked,
that the plaintiff had a poor awareness of timekeeping andcompliance with rules, and despite repeated cautions, suffered froma lack of sleep and an associated loss of concentration, there was noprospect of a dramatic improvement in ability or acquisition of theability necessary as a technical employee, even with continued
guidance in future, although four months had already passed.
◇ The employer had given ample opportunities for improvement andprovided sufficient guidance and education with a view to full
employment, and had therefore endeavored to avoid dismissal.
To prevent disputes from occurring
To prevent disputes concerning the probationary period (except
new school graduates, etc.), companies engaged in external labormarket type personnel and labor management could include thefollowing content in their labor contracts or rules of employment, forexample, and carry out such measures in accordance with these, whenappropriately paid employees are hired for immediate deployment inmanagerial or highly specialized positions, provided this does not11compromise the professional interests of workers.
*

Rules of emplo yment must be consistent with labor contracts.

◇ The probationary period should not be too long (for example, about
three months, extendable to six months with the worker ’s consent).
◇ The duties undertaken by the worker, the expected performance andother details should be stated in as much detail as possible.
◇ It should be made clear that, during or after completion of theprobationary period, the worker ’s performance will be judged anddismissal could result.
◇ The worker ’s performance should be evaluated regularly during theprobationary period and the worker should be informed of theresult, and if there is any problem with the performance, it should bepointed out to the worker.
◇ If a worker is to be dismissed, notice should be given, and a fixedallowance should be paid in consideration of the length of
employment and other circumstances.

12

2

Development of Labor Contracts(1)

Setting and changing working conditions
In principle, a labor contract is established between a worker and an
employer by agreement on an equal basis, and working conditions are
specified in it.
*

Labor Contract Act ( Act No. 128, 2007), Article 3, Article 6; Labor Standards Act(Act No. 49, 1947), Article 2.

*

As well as the above, Article 3 of the Labor Contract Act includes provisions on equal
treatment according to the actual conditions o f emplo yment, the concept ofconsideration for har mo ny between work and private life, contract co mpliance, goodfaith, and the prohibition of abuse of rights. Meanwhile, Article 13 of the Labor
Standards Act states that a labor contract which provides for working conditions no tcompliant with the standards of the Act shall be invalid with respect to such portions,and that the portions which have beco me invalid shall be governed b y the standards
set forth in the Act.

Any part of a labor contract contravening the standards concerning
working conditions provided in a collective agreement between acompany and a labor union shall be void. In such a case, the invalidated
part of the contract shall be governed by the standards provided in thecollective agreement. These standards shall also apply to matters notprovided in the labor contract.
*

Labor Union Act ( Act No . 174, 1949), Article 16.

Meanwhile, businesses that continuously employ 10 or more workers are
obliged to draw up and submit rules of employment, and labor contracts
stipulating working conditions that do not meet standards established by
the rules of employment shall be invalid with regard to such portions. In
such cases, the working conditions shall be governed by the rules of
employment.
*

Labor Contract Act, Article 12; Labor Standards Act, Article 89.

*

Article 89 of the Labor Standards Act provides that if there are stipulatio ns on matterssuch as wor king hours, days off, leave, wages, retirement (including grounds for
dismissal), extraordinar y wages, costs borne by workers, safety and health, etc., thesematters must be stipulated in the rules of emplo yment.

*

Article 92 of the Labor Standards Act provides that rules of emplo yment shall not
infringe any laws and regulations or any collective agreement.

13Unlike US employee handbooks and others that mainly stipulate
workplace discipline and basically differ from the content of the labor
contract, Japanese law states that, if an employer has informed a workerof the rules of employment that provide for reasonable working
conditions, the content of the labor contract shall be based on the working
conditions provided by such rules of employment.
*

Labor Contract Act, Article 7.

Based on these rules of employment, to facilitate efficient, reasonablebusiness management employing large numbers of workers, the common
practice in Japan is to set forth detailed working conditions in rules of
employment instead of in individual labor contracts.
Moreover, when concluding labor contracts, employers must clearly
indicate the wages, working hours and other working conditions to theworkers.
Of these working conditions, employers must issue a document toworkers detailing matters concerning the term of the labor contract,
matters concerning the workplace and the work engaged in, mattersconcerning working hours, rest periods, days off and leave, mattersconcerning wages, and matters concerning retirement (including grounds
for dismissal).
*

Labor Standards Act, Article 15; Ordinance for Enforcement of the Labor Standar d s
Act, Article 5.

Employers must ensure that workers gain in-depth understanding ofworking conditions and the content of labor contracts, and shall confirm
the content of labor contracts whenever possible in writing.
*Labor Contract Act, Article 4.

To prevent disputes from occurring
To prevent disputes concerning wages for overtime work or days
off in an annual salary system, for example, companies engaged inexternal labor market type personnel and labor management could
include the following content in their labor contracts or rules of
employment and carry out such measures in accordance with these,
when appropriately paid employees are hired for immediate deployment
in highly specialized positions, provided this does not compromise theprofessional interests of workers (such as being able to perform work at
the worker ’s own discretion in connection with the nature of the work).
*

Rules of emplo yment must be consistent with labor contracts.

14◇ The method of paying allowances for overtime work or holiday
work.
◇ If an allowance for overtime work is included in the salary, astatement to that effect.
It should be borne in mind that, in this type of case, portions
corresponding to extra wages should be clearly distinguished fromthose corresponding to normal working hours, or if not clearly
distinguished, a certain amount of overtime work and holiday work
should be expected to arise in view of the previous year ’s
performance, etc. Moreover, both labor and management should beaware of the fact that an annual salary amount has been decided to be
included in this portion of extra wages.
The rule is that any change to the content of a labor contract must also be
agreed between workers and employers.
*

Labor Contract Act, Article 8.

In court decisions, the existence of individual agreements on changes tothe content of labor contracts tends to be stringently examined.
In principle, moreover, an employer may not, without the agreement of
the worker, change any of the working conditions in a manner that is
disadvantageous to the worker by changing the rules of employment.
However, if the employer makes the changed rules of employment known
to the workers in the workplace, and if the change to the rules of
employment is reasonable in light of the extent of the disadvantage to be
incurred by the worker, the need for changing the working conditions, theappropriateness of the content of the changed rules of employment, thestatus of negotiations with a labor union or the like, or any othercircumstances pertaining to the change to the rules of employment, theworking conditions shall be in accordance with such changed rules of
employment.
*

Labor Contract Act, Articles 9 and 10.

15

Relevant court decision
Mitsui Wharf Reorganization Company Case (Decision by Tokyo
High Court, December 27, 2000)◇ In this case, a reorganization company (i.e. a company subject toprocedures under the Corporate Reorganization Act) reduced aworker ’s wages without the worker ’s consent on grounds of businessdifficulty, and the worker claimed payment of the full wage. The
court upheld the worker ’s claim.
◇ A worker ’s expression of intent to accept reductions or deductionsof wages not based on rules of employment should be regarded as
equivalent to an abandonment of wage claims, and is only valid
when there are objectively reasonable grounds sufficing to deemthat it is based on the worker ’s free will.
◇ Although the Reorganization Company gave notification of thewage reduction, it did not adequately explain the justification for
the reduction, nor did it clearly seek an expression of intent
indicating acceptance or otherwise. Moreover, the worker thoughtthat any statement of objection would result in dismissal, the 20%
deduction from wages was extremely disadvantageous, and only agroup of workers was made to bear this burden. As a result, there are
no objectively reasonable grounds to deem that the worker ’s lack ofaction, which gave the outward impression of consent, was based on
the worker ’s free will.
Relevant judicial precedent
Omagari Agricultural Cooperative Case (Decision by the Supreme
Court, Third Petty Bench, February 16, 1988)◇ In this case, the retirement allowance ratio was reduced for
employees of one of the former agricultural cooperatives involvedin a merger, in accordance with newly established provisions on
retirement allowances accompanying the merger. The court deemed
this disadvantageous change to the rules of employment to bereasonable.
◇ When creating or changing rules of employment that cause asubstantial disadvantage regarding wages, retirement allowance orother important rights and working conditions for workers, the16relevant clauses are valid if they are reasonable in content, based ona high level of need such that it may be permitted to expect workers
to legally tolerate such disadvantages.
◇ The action was reasonable because the rate of retirement allowance
was reduced but the salary was significantly increased. Moreover,the merger of cooperatives corrected disparity amongst workers,
and generated a strong need to create and apply uniform rules of
employment.
Relevant judicial precedent
Daishi Bank Case (Decision by the Supreme Court, Second Petty
Bench, February 28, 1997)◇ In this case, the fixed retirement age had previously been 55, butworkers whose state of health made them fit for work could remainin employment until age 58. However, in a change to the rules of
employment, the fixed retirement age was extended from 55 to 60
and wages after age 55 were reduced to 67% of the wage at age 54.
As a result, the amount that could have been earned by working until
age 58 could now only be earned by working close to the new fixed
retirement age of 60. The court yet deemed this disadvantageouschange to the rules of employment to be reasonable.
◇ While the extension of the fixed retirement age to 60 or more was agoal of national policy, there was a considerable need for a revisionof wage levels to accompany the extension of fixed retirement, andthe working conditions of the bank after the change wereconsiderably high compared to other companies and society ingeneral. Moreover, the change was made after concluding acollective agreement, following negotiations and agreement, in
response to a proposal by the labor union comprising about 90% of
the bank’s employees. As such, the disadvantage cannot be deemed
unreasonable in content, even if there were no transitional measures
to mitigate the disadvantage.
Relevant judicial precedent
Michinoku Bank Case (Decision by the Supreme Court, First Petty
Bench, September 7, 2000)◇ In this case, a bank with a system of fixed retirement at 60 changed17

its rules of employment to convert employees aged 55 and over to“specialist posts”. With this, the performance-based compensationthat accounted for around half of their salaries would be slashed bya uniform 50%, with an associated decrease in the rate of bonus
payment. The court deemed this disadvantageous change to the rulesof employment unreasonable.
◇ Although the need to change the rules of employment can be
acknowledged in terms of business management, the change to thewage structure improved working conditions for core workers but
vastly reduced the wage levels of those aged 55 and over. Such achange cannot be deemed to have been based on the pressing need of
the bank to vastly reduce the total wage cost.
◇ A labor union comprising 73% of the bank’s employees consented tothe disadvantageous change, but considering the degree and content
of the disadvantage, the agreement of the union cannot be taken asa major factor for consideration when judging reasonability.
◇ Considering that the part of this change to the rules of employment
involving a wage reduction was disadvantageous solely to sucholder employees, it could not be made binding on the said
employees, even taking account of other circumstances.
(2)

Transfer (Redeployment)
The practice known as “transfer” (haiten in Japanese) means that aworker ’s placement is changed, and the job content or working location isaltered over a considerably long period. Changes of the place of work
(department) within the same working location (place of business) areoften called “reassignments” (haichi tenkan), while changes of theworking location are often called “relocation” (tenkin).
In Japan, regular employees scheduled for long-term employment are
hired without restriction on job content or working location, andsystematic, broad-ranging transfer is widely practiced for purposes ofimproving workers’ occupational skills and status within the corporate
organization, as well as replenishing or adjusting the labor force.

18

In case law, it has been held that, if there are provisions in the rules of
employment to the effect that workers may be ordered to be relocated orreassigned for the convenience of business, and if there is no agreement
to restrict the working location or job, a company may order relocations
and reassignments without the worker ’s consent. However, transfer orderrights may not be exercised without constraint, and it is deemed
impermissible to abuse this right.
Specifically, transfer is only deemed to constitute an abuse of rights if
there is no necessity on business grounds, or if there is necessity on
business grounds but the transfer is ordered for other improper motives orobjectives, or when there are exceptional circumstances, such as that theworker is made to suffer a disadvantage markedly exceeding the degree
that should normally be tolerated.
Also, in court decisions, there have been cases in which a transfer orderfor purposes of causing the worker to retire has been deemed illegal.
Relevant judicial precedentToa Paint Case (Decision by the Supreme Court, Second Petty
Bench, July 14, 1986)◇ In this case, a university graduate worker responsible for sales in
the Kobe Sales Office refused a relocation order to the Nagoya Sales
Office on account of domestic circumstances (alleging that it would
mean living away from his family due to his wife’s work and his
parents’ difficulty in moving house) and was therefore subjected to
disciplinary dismissal. The court deemed both the relocation orderand the disciplinary dismissal valid.
◇ An employer may decide a worker ’s working location at its own
discretion, in accordance with business necessity.
◇ Said transfer order would not constitute an abuse of rights unlessthere was no necessity on business grounds, it was ordered for otherimproper motives or objectives, or there were exceptional
circumstances, such as that the worker was made to suffer adisadvantage markedly exceeding the degree that should normallybe tolerated.

19◇ The existence of necessity on business grounds should be endorsed,
as long as elements that contribute to the reasonable operation of thecompany can be acknowledged, such as the correct deployment of
the labor force, enhancing the efficiency of work, vocational
development of workers, stimulation of work motivation, or greater
ease of work operation.
◇ In the case of this transfer order, necessity on business grounds
existed, and in consideration of the family situation, thedisadvantage in family life caused by the transfer to Nagoya Sales
Office should be described to be of a degree that should normally betolerated in connection with transfers.
Relevant court decision
Nestle Japan Case (Decision by Osaka High Court, April 14, 2006)◇ In this case, a worker who refused a transfer order to a remoteregion, on grounds that he had a wife who suffered from mental
illness and a parent who required nursing care, sought confirmationthat his employment contract did not oblige him to work in said
remote region. The court deemed said transfer order an abuse ofrights and therefore invalid.
◇ As it was clearly specified in the rules of employment andemployment contract that the worker could be transferred, andmoreover as workers in the company had previously beentransferred, the company is entitled to order transfers without
individual consent, while the need for transfer on business grounds
is also acknowledged.
◇ However, the disadvantage suffered by the worker as a result of thetransfer order would have been considerably large, markedly
exceeding the degree that should normally be tolerated. This isbecause, if a transfer order caused the worker to live away from his
family, the impact on the wife’s mental illness would have been
great, while it would have been impossible for the wife to spend all
day looking after and caring for the parent who required nursing
care, among other reasons.

20Relevant court decision
Fuji Seal Case (Decision by Osaka District Court, August 28, 2000)◇ In this case, a worker who rejected an offer of voluntary retirement
was given a transfer order. The court deemed said transfer order anabuse of rights and therefore invalid.
◇ The rules of employment stated that personnel reallocation may beordered when necessary on business grounds, and the worker was aregular employee with no restriction on work duties or working
location. In such cases, transfers may be ordered without requiring
individual consent, but when there is no necessity on businessgrounds, or when there are exceptional circumstances, such as thatthe order was made for other improper motives or objectives, thetransfer order constitutes an abuse of rights and is therefore invalid.
◇ As there is no necessity on business grounds for a worker in a
management post who is engaged in developing technology to be
deployed in the simple work of manual labor, the transfer ordershould be seen as harassment in response to the worker ’s rejectionof the voluntary retirement offer. As such, the transfer orderconstituted an abuse of rights and was therefore invalid.
◇ There was no necessity on business grounds for the worker to be
deployed in waste collection work, which had previously been
carried out by a temporary worker. As such, the transfer orderconstituted an abuse of rights and was therefore invalid.
(3)

Secondment (transfer to related firms)“Secondment” means that a worker, while still contracted to the original
employer, works for another company and remains in that company for asignificant period of time.
In Japan, regular employees scheduled for long-term employment are
hired without restriction on job content or working location. As such,secondment is widely practiced for purposes such as management or
technical instruction of subsidiaries and affiliates, workers’ vocational
development and career building, response to a shortage of posts for
middle- and older-aged personnel, employment adjustment, etc.

21Article 14 of the Labor Contract Act states that “In cases where an
employer may order the temporary transfer of a worker, if such order of
temporary transfer is found to be an abuse of rights in light of the need forsuch temporary transfer, the circumstances pertaining to the selection of
the worker to be temporarily transferred, or any other circumstances,such order shall be invalid.”

Relevant judicial precedent
Nippon Steel Case (Decision by the Supreme Court, Second Petty
Bench, April 18, 2003)◇ In this case, a company (the secondment originator) ordered its
workers to be seconded to a cooperating company accompanying theoutsourcing of work to that company, but some of the workers did
not consent to the secondment order. The court deemed thesecondment order valid.
◇ External work clauses were included in the rules of employment andcollective agreements, while the external work agreement included
detailed provisions defining external work, the secondment period,
workers’ status, treatment and other details during secondment, andother matters taking the interests of the seconded workers into
account. Under these circumstances, the company was entitled toissue a secondment order without the individual consent of theworkers.
◇ Considering that it was necessary to undertake secondment
measures, that the standards for selecting personnel subject tosecondment measures were reasonable, that there was no change at
all in the work content or working location, and that there were
provisions for workers’ status, treatment and other details duringsecondment under the external work agreement, etc., the workers
cannot be said to have suffered any significant disadvantage in theirdomestic circumstances, working conditions, etc. Moreover, there
was no unreasonable element in the procedure leading to thesecondment order. Thus, the secondment order could not be said toconstitute an abuse of rights.

22

Under the system of “employment transfer” (tenseki), a worker ’s
employment relationship is transferred from the original employer toanother company, and the worker is engaged in working for the othercompany.
In Japan, regular employees scheduled for long-term employment
undergo employment transfer for purposes such as securing employment
opportunities for workers reaching the fixed retirement age, employment
adjustment, and management or technical instruction of subsidiaries andaffiliates.
*

Article 625 of the Civil Code ( Act No. 89, 1896) states that an emp lo yer may not
assign his or her rights to a third party witho ut first obtaining the emplo yee’s consent.

In court decisions, employment transfers cannot be imposed unilaterally
based on the employer ’s inclusive personnel rights, and require theconsent of the worker.
Relevant court decision
Sanwa Kizai Case (Decision by the Tokyo District Court, January
31, 1992)◇ In this case, a worker who refused an employment transfer order was
subjected to disciplinary dismissal, but the court deemed thedisciplinary dismissal invalid.
◇ Between companies that have substantially independent corporate
status, an employer may not unilaterally order an employmenttransfer based on the employer ’s inclusive personnel rights.
◇ Whether or not the workers’ specific consent at the time of
employment transfer must always be obtained when carrying out anemployment transfer, an employment transfer order is invalid if
there is no inclusive consent in advance, at least. Therefore,
disciplinary dismissal based on refusing an employment transfer
order is also invalid.
Relevant court decision
Hitachi Seiki Case (Decision by Chiba District Court, May 25, 1981)◇ In this case, a worker (the plaintiff) who refused an employmenttransfer order to an affiliate refused to engage in work by the
defendant company (the employment transfer originator). The court
deemed the employment transfer order valid.
23◇ Even if the defendant company and the affiliate have a close
relationship, the worker ’s consent is required for an employmenttransfer because their corporate status is different.
◇ It had been explained during the hiring interview that the post could
involve working for the affiliate, and the plaintiff had accepted thisthrough a statement of personal position. Moreover, the plaintiff
had no restriction on work duties or working location, while
employment transfer to the affiliate was incorporated in the
defendant company’s personnel system and had been continued formany years. For these and other reasons, the plaintiff can be deemed
to have given inclusive consent in advance to employment transfers
to the affiliate.
(4)

Discipline (disciplinary action)
In order to maintain work discipline and corporate order, “disciplinary
action” is imposed as a sanction against breaches of work discipline andcorporate order. In companies, this is often codified in rules of
employment as disciplinary dismissal, forced resignation(recommendation to quit on the premise that failure to accept therecommendation will result in disciplinary dismissal), suspensions, wage
cuts, warnings, different levels of reprimand, etc.
Grounds for disciplinary action include (i) falsification of personal
history, (ii) neglect of duties, (iii) violation of a work order, (iv)
obstruction of work, (v) breach of workplace discipline, and (vi) breachof discipline based on the position and status befitting a worker(delinquency in private life, moonlighting, breach of the duty of goodfaith, etc.).
As for the legal justification behind disciplinary action, in case law,
employers are deemed able to impose disciplinary action as a form ofsanction or penalty on workers they employ who violate corporate order,
in order to broadly maintain corporate order and thereby aim for thesmooth operation of the enterprise.
Meanwhile, in case law, it is deemed that, for an employer to disciplinea worker, the types of and grounds for disciplinary action must be24

stipulated in the rules of employment in advance. Since rules of
employment have the nature of legal norms, for these to have binding
force, procedures must have been taken to make them known to workers
in the place of business to which their content applies.
Article 15 of the Labor Contract Act states that “In cases where an
employer may take disciplinary action against a worker, if suchdisciplinary action lacks objectively reasonable grounds and is not foundto be appropriate in general societal terms in light of the characteristics
and mode of the act committed by the worker pertaining to suchdisciplinary action and any other circumstances, such disciplinary action
shall be treated as an abuse of rights and shall be invalid.”
Relevant judicial precedent
Kansai Electric Power Case (Decision by the Supreme Court, First
Petty Bench, September 8, 1983)◇ In this case, a company reprimanded a worker who had distributed
fliers criticizing the company in the company housing, and the court
deemed the reprimand valid.
◇ The content of the fliers criticized, attacked and slandered thecompany with no basis in fact, or by exaggerating or distorting
facts; the act of distributing the fliers fomented distrust of thecompany among the workers and disrupted corporate order, or could
potentially have done.
◇ Even though the fliers were distributed outside working hours,
outside the workplace and with no connection to the performance ofwork duties, they corresponded to “When committing a particularly
inexpedient act” as grounds for disciplinary action prescribed in therules of employment.
Relevant judicial precedent
Fuji Kosan Case (Decision by the Supreme Court, Second Petty
Bench, October 10, 2003)◇ In this case, a worker caused problems with one of the company’sclients, adopted a defiant attitude and used verbal abuse toward
superiors, thereby disturbing the order of the workplace, and wastherefore subject to disciplinary dismissal, in that this behavior
constituted grounds for disciplinary action in the rules of25

employment. The court deemed disciplinary dismissal
impermissible, since the worker had not been made aware of therules of employment.
◇ For an employer to discipline a worker, types of and grounds fordisciplinary action must be stipulated in the rules of employment inadvance. For rules of employment to have binding force as having
the nature of legal norms, procedures must have been taken tofamiliarize workers in the place of business to which their content
applies.
Relevant judicial precedent
Tanken Seiko Case (Decision by the Supreme Court, First Petty
Bench, September 19, 1991)◇ In this case, a worker was subjected to disciplinary dismissal on
account of absence without leave due to being arrested and detained,
falsification of personal history, conviction for an offence carrying
an imprisonment sentence, and distributing fliers inside thepremises. The court deemed the disciplinary dismissal valid.
◇ Employment contracts constitute a continuous relationship between
worker and employer based on a relationship of trust, and carry an
obligation to report matters related to the maintenance of corporate
order within a necessary and reasonable scope truthfully and ingood faith. As the final educational level reached is also a matterthat concerns the maintenance of corporate order, there is an
obligation to report it truthfully.
Relevant judicial precedent
Yokohama Rubber Case (Decision by the Supreme Court, Third
Petty Bench, July 28, 1970)◇ In this case, a worker who had been convicted of breaking into andentering a stranger ’s home was subjected to disciplinary dismissal,
but the court deemed the dismissal invalid.
◇ The appellee had entered another person’s home for no reason while
under the influence of alcohol, and had therefore been convicted ofbreaking and entering, but the appellee’s act had been unrelated tothe company’s organization, business, etc., and had been committed
within the scope of private life. Moreover, the punishment received
26

by the appellee was merely a fine of 2,500 yen, while theoccupational status of the appellee within the appellant company
was that of a factory worker responsible for steaming work and was
not a leading one. Taking these and other circumstances of theoriginal ruling into account, the appellee’s act cannot be evaluatedas having significantly damaged the appellant company’s
reputation.
Relevant judicial precedent
Nestle Japan Case (Decision by the Supreme Court, Second Petty
Bench, October 6, 2006)◇ In this case, a worker who physically assaulted a superior was
subjected to disciplinary dismissal. The court deemed the dismissal
invalid.
◇ The disciplinary dismissal had been imposed more than seven years
after the physical assault on the superior, and even if the facts
claimed by the company as grounds for disciplinary dismissal had
really existed, it is undeniable that, at the time of the disciplinary
action, there were no objectively reasonable grounds that would
necessitate such a severe disciplinary action from the perspective of
maintaining workplace discipline. Moreover, the dismissal cannot
be endorsed as being socially acceptable.
(5)

Disciplinary dismissal
Disciplinary dismissal is the most severe form of disciplinary action. It is
normally imposed with immediate effect, with no dismissal notice or
payment of notice allowance, and retirement allowance is wholly or
partially withheld.
Grounds for disciplinary dismissal are the same as the grounds fordisciplinary action in discipline rights stated in (4) above. They can
include (i) falsification of personal history, (ii) neglect of duties, (iii)
violation of a work order, (iv) obstruction of work, (v) breach of
workplace discipline, and (vi) breach of discipline based on the positionand status befitting a worker (e.g. delinquency in private life,
moonlighting, breach of the duty of good faith), among others.

27

Since disciplinary dismissal is more disadvantageous to the worker thanordinary dismissal described in 3 (2) above, the courts take a more
rigorous approach than for ordinary dismissal when judging the abuse ofrights by employers. Generally, a breach of work discipline must be suchthat it is not enough merely to justify ordinary dismissal, but has reacheda level justifying removal from the labor relationship as a sanction.

28

3
(1)

Termination of Labor Contracts
Dismissal
In labor contracts with no fixed term, employers have the right to dismissin principle, provided they give at least 30 days’ notice.
*

Labor Standards Act, Article 20; Civil Code Article 627

In case law, however, if the employer ’s exercise of dismissal rights lacks
objectively reasonable grounds and cannot be endorsed as sociallyacceptable, it is deemed an abuse of rights and therefore invalid (legal
principle on abuse of dismissal rights). Article 16 of the Labor Contract
Act, which codifies the legal principle of judicial precedent, states that
“A dismissal shall, if it lacks objectively reasonable grounds and is notconsidered to be appropriate in general societal terms, be treated as an
abuse of rights and shall be invalid.”*

Article 17 of the Labor Contract Act states that, with regard to fixed -term labor
contracts, an emplo yer may not dismiss a worker until the expiration of the term o fsuch labor contract, unless there are unavoidable circumstances.

Under the Labor Standards Act, grounds for dismissal are to be specified
in the rules of employment, and the applicability of grounds for dismissal
specified in rules of employment is a central point of contention when
examining the claim of “objectively reasonable grounds”. Even whengrounds for dismissal are deemed applicable, moreover, the reasonabilityof dismissal is still reviewed.
*

Labor Standards Act, Article 89“Objectively reasonable grounds” may generally be categorized asfollows.
(i) Dismissal due to inability to provide labor.
(ii) Dismissal due to lack of skills, insufficient performance,
inappropriate attitude or lack of aptitude.
(iii) Dismissal due to violation of workplace discipline or neglecting
duties.
(iv) Dismissal due to necessity in terms of business management.
(v) Dismissal due to union shop agreement.

29

(2)

Ordinary dismissal(i)

Dismissal due to inability to provide labor
In court decisions, loss of the ability to provide labor due to personal
injury or sickness has been deemed reasonable grounds for dismissal.
On the other hand, in court decisions, dismissal has sometimes been
deemed an abuse of dismissal rights when a quick recovery from injury or
sickness is expected, or when a worker is dismissed without first being
offered dismissal avoidance measures such as leave of absence.
Relevant court decisionTokyo Electric Power Case (Tokyo District Court, September 22,
1998)◇ In this case, a company dismissed a temporary worker with a Grade1 disability because the worker was barely able to attend work due
to poor health on a continuous basis, and was therefore deemed unfit
to work. The court deemed this not to constitute abuse of dismissal
rights.
◇ The worker in question was barely able to attend work due to poor
health on a continuous basis, but for a certain time was paid wages
with the assumption that his attendance at work was normal.
However, the worker ’s status in the management of attendance waschanged to non-attendance as the inability to attend work continued,
and because said inability to attend work still continued thereafter,
the worker was deemed unfit for work due to physical and mental
infirmity. As such, there were reasonable grounds for dismissal inthis case, and the means used for this were not unreasonable, as aresult of which the dismissal did not constitute abuse of dismissal
rights.
Relevant court decision
K Company Case (Tokyo District Court, February 18, 2005)◇ In this case, a worker (the plaintiff) had frequently been absent due
to manic depression, but even when attending work, could not fulfil
work duties, and so was given leave of absence. Even after returning
to work, absences were still frequent and symptoms of manic
depression recurred, and because this started to have an impact
30

outside the company as well, the worker was dismissed. The court
deemed the dismissal invalid.
◇ Although manic depression caused hindrance to the work
performance, there was no evidence that the employer had sought
the advice of the plaintiff ’s doctor in advance of the dismissal,
while there was also room for improvement of the condition byhaving the worker receive proper treatment. Moreover, the leave ofabsence had not been completed, while two other workers who could
not attend work normally due to illness remained employed by thecompany, and the plaintiff ’s dismissal therefore ran counter toequal treatment. As a result, said dismissal lacked objectively
reasonable grounds, and constituted abuse of dismissal rights.
To prevent disputes from occurring
To prevent disputes from occurring, companies engaged in external
labor market type personnel and labor management could include thefollowing content in their labor contracts and rules of employment, forexample, and carry out such measures in accordance with these, whenappropriately paid employees are hired for immediate deployment inmanagerial posts or highly specialized positions, provided this does notcompromise the professional interests of workers.
*

Rules of emplo yment must be consistent with labor contracts.

◇ A statement that a worker may be dismissed if unable to perform
work duties stated in the labor contract for a significant period oftime for health-related reasons.
◇ Payment of a proper allowance in line with status, merit, length of
employment and other circumstances.
(ii) Dismissal due to lack of skills, insufficient performance, inappropriate
attitude or lack of aptitude
In cases of dismissal involving workers serving under the long-term
employment system, some court decisions do not easily recognize thevalidity of dismissals merely because of their lack of skills, insufficientperformance, inappropriate attitude, or lack of aptitude. Such decisions
also make a careful judgment on issues such as whether these are severe
in degree, whether opportunities for improvement were given, and31

whether there are any prospects of improvement.
In court decisions, there have also been cases where dismissal is deemedvalid when the worker, despite exhibiting insufficient performance orinappropriate attitude, makes no attempt at self-examination, no
improvement is seen, etc.
In court decisions, it has been relatively easy to deem dismissal valid
when an upper ranking manager, engineer, sales employee or other
employee has been hired in mid-career to be immediately effective for
specialized work as their advanced skill or ability is valued and subject toexpectation, but did not have the expected skill or ability.
Relevant court decision
Sega Enterprises Case (Decision by the Tokyo District Court,
October 15, 1999)◇ In this case, workers with low personnel evaluation were offered
early retirement, and those who refused were dismissed for lack ofskills. The court deemed the dismissals invalid.
◇ Because other grounds for dismissal in the rules of employment arelimited in nature, failure to attain the average level of skills should
also be construed so as to require the gravity to warrant dismissal
due to lack of skills. Also, the working ability would have to bemarkedly inferior with no prospects of improvement.
Although the dismissed workers cannot be said to have attained theaverage level and were in the bottom 10% of all workers inevaluation ranking, this personnel evaluation was based on acomparative assessment and was not an absolute assessment. As
such, it did not necessarily mean that their work efficiency wasmarkedly inferior and that there were no prospects of improvement.
◇ It should be said that there was still room for the company toimprove the workers’ efficiency by giving further systematic
education and instruction. They still could not be said to correspondto a case of “inferior working ability with no prospects of an
improvement” specified as grounds for dismissal in the rules of
employment.

32Relevant court decision
ACE Insurance Case (Decision by the Tokyo District Court, August
10, 2001)◇ In this case, workers with long records of employment in aforeign-capital company under a long-term employment systemwere dismissed for a lack of skills. The court deemed the dismissals
invalid.
◇ Insufficient performance alone is not enough to warrant dismissing
a worker who has served continuously under a long-term
employment system on grounds of poor performance or work
attitude. Rather, the worker ’s poor performance would need to haveadversely affected or damaged the company’s management oroperation, or potentially caused serious damage, to an extent
requiring his or her exclusion from the company. Moreover, theabuse of rights must be judged in consideration of factors such as
that, in spite of urging self-examination with a view to betterment,
there are still no prospects of improvement.
◇ It was extremely inappropriate to base grounds for dismissal on asituation that arose from inappropriate transfer due to thecompany’s unilateral rationalization strategy. Moreover, thecompany pressurized the workers to take voluntary retirement andmade them stand-by at home for a lengthy period with the intentionof excluding them from the organization as soon as possible,
without providing training or appropriate guidance, and the factgiven as grounds for dismissal is not particularly serious.
Considering these factors in combination, the dismissals were an
abuse of dismissal rights and therefore invalid.
Relevant court decision
Nihon Storage Technology Case (Tokyo District Court, March 14,
2006)◇ In this case, a worker had been hired in mid-career by aforeign-capital company on account of English proficiency, PC
skills and experience in logistics, but was dismissed for markedly
low work performance ability and inappropriate attitude. The court
deemed the dismissal valid.

33

◇ Based on the reasons below, among others, this case is deemed tocorrespond to “markedly lacking the ability necessary to performthe work” and others specified as grounds for dismissal in the rulesof employment. The dismissal is thus deemed to have objectively
reasonable grounds and be socially acceptable.
・ Repeatedly made mistakes in work, leading to a series ofcomplaints from other divisions and customers; failed to heedsuperior ’s warnings.
・ Even after personnel reallocation, failed to obey superior ’s
instructions, neglected the obligation to report, received a seriesof complaints due to insincere attitude to customers, and failed to
improve despite repeated requests to do so.
・ Slow to acquire proficiency in assigned work, was urged to
improve work processing speed.
・ Received a reprimand for not obeying superior ’s instructions, but
refused to attend meeting.
Relevant judicial precedent
Ono Lease Case (Decision by the Supreme Court, Third Petty Bench,
May 25, 2010)◇ In this case, a worker with the status of General Business Division
Manager and Director was dismissed for having a poor work
attitude, and the court deemed the dismissal legal.
◇ The work attitude was so bad that complaints were received fromother workers and clients, and because this originated in a drinking
habit, a superior advised the worker to cut down on drinking, but noimprovement was made.
◇ As the said work attitude (including absences from work) was suchthat it disturbed the order of normal workplace functions, and theprospects that the worker would improve this work attitude byhimself were poor, it constitutes grounds for dismissal. Even if
dismissal was imposed without taking any other disciplinary action,
the dismissal cannot be said to significantly lack reasonability or toconstitute tort.

34

Relevant court decision
Nihon Suido Consultants Case (Tokyo District Court, December 22,
2003)◇ In this case, a worker (the plaintiff) hired in mid-career as a systems
engineer was dismissed on grounds of lack of skills and poor work,and the court deemed the dismissal valid.
◇ The plaintiff ’s technical skills, ability and aptitude had not only
failed to reached the expected levels, but were markedly inferior
and had hindered the execution of work duties. This was due to theplaintiff ’s disposition, which had a persistence that could not easily
be corrected.
◇ The plaintiff ’s work record and performance were egregiously poor,
exemplified by the fact that it took about eight years of employment
in the Accounting Systems Section to complete work that would
normally be finished in around six months.
The cause of this insufficient performance was that the plaintiff ’stemperament, ability and other attributes did not meet the aptitude
expected of an employee by the defendant, and there was no room
for improvement through guidance or education by the defendant.
Besides, the plaintiff had also caused problems in interpersonal
relations.
To prevent disputes from occurring
To prevent disputes from occurring, companies engaged in external
labor market type personnel and labor management could include thefollowing content in their labor contracts and rules of employment, forexample, and carry out such measures in accordance with these, whenappropriately paid employees are hired for immediate deployment inmanagerial posts or highly specialized positions, provided this does notcompromise professional interests of workers.
*

Rules of emplo yment must be consistent with labor contracts.

◇ In labor contracts, state in as much detail as possible the work duties
assigned to the worker, the responsibilities to be fulfilled, and theability required for performing the duties and responsibilities. Also,state that dismissal may result if the stated duties andresponsibilities cannot be fulfilled to a reasonable degree, or if an35

evaluation is considerably low compared to the expected evaluation
over a given period of time.
◇ A statement that performance will be periodically evaluated andworkers informed of the results.
◇ A statement that proper allowances will be paid in line with status,
merit, length of employment and other circumstances.
(iii) Dismissal due to violation of workplace discipline or neglecting duties
In court decisions, dismissal on grounds of unlawful acts that violate
workplace discipline (violence or verbal abuse) or neglect of duties (e.g.
absence without leave, excessive tardiness) has often been deemed valid.
Relevant court decision
Daitsu Case (Decision by Osaka District Court, July 17, 1998)◇ In this case, a company dismissed a worker who had verbally abused
and intimidated workers in a client company, broke tools, madedefamatory remarks about the client’s management personnel, anddid not comply with a leave of absence order. The court deemed thedismissal valid.
◇ The dismissed worker had been employed for only just over 18
months, was still in his early 30s, had a license and would have had
no difficulty in finding new employment. Considering these facts incombination, this dismissal cannot be described as markedly
unreasonable in general societal terms, even though the worker had
generally worked diligently and had no history of disciplinary
action since joining the company, had withdrawn an expression of
intent to quit two days after giving it, had shown an attitude ofregret such as offering to apologize to the president, and had otherjobs including that of a freelance driver, among other factors.

(3)

Adjustment dismissal
The legal principle on abuse of dismissal rights in Article 16 of the Labor
Contract Act also applies to adjustment dismissal implemented bycompanies for purposes of personnel reductions considered necessary forbusiness reasons.

36

In Japan’s long-term employment system, employment adjustments are
made at times of economic fluctuation; before reaching the stage ofadjustment dismissal, adjustments are made by reducing or canceling
overtime work, reducing or suspending new recruitment, transfer andsecondment, terminating the employment of non-regular employees,
temporary shutdowns, or offering voluntary retirement, among othermethods, following labor-management consultation. Also, agreed
termination of labor contracts is often achieved through measures such asoffering voluntary retirement.
Based on these facts, court decisions focus on the following four issues
concerning the validity of adjustment dismissal, and judgments are basedon a concrete and total consideration of these.
(i)

The necessity to reduce the number of employees(ii)Whether the duty to endeavor to avoid dismissal has been

exhausted(iii)

The validity of selection of employees to be dismissed(iv)

The validity of procedures(i) The necessity to reduce the number of employees
In court decisions, there have been cases requiring a state of bankruptcy
to occur if personnel reductions are not made. In most cases, however, thecompany’s business judgment has been respected, and reasonable
necessity in terms of corporate operation (e.g. excessive debts orcumulative deficits) is usually sufficient.
Even if the company as a whole is not in a management crisis, there havealso been cases where the need for personnel reductions in specificdivisions for purposes of rationalizing business or strengthening
competitiveness has been acknowledged.
In other cases, however, the need for personnel reductions has not been
acknowledged in cases where personnel reduction measures have been
immediately followed by large pay raises or significant new hiring.
(ii) The duty to endeavor to avoid dismissal
In case law, dismissal avoidance measures have not been uniformly
required, but judgments have been made on whether sincere andreasonable efforts have been applied in each individual situation.

37

In case law, abuse of rights has often been ruled in cases when adjustment
dismissal has been implemented without attempting any dismissal
avoidance measures, or when an employer embarks on adjustment
dismissal without taking account of transfer to work in otherdepartments, offering voluntary retirement, etc.
In foreign-capital companies, dismissal has sometimes been deemedvalid in cases where staff capacity is strictly managed with priority on thespecialty level of divisions and occupations, manpower is procured andadjusted via the external labor market (career-change market), and highlevels of compensation are given in line with job duties and results, whenthe employer implements adjustment dismissal to accompany the closureof specific divisions, when transfer to other departments is difficult, andwhen the employer significantly increases the scale of retirement
allowances or supports re-employment.
(iii) The validity of selection of employees to be dismissed
In court decisions, the selection of employees to be dismissed has often
been deemed appropriate if objectively reasonable standards have been
set on the history of discipline violations, years of continuous service,age, etc., and selection is officially made on this basis.
Moreover, as in (ii) above, when foreign-capital companies strictly
manage staff capacity with priority on the speciality level of divisions
and occupations, procure and adjust manpower via the external labormarket (career-change market), and offer high levels of compensation inline with job duties and results, it has sometimes been deemed
appropriate to target workers in specific divisions for adjustment
dismissal when those divisions are to be closed.
(iv) The validity of procedures
In court decisions, dismissal without consultation has been deemedinvalid if there are clauses obligating consultation with a union in acollective agreement.
In court decisions, even when there is no collective agreement, employers
have often been deemed to bear an obligation of good faith toward labor
unions or workers, to explain the necessity, timing, scale and method ofadjustment dismissal in order to gain their understanding, and to conduct
consultations with sincerity under the principle of good faith.
38

Although a slightly different problem from the adjustment dismissal
above, it has been relatively easily for dismissal to be deemed valid insome cases when a worker is hired in mid-career in anticipation only of
performing work in a specific post but said post is closed down.
Relevant court decision
Toyo Sanso Case (Decision by Tokyo High Court, October 29, 1979)◇ In this case, an acetylene division that had suffered cumulative
losses due to increased competition, a market downturn, low
productivity and other factors was closed, and all workers in thedivision were dismissed. The court deemed the dismissal valid.
◇ The slump in performance of the acetylene division was not
temporary, and no improvement in earnings could be expected. If
left unchecked, it could have caused the company’s core oxygen
producing division to lag far behind its competitors in terms ofcapital investments, etc., and this could have seriously impacted thecompany’s business. Therefore, the closure of the acetylene
division was a reasonable measure.
◇ Other divisions of the appellant company had surplus personnel,
and offering voluntary retirement throughout the company to secure
positions for transfer could have led to a loss of skilled workers in
its oxygen division and elsewhere, as there was already a labor
shortage in industry in general. If skilled workers had retired andacetylene division workers had been deployed, a loss of work
efficiency would have been unavoidable at first, and it would
therefore have been difficult to redeploy them to other divisions.
◇ With the closure of the acetylene division, its workers would all
become surplus personnel, and since the division was independent
from the other divisions, selecting all workers in the division was
based on fixed objective standards, while the standards were notunreasonable.
◇ The policy of closing the acetylene division and dismissing all theworkers had been conveyed to the union, and although there wasvery little time until the dismissal, the state of deficit in theacetylene division and the pros and cons of closing it had been39

explained in advance. Moreover, collective negotiations, whilesuspended, had been terminated at the request of the union, and forthese and other reasons there was no breach of good faith between
labor and management.
Relevant court decision
CSFB Securities Japan Limited Case (Decision by Tokyo High
Court, December 26, 2006)◇ In this case, a foreign-capital company had to encourage voluntary
retirement on a large scale because it had recorded massive losses
over several years. It therefore decided to aim personnel reductionsat its interbank desk, which made a small contribution and was in apoor market situation. The company then dismissed a worker who
did not accept the voluntary retirement, and the court deemed thedismissal valid.
◇ The defendant had recorded huge net losses over several years due
to a slump in securities markets, and had made no significant
improvement in spite of cost reductions. As such, the dismissals
were unavoidably necessary in terms of the company’s operation.
◇ The interbank desk had been performing poorly, and it was notunreasonable to make it subject to personnel reductions, while theplaintiff made a smaller contribution to sales than other interbank
desk workers despite receiving higher pay. As such, it was notunreasonable to select the plaintiff.
◇ The plaintiff had caused serious problems in interpersonal relations
with other coworkers, and moreover, in view of the harsh businessclimate, it would have been impossible to redeploy the plaintiff toanother department. As such, the defendant cannot be said to haveneglected its obligation to avoid dismissal.
◇ The defendant had carried out collective negotiation with theplaintiff and the union three times after encouraging voluntary
retirement, when it had discussed and explained the need toencourage voluntary retirement, the standards for selection, and theretirement package, and proposed a retirement package with arelatively good content compared to other retirees. Although noagreement was reached, the defendant had made certain efforts togain the understanding of the plaintiff and the union.
40

Relevant court decision
Singapore Development Bank Case (Decision by Osaka District
Court, June 23, 2000)◇ In this case, a foreign-capital company closed its Osaka branch, andworkers responsible for remittance import-export work and foreignexchange export work in its Osaka branch were dismissed. The court
deemed the dismissals valid.
◇ The defendant had decided to close the Osaka branch because of
declining ordinary profits by its Japanese branches, and because no
improvement in its balance of payments could be foreseen. Since thebusiness volume in its Tokyo branch was also in a decreasing trend,
the bank reduced its personnel. As such, the need for personnel
adjustment was acknowledged.
◇ Simply closing the branch did not of itself mean that workers whoseplace of employment was limited to the branch could immediately
be dismissed. However, since the Tokyo branch was small in scale,and moreover these were posts requiring specialist knowledge andadvanced skill, it was not unfair to dismiss workers in the Osakabranch without offering voluntary retirement to those in the Tokyo
branch.
Furthermore, the defendant had proposed a voluntary retirement
package including the provision of an outplacement support service
at the defendant’s cost, as well as awards of increased retirement
allowances and others to the plaintiffs and the union in collective
negotiations. Therefore, it cannot be said to have neglected efforts
to avoid dismissal. As transfers were not possible, it had no choice
but to target the Osaka branch workers for dismissal.
◇ The company’s approach to collective negotiations is not deemed tohave been inappropriate in any respect.
Relevant court decision
General Semiconductor Japan Case (Tokyo District Court, August27, 2003)◇ In this case, a foreign-capital company (the defendant) dismissed
workers on grounds that personnel reductions were needed in thegroup as a whole because its parent company (company A) had
suffered massive losses. The court deemed the dismissal invalid.
41◇ The defendant’s sales had remained on a par or in a slightly
increasing trend, and its surplus was equivalent to 3.5 years ofsalary payments, while the number of workers in the month before
the dismissals had reached the parent company’s reduction target.
Moreover, contract employees and agency workers were engaged incustomer support work, and as such, it is doubtful whether
personnel reductions were necessary.
◇ Although the company had previously rationalized its business in
response to a business downturn, these dismissals were carried out
to improve the high-cost structure of the defendant by company B,
which had acquired company A, and no efforts at all were made to
avoid the dismissals.
◇ Standards for personnel selection were based on workers’ ability,
work evaluation, attitude toward improving skills, and contribution
to the company. The dismissed workers (the plaintiffs) were
unsatisfactory in English proficiency and PC skills as well as theircontribution to the company. In view of such facts, the intention todismiss the plaintiffs was not necessarily unreasonable. On theother hand, these skills were not made conditional upon joining thecompany.
Relevant court decision
Credit Suisse Securities Case (Tokyo District Court, March 18,
2011)◇ In this case, a foreign-capital company withdrew from a high-risk
financial product sales business and dismissed the workers engaged
in that business (the plaintiffs). The court deemed the dismissal
invalid.
◇ The defendant company withdrew from the high-risk financial
product sales business due to a rapid downturn in financial markets,and the need for dismissal on business grounds can therefore beendorsed to an extent. However, the plaintiffs were dismissed morethan a year after receiving an order to standby at home, and so thelevel of necessity for dismissal cannot be regarded as high.

42◇ The defendant company made a very large “Incentive Performance
Compensation Award” to workers in its Structuring Department,
and after the plaintiffs had been dismissed, increased the workers’
annual salary. Moreover, immediately after offering voluntary
retirement to four workers in the Structuring Department, it hired
four new employees. Therefore, in comparison to the necessity of
dismissal on business grounds, efforts to avoid dismissal were
inadequate.
In addition, the defendant company made a proposal for monetary
payments to the plaintiffs to accompany their retirement, and also
indicated candidate positions for internal personnel reallocation,
but this was not necessarily a proposal that the plaintiffs would be
accepted as candidates for personnel reallocation.
Relevant court decision
PwC Financial Advisory Service Case (Tokyo District Court,
September 25, 2003)◇ In this case, a worker (the plaintiff) hired by a foreign-capitalcompany as a manager was dismissed, as the Investment Banking
Division to which the worker had been assigned was closed down.
The court deemed the dismissal invalid.
◇ The Investment Banking Division was closed as a result of losses
due to poor performance by the division, and the necessity of
personnel adjustment may be acknowledged.
◇ There is no concrete evidence showing that the plaintiff lacked
skills, or that reductions other than personnel costs could not havebeen made, and it is not deemed to have been difficult to take otherdismissal avoidance measures.
◇ The low assessment achieved by the plaintiff immediately after
hiring was due to a virtual absence of practical experience, andmoreover, since the low assessment was made around the time when
the defendant company started to consider dismissal, it is difficult
to deem the plaintiff ’s ability as a manager conspicuously inferior.
Moreover, it cannot be acknowledged that the plaintiff could nothave been redeployed elsewhere. Furthermore, it cannot be
acknowledged as reasonable that the plaintiff was targeted for
adjustment dismissal.
43Relevant court decision
Chase Manhattan Case (Tokyo District Court, March 27, 1992)◇ In this case, a foreign-capital company dismissed a worker who had
been hired as the General Manager of its lease business, due to its
withdrawal from the lease business. The court deemed the dismissal
valid.
◇ The purpose of the employment contract was to hire a General
Manager for the lease business. If the lease business were closed
down, or for some reason the worker were to lose the status ofGeneral Manager, it would have had an impact on the continuationof the employment contract.
Although the worker was involved in banking work, his
involvement was restricted to a temporary or incidental basis inrelation with the company’s lease business.
◇ Since the decision to withdraw from the lease business is notdeemed particularly unreasonable, it was reasonable for theemployer to make an expression of intent to dismiss, and this did notconstitute an abuse of dismissal rights.
To prevent disputes from occurring
To prevent disputes from occurring, companies engaged in external
labor market type personnel and labor management could include thefollowing content in their labor contracts and rules of employment, forexample, and carry out such measures in accordance with these, whenappropriately paid employees are hired for immediate deployment inmanagerial posts or highly specialized positions, provided this does notcompromise professional interests of workers.
*◇

Rules of emplo yment must be consistent with labor contracts.

A statement that dismissal may occur for reasons other than those
attributable to the worker, such as personnel reductions forbusiness reasons or reorganization, or abolition of posts.

◇ A statement that a retirement package will be provided in line withstatus, merit, length of employment and other circumstances.

44

(4)

Restrictions on dismissal when for special reasons, etc.
Restrictions on dismissal when for special reasons
Various laws include mandatory statutes prohibiting dismissal when there
are special reasons.
(i) Prohibition of dismissal during a period of absence from work before
and after childbirth, or for medical treatment with respect to injuries
arising out of and in the course of employment or occupational
illnesses.
*

Labor Standards Act, Article 19(ii) Prohibition of dismissal as discriminatory treatment by reason ofnationality, creed or social status
*

(iii)
*

(iv)

Labor Standards Act, Article 3

Prohibition of dismissal as an unfair labor practiceLabor Union Act, Article 7

Prohibition of dismissal on the basis of sex, marriage, pregnancy

or childbirth, or by reason of taking antenatal or postnatal leave, childcare leave, family care leave, etc.
* Act on Securing, etc. of Equal Opportunity and Treatment between Men and
Women in Emplo yment, Article 6, Article 9; Act o n the Welfare of Workers Who
Take Care of Children or Other Family Members Including Child Care andFamily Care Leave ( Act No. 76, 1991), Article 10, Article 16, Article 16–4,
Article 16–7, Article 16–9, Article 18–2, Article 20–2, Article 23–2, etc.

(v) Prohibition of dismissal as discriminatory treatment of part-timeworkers equivalent to ordinary workers* Act on I mprovement, etc. of Emplo yment Management for Part-Time Workers(Act No. 76, 1993), Article 8(vi)

Prohibition of dismissal on grounds of making reports to Labor

Standards Offices, etc.
* Labor Standards Act, Article 104; Minimum Wages Act ( Act No. 137, 1959),
Article 34; Industrial Safety and Health Act ( Act No. 57, 1972), Article 97; Act
on Pro moting the Resolution of Individ ual Labor-Related Disputes (Act No.
112, 2001) Article 4, Article 5etc.

(vii) Prohibition of dismissal on grounds of having been awhistleblower, a lay judge, etc.
* Whistleblo wer Protection Act ( Act No. 122, 2004), Article 3; Act on Crimin al
Trials Examined under Lay Judge System ( Act No. 63, 2004), Article 100.

45

The fixed retirement system
When stipulating a fixed retirement age in a fixed retirement system(whereby a labor contract is terminated when a worker reaches a certainage), by law, the age may not be set below 60.
*(5)

Act o n Stabilizatio n of Emp lo yment of Elderly Persons ( Act No. 43, 1971), Article 8.

Encouragement of voluntary retirement
In Japan, voluntary retirement is often encouraged before a situation goesas far as dismissal.
In case law, there are examples in which encouraging voluntary
retirement has been deemed to constitute an illegal infringement ofrights, as it impedes the worker ’s freedom to make a decision.
Relevant judicial precedent
Shimonoseki Business High School Case (Decision by the Supreme
Court, First Petty Bench, July 10, 1980)◇ In this case, teachers at a public senior high school were persistently
encouraged to take voluntary retirement, but the court deemed theencouragement of voluntary retirement to constitute tort.
◇ “Encouragement of voluntary retirement” is the act of persuading orotherwise inducing a person in an employment relationship to forma voluntary wish to retire; the worker being encouraged is free tomake a decision without being bound in any way.
◇ Even though the teachers had declared themselves unwilling toaccept voluntary retirement, retirement was encouraged frequently
in a short period and persistently over a long time, with repeatedstatements that the encouragement would continue until the teachers
retired. Moreover, the school showed an attitude of not responding
to the teachers’ union requests for abolition of night duty and fillingvacancies unless they retired. Under such circumstances, theencouragement of voluntary retirement was deemed illegal.

46

(6)

Termination of employment by non-renewal of fixed-term contracts
In Japan, when there are no provisions on the purpose of use of a
fixed-term labor contract, and when the term of a labor contract thatzspecifies a contract term is complete, that labor contract is normallyterminated.
However, it became case law that the legal principle on abuse of dismissal
rights has be applied analogously, when fixed-term labor contracts havebeen repeatedly renewed (i) to make such labor contracts become
effectively identical to labor contracts with no specified term due to their
being repeatedly renewed, or (ii) to make the worker conceive areasonable expectation of continued employment in view of the repeatedrenewal, the course of events when the contract was concluded, etc.
Applying such case law, there are court decisions in which thetermination of employment has not been recognized as valid.
Article 19 of the Labor Contract Act states that, in cases such as (i) and(ii) above, when a worker applies for renewal of a fixed-term contract
before the end of the contract term, if there are no objectively reasonablegrounds and it is not deemed socially acceptable for the employer torefuse said application, the employer shall be deemed to have accepted
the application under the same working conditions as before.
Relevant judicial precedentToshiba Yanagi-cho Factory Case (Decision by the Supreme Court,First Petty Bench, July 22, 1974)◇ In this case, temporary workers who had joined a company based onlabor contracts with a term of two months had their employment
terminated after having their contracts renewed between 5 and 23
times. The court deemed the termination of their employment
invalid.
◇ When there is some indication or action from a company leading
workers to expect long-term continuous employment, when no newcontract conclusion procedures are undertaken at the end of eachcontract term, and when there are other circumstances such as thatno examples of termination of employment on completion of a
2-month term for temporary workers can be found within the period
in question, the legal principle on abuse of dismissal rights should47

be applied analogously when judging the validity of termination of
employment.
Relevant judicial precedent
Hitachi Medico Case (Decision by the Supreme Court, First Petty
Bench, December 4, 1986)◇ In this case, temporary workers who had been hired for an initiallystipulated period of 20 days, and whose labor contracts with a termof two months had subsequently been renewed five times, had theiremployment terminated by the employer at the end of the contract
term. The court deemed the termination of their employment valid.
◇ Since the employment relationship was expected to have continuity
to a certain extent, the legal principle on abuse of dismissal rights
should be applied analogously when judging the validity oftermination of employment.
◇ Under certain circumstances, such as when personnel cuts arenecessary in a factory where a self-supporting system is adopted,
and it is not unreasonable to judge that the employment of all
temporary employees needs to be terminated since there is no roomfor excess personnel for transfer, termination of employment ofsuch workers cannot be deemed invalid, even when it was executedwithout attempting to reduce personnel by offering voluntary
retirement to the workers with indefinite term of employment.
Related information◇ When a fixed-term labor contract is repeatedly renewed for a total
period of more than five years, it may be converted to a labor
contract with no fixed term upon request by the worker.
*

Labor Contract Act, Article 18◇ When terminating employment under a fixed-term labor contract, an
employer must give at least 30 days’ notice, and when the worker
requests written certification of the reason for termination of
employment, the employer must provide this without delay.
*

Standards on the Conclusion and Renewal of Fixed-Ter m Labor Contracts andTer mination of Emplo yment (Ministr y of Labour Notice No. 357, 2003), Article
1.

48

(7)

Withdrawal of voluntary retirement
When a worker and an employer agree to terminate a labor contract in the
future, it is called agreed termination.
In case law, there have been cases in which it was deemed that a
resignation desire (termination request) submitted as an application foragreed termination may be withdrawn before the point at which theemployer expresses the intention to accept the same.
Relevant court decision
Hakuto Gakuin Case (Decision by Osaka District Court, August 29,
1997)◇ In this case, a teacher (the plaintiff) submitted a resignation desire(termination request) to the Principal, but before it reached thePresident (the person responsible for appointments and dismissalsof teaching staff), expressed the intention to withdraw theresignation desire (termination request). The court acknowledged
the withdrawal of voluntary retirement, and deemed the agreed
termination of the labor contract invalid.
◇ A worker ’s application for agreed termination of an employment
contract may be withdrawn by the worker until the employer ’s
expression of intent to accept the same reaches the worker and thetermination of the employment contract becomes valid, unless there
are special circumstances whereby it may be deemed to be a breachof good faith in that the employer has suffered unexpected damages.
◇ The plaintiff withdrew the application for agreed termination about
two hours after submitting it, and there was no discernible sign that
there were special circumstances whereby it might be deemed to bea breach of good faith in that the defendant (school) suffered
unexpected damages. The plaintiff is thus deemed to havewithdrawn the application for agreed termination validly before thePresident’s expression of intent to accept reached the plaintiff.
Relevant judicial precedent
Okuma Steelworks Case (Decision by the Supreme Court, Third
Petty Bench, September 18, 1987)◇ In this case, after a resignation desire (termination request) had
49been submitted to the Manager of the Human Resources Department
and the Manager had received it, the employee applied to withdraw
voluntary retirement on the following day but the company rejected
the application. The court did not recognize the withdrawal ofvoluntary retirement.
◇ As the Manager of the Human Resources Department had authority
for approving resignations, the Manager immediately expressed theintention to accept the application for agreed termination of an
employment contract immediately upon receiving the resignation
desire (termination request), and the agreed termination of an
employment contract was established. Therefore, the application
for agreed termination based on a resignation desire (termination
request) could not be withdrawn.
(8)

Duty of non-competition after retirement
On the duty of non-competition after retirement, in court decisions, it has
been deemed in breach of public morality and invalid when restrictions
on competition exceed a reasonable range and the freedom to choose jobs
is unfairly constrained. When judging whether such restrictions arewithin a reasonable range, consideration has been given to factors such as
the length and geographical range of the restriction, the range of jobs
subject to restriction, and whether or not compensation is forthcoming,from the angle of the company’s interests and the disadvantage to theformer employee.
In case law, moreover, when there are no provisions or contract clauses
restricting competition after leaving an employer, some cases where theformer employee has started transactions with a client of the employer
through a rival company have been deemed not to constitute tort, as thetransactions have not used the former employer ’s confidential sales
information or damaged its creditworthiness, and the act of competition
has not deviated from the scope of free competition in general societal
terms.
Furthermore, in court decisions, there have been cases in which placing
certain time restrictions on taking up employment with a rival company is
not necessarily recognized as unfairly restricting an employee’s freedom
to choose a job, while reducing the amount of retirement allowance to50

half when a former employee has joined a rival company, based onprovisions in retirement allowance regulations, cannot be deemed an
unreasonable measure, given that retirement allowance also has thenature of reward for merit.
Relevant court decision
Foseco Japan Limited Case (Decision by Nara District Court,
October 23, 1970)◇ In this case, a worker who knew technical secrets and was bound by
a contract clause prohibiting competitive acts after leaving acompany was appointed a director of another company in acompetitive relationship, which manufactured and sold the same
products as the former company. The company therefore sought atemporary disposition order to cease and desist from thecompetitive acts based on the contract clause, and the court grantedit.
◇ On the premise that the claimant could be said to have technicalsecrets that should objectively be protected, the length of therestriction in the contract clause was a comparatively short periodof two years, and given that the company operated in the specialized
field of chemical metal industry, the scope of the restriction wascomparatively narrow. Moreover, although there was nogeographical restriction, this was unavoidable in view of the factthat the claimant’s sales secrets are technical secrets, and aconfidentiality allowance had been paid while the worker was
employed by the company. Considering these and othercircumstances in combination, the restriction on competition cannot
be said to have exceeded a reasonable range.
Relevant judicial precedent
Success Corp et al. (Miyoshi Tec) Case (Decision by the Supreme
Court, First Petty Bench, March 25, 2010)◇ In this case, two workers quit a company that had stipulated nocontract clause or other provision on the duty of non-competition
after retirement, and started a business in the same sector using
another company as the business entity. They continued to receive
orders for work from clients of the company they had quit, as aresult of which their former employer claimed compensation fromthem based on tort. The court deemed the case not to constitute tort.
51

◇ The workers had been engaged in sales with these clients under theformer employer, and had used such personal relationships toapproach the clients. Moreover, the orders the former employer
received from the clients decreased in terms of monetary amounts,
・ The workers, nevertheless, did not use confidential sales
information, diminish their former employer ’s creditworthiness orotherwise engage in sales activity using unfair methods.
・ Transactions with the clients started five months after the workers
quit, no circumstances whereby free transactions between thecompany and the client were obstructed can be discerned, and theworkers cannot be said to have made particular use of the weakened
state of their former employer ’s sales.
Under circumstances such as these, their action did not deviate
from the scope of free competition in general societal terms and did
not constitute an act of tort.
Relevant judicial precedent
Sankosha Case (Decision by the Supreme Court, Second Petty
Bench, August 9, 1977)◇ In this case, a worker who had quit one company took up
employment in a rival company, and so the first company demandedthat half of the retirement allowance already awarded to the worker
based on retirement allowance regulations be repaid as unjust
gains. The court upheld the claim for repayment of unjust gains.
◇ Placing a time restriction on employment in a rival company is notnecessarily recognized as unfairly restricting an employee’s
freedom to choose a job.
◇ Given that a retirement allowance has the nature of reward for
meritorious performance, stipulating that the retirement allowanceof former employees who join rival companies in breach of thisrestriction should be half of that paid to voluntary retirees cannot be
deemed an unreasonable measure.

52