KOJIMA LAW OFFICES
Labor and Employment Practice Group

Vol. 5 August 2014

Labor & Employment Law Newsletter
Terminating Employees in Japan – An Overview, Common
Pitfalls and How to Avoid Costly Mistakes (Part III of III)
Editor’s Note: Part I of this article
covered ordinary dismissals andPart II addressed dismissals for the
purposes of downsizing. With thisissue’s coverage of punitive dismissals, we conclude our overview
of terminating employees in Japan.
Punitive Dismissals
Punitive dismissals are essentially aform of discipline. Like the othertypes of dismissals, a punitive dismissal should be based on valid
grounds. A company should proceed with greater-than-normal caution when dismissing an employee
punitively, as a punitive dismissal
can result in harsh impacts on theemployee, such as immediate termination without any sort of severance
pay or retirement allowance, as well
as difficulty in obtaining future employment. To minimize the chancesof a future dispute with a target
employee, a company should,
where appropriate, consider otheroptions (including persuading theemployee to leave voluntarily) prior
to resorting to a punitive dismissal.
This is not to say of course that acompany should always hesitate toexercise its right to engage inpunitive dismissals. Indeed, punitive
dismissals are sometimes the only
realistic option to maintain workplace discipline. Below is an overview of the requirements an employer must comply with in order to val-

idly perform a punitive dismissal.
I.

Basic Requirements(1) Work rules
First and foremost, a company’s
work rules must expressly state thatthe employer can carry out punitive
dismissals as a form of disciplinary
action and must describe the conduct that can lead to them. An
employer is not allowed to discipline
an employee twice for the same
violation.
Because Japanese law does not
specify the grounds for punitive dismissals, employers have the discretion to determine the grounds forthemselves. Examples of misconduct that can form a basis for apunitive dismissal include a fraudulent application for employment,
neglect of an employee’s primary
duties, a violation of workplace
discipline (including sexual harassment and power harassment) andcertain criminal acts. The work rules
do not need to specify what misconduct may result in a punitive
dismissal. Instead, they may simply
include a list of actions that are
subject to disciplinary measures andwhat measures the company may
take in response (e.g., a reprimand,suspension, pay cut, dismissal, etc.).
This allows the company to determine which form of discipline ismost appropriate in light of thetotality of the circumstances.

Nebuta Festival in Aomori

Contents
Terminating Employees in Japan – An
Overview, Common Pitfalls and How
to Avoid Costly Mistakes (Part III of III)
Punitive Dismissals (Introduction) ...................... 1
Basic Requirements ........................................... 1
Notice and Payment for Punitive Dismissals ....... 3
Steps to Carry Out a Valid Punitive Dismissal ..... 3
Message from the Labor and Employment
Practice GroupKojima Law Offices have provided legal services
in the area of labor and employment law since its
founding in 1984. Our Labor and Employment
Practice Group represents clients in labor
disputes and assists them in structuring andimplementing HR policies. We work with bothforeign headquarters and local management totimely and appropriately resolve employment
issues that overseas companies face operating inJapan. As part of our continuing effort to reachout and share our expertise with others, the Laborand Employment Practice Group publishes thisnewsletter to provide a better understanding of
this complex area of law, thereby enabling thereader to make more appropriate employment
and labor decisions. We hope you find thenewsletter both interesting and informative andwelcome any feedback you wish to share with us.
Labor Practice GroupKojima Law Offices
URL:
http://www.kojimalaw.jp/en/index.html
Contact: (E-mail) webmaster@kojimalaw.jp(Telephone) 81-3-3222-1401

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Labor & Employment Law Newsletter(2)

Employee misconduct and other actions

Work rules often describe the grounds for disciplinary action(including dismissals) using broad, abstract phrases such as“a violation of the work rules or other company rules or policies” or “an act that disrupts workplace order.” This lack ofclarity often results in litigation over whether the act the employee is accused of committing was in fact covered by thedisciplinary or dismissal procedures under the work rules.
Japanese courts often narrowly interpret these provisions
based on the necessity and reasonableness of the dismissal.
As a result, only when an employee’s actions are egregious
enough to substantially disrupt order in the workplace may
an employer validly respond with disciplinary action.
To get an idea of how the courts apply this requirement inpractice, we cite cases where employers claimed a breachof the work rules based on an employee’s appearance. In
this connection, it is not uncommon for some employers tohave detailed rules on grooming and appearance. Somecompanies even go so far as dismissing employees who
refuse to shave off their mustaches or those with
unapproved hairstyles (including nonstandard hair color). In
these cases, courts found the dismissal invalid. An
employee may be disciplined for his or her appearance only
if customers would find it objectionable. However, theappearance of the employees in most dismissal cases does
not meet this standard, even though the employees haveviolated the letter of the company’s rules. Another recent
case involved the dismissal of a male employee with agender identity disorder who began dressing as a female atthe office. The court found the dismissal of the employee
invalid because the employee’s appearance, though unusual, did not rise to the level of disturbing workplace order,
which was conduct punishable under the company’s rules.

Vol. 5 August 2014a less severe form of disciplinary action. However, any
dismissal based on disciplinary grounds must still bedeemed appropriate in light of generally accepted societal
norms. This means that the employee’s conduct must be
egregious enough to justify a punitive dismissal underprevailing social standards. In addition, a punitive dismissal
must roughly correspond to how the employer handled
other cases of similar misconduct within the company.
Otherwise, a punitive dismissal will be invalidated based on
the employer abusing its right to dismiss its employees.
(i )Egregiousness

An employee’s actions must be egregious enough before an
employer may carry out a valid punitive dismissal. In one
case, the court invalidated a punitive dismissal because
many of the 14 grounds cited by the employer were simply
too minor to warrant the dismissal. These grounds included
arriving at work 10 to 15 minutes late a few times a month,refusing to serve tea to clients, and responding defiantly tothe supervisor’s instructions.
The results of a 2012 survey provide an indication of what is
considered “egregious” in large companies. The target
companies were presented with examples of misconduct
and asked to choose what type of disciplinary action theywould likely take in response. The table shows thepercentage of companies that would punitively dismiss
employees for engaging in various types of misconduct.
Punitive
dismissal

Misconduct
Embezzlement of company

77.9%

funds (over 1 million JPY)
Absence from work for more

Disputes often arise over whether misbehavior committed
outside the workplace and on the employee’s own time canbe subject to disciplinary action. An employer generally
cannot regulate its employees’ off-the-job conduct.
However, an employee’s actions that may cause harm to theemployer’s reputation may be subject to disciplinary action
to the extent necessary to maintain workplace order.
Japanese courts have held that whether or not an
employee’s actions harm the employer’s reputation isdetermined by taking various factors into consideration,
including the nature and severity of the action, as well as theemployer’s line of business, size, and position in the market.
(3)

Appropriateness of punitive dismissals

As described above, a company’s work rules typically give it
the leeway to determine on a case-by-case basis if it willterminate an employee for misconduct or whether it opts for

2

69.1%

than two weeks without notice
Intentional disclosure of

66.4%

important company trade secrets
Drunk driving outside of work hours
resulting in property damage and arrest

45.0%(not involving bodily injury or death)
Accepting monies personallyfrom customers, suppliers, etc.

40.9%(Source: The Institute of Labor Administration, September 5, 2012)

It is interesting to note the high ratio of companies thatconsider punitive dismissal an appropriate response to
drunk driving, which likely represents the public’s increasing
disapproval of that act. However, in a number of recent
cases Japanese courts invalidated punitive dismissals fordrunk driving as an abuse of the employer’s rights toLabor & Employment Law Newsletter© Kojima Law Offices 2014

Labor & Employment Law Newsletter

dismiss its employees, even when the dismissal was
conducted pursuant to the work rules. The courts were
persuaded by the fact that the drunk driving incident did notinterfere with the employer’s business operations, theemployee was not a chronic offender, the employee was notin a key position in the company, and no accident occurred.
Therefore, each case should be carefully scrutinized todetermine if a punitive dismissal is really the mostappropriate response, or whether the company should
instead take less drastic measures.

payment in lieu of prior notice) and dismiss an employee
immediately only by obtaining prior approval from theappropriate labor standards office. The labor standards
office will give its approval after holding a hearing anddetermining that the dismissal is justified because of one ormore reasons attributable to the employee. This processordinarily takes around a few weeks. Therefore, dependingon the nature of the misconduct and the timing, obtaining
prior approval from the labor standards office may take toomuch time to be a practical option.

(ii)

(2)

Equal treatment of employees

An employer is required to discipline its employees in a fairand equal manner. A court will invalidate a punitive dismissal if it is a disproportionately harsh response compared toprior disciplinary actions that the employer meted out toother offenders. Employers should therefore document pastdisciplinary incidents in detail, clarifying what kind of conduct led to a given disciplinary action. Employers shouldnote that they can take into consideration various factors
when deciding what form of discipline to take. These factors
include the employee’s position in the company, the impact
on the workplace, the response of the victim (if any), andchanges in public attitudes.
(4)

Due process

In any incident involving discipline, the company must
provide an employee with the opportunity to explain andpossibly justify his or her actions. If a company’s work rules(or a collective bargaining agreement) set forth a certain
disciplinary procedure (such as setting up an investigative
committee to determine culpability), the company is required to follow that procedure.

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II.

Notice and Payment for Punitive Dismissals(1)

Prior notice

Additional payment

A punitive dismissal requires no severance pay. However,retirement allowance provided under the work rules isanother story. Retirement pay is in many cases regarded asa deferred payment of wages earned during the period of
employment. This means that the employee’s right toreceive a retirement allowance is not automatically forfeitedby a punitive dismissal. Therefore, to avoid having to pay aretirement allowance, the work rules and/or labor agreement
must expressly state that employees terminated on
disciplinary grounds are not entitled to a retirement allowance. However, even companies that take this step may beordered to provide a retirement allowance if a court findsthat denying it to the employee would be too harsh apunishment in light of the employee’s misconduct. A casethat addressed this issue involved a railroad company
employee who was handed a suspended prison sentence
for repeatedly groping passengers on the train while he wasoff duty. In spite of his conduct, the court held that theemployee should receive 30% of his retirement allowance.
The court reasoned that a portion of the employee’s retirement allowance amounted to a deferred payment of his
wages. The court also found a lack of any significant impact
on the company’s business operations. Lastly, the court
noted that the company was more lenient with other
employees who committed similarly egregious offenses(though not involving groping).

Just because a company may be justified in conducting apunitive dismissal does not necessarily mean that theemployee can be terminated immediately. Indeed, an employer is generally required to provide at least 30 days’
advance notice for punitive dismissals, which is the same
notice requirement for ordinary dismissals. In the alternative,the employer may choose to pay 30 days’ worth of wages inadvance if it wants to immediately dismiss an employee
without any notice. The company may also provide fewer
than 30 days’ notice and compensate the employee by paying wages for each day that the notice period falls short of
30 days.

III.

An employer may avoid the requirement of prior notice (orIn the course of performing the steps listed above, a

Steps to Carry Out a Valid Punitive Dismissal

When carrying out a punitive dismissal, a company typically:(i ) conducts an investigation into the alleged violation (including providing the target employee with one or more hearings); (ii) determines that the results of the investigation
warrant a punitive dismissal; (iii) informs the employee thathe or she is being disciplinarily dismissed; and (iv) follows
the required administrative steps for termination, including
making any necessary payments and providing proper
documentation covering the specific grounds for thedismissal.

Labor & Employment Law Newsletter© Kojima Law Offices 2014

Labor & Employment Law NewsletterVol. 5 August 2014

company should do the following.

Given the importance of discovering the relevant facts
prior to the dismissal, employers should be especiallycareful not to rely only on limited sources of information.
Instead, employers should elicit information from those inas many positions as possible, including the target
employee.

(1)Order the employee to remain at home during theinvestigation

Employers should order the target employee to remain athome if it appears the employee committed additional
violations or if there is a risk that the employee will destroy
and/or conceal relevant evidence or otherwise disturb the
employer’s daily operations. Please note that the employer
must generally pay the employee full wages during thisperiod because being ordered to remain at home is notconsidered an unexcused absence.
(2)

Conduct as thorough an investigation as possible

It is important that the employer conduct a thorough investigation to substantiate its allegations against the target
employee. Only after the employer has ascertained valid
grounds for a punitive dismissal should the dismissal be
carried out. The employer cannot justify a punitive dismissal
based on grounds that it discovers after the dismissal. A
typical example of how this might play out in a wrongfultermination suit is as follows:
(i)

(ii)

(iii)

The employer carries out a punitive dismissal without waiting for the results of the investigation, andlater discovers new facts to support its decision.
The dismissed employee brings a wrongful termination suit challenging the validity of the punitive
dismissal.
At trial, the court prohibits the employer fromrelying on any grounds that it disclosed to the employee after the termination.

(3)

Provide the employee with sufficient informationand the opportunity to mount a defense

It is important to carefully take note of any justifications
made by employees for their alleged misconduct.
Although it may be tempting to dismiss them as frivolous,
the company should take such explanations seriously,
look into them, and verify if they are true. Failing to takethis step may make it difficult for the company to make animpartial decision, and may come back to bite thecompany later on if the dismissed employee raises thejustifications at trial and they turn out to be true.
(4)

Consider less severe action

If the results of the investigation do not obviously warrant
a punitive dismissal, an employer may still have sufficientgrounds to conduct an ordinary termination. Without
sufficient grounds, the employer may proceed with an
ordinary termination, or persuade the employee tovoluntarily leave the company. In the alternative, theemployer might nonetheless decide to go ahead with apunitive dismissal in order to send a clear message topotential wrongdoers within the company that any
misconduct will be dealt with harshly.

The contents of this publication, current at the date of publication, are for reference purposes only. They do not constitutelegal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always besought separately before taking any action based on this publication.

Labor and Employment Practice Group
PartnerCounsel/Associates

Hiromasa Ogawa

Izumi Okada
Hitomi Sakai
Tatsuro Terada
Ayako Shinmura

Darcy H. Kishida *Norio Mitsuuchi
Seizaburo Taira* Mr. Kishida is licensed to practice law in Hawaii, New York andWashington, D.C. and is admitted in Japan as a Registered Foreign
Lawyer (gaikokuho jimu bengoshi). He provided editorial assistance forthis newsletter.

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Labor & Employment Law Newsletter© Kojima Law Offices 2014