KOJIMA LAW OFFICES
Labor and Employment Practice Group

Vol. 3 February 2014

Labor & Employment Law Newsletter
Terminating Employees in Japan – An Overview, Common
Pitfalls and How to Avoid Costly Mistakes (Part I of III)
Introduction

Three Types of Dismissals

In the not-too-distant past, the concept of “lifetime employment” was stilla defining characteristic of corporate
Japan. However, companies began
abandoning the lifetime employment
system following the bursting of theasset price bubble in the early 1990s
and in response to an increasinglycompetitive business climate that
continues to this day. In fact, it has
been difficult even for large firms suchas Panasonic and Sony to maintain the
lifetime employment system in its previous form. Instead, many companies
have accelerated their efforts tostreamline their organizations throughlayoffs or by selling off parts of theirbusiness. As evidence of this shift,over 50,000 people sought assistancefromgovernmental
administrative
agencies in 2012 for dismissal-related
matters according to the Ministry of
Health, Labour and Welfare (this is up
from only about 32,000 just 10 years
earlier).

There are three main types of dismissals
in Japan: punitive dismissals, dismisssals for purposes of downsizing, andordinary dismissals.

However, it would be wrong toconclude that terminating employees
in Japan is now a simple matter. It is a
painful lesson that some foreigncompanies have learned the hard way.
To avoid a public relations backlash
and a possible hit to the bottom line,
foreign companies need to understandthe legal requirements in Japan forvalidly dismissing employees. To ignore them risks ruining a company’s
carefully cultivated corporate image,which may have taken many years tobuild up. More practically, any moneythat a company might save throughdownsizing its workforce can be eaten
up by the millions of yen in legal
expenses necessary to oppose lawsuits that will likely be filed against thecompany.

Ordinary dismissals can be thought ofas a catchall category. They are
dismissals other than punitive dismissals and dismissals for purposes ofdownsizing. Examples of ordinary
dismissals include terminating an employee due to work performanceissues or a long-term absence without
providing adequate notice or without
having a valid reason for the absence.

Punitive dismissals are considered partof a company’s disciplinary procedures and are based on an employee’s
illegal action or a violation of thecompany’s work rules. An employee
found guilty of robbery, for instance,
would be subject to punitive dismissal.
As the name suggests, dismissals forpurposes of downsizing are conducted with the aim of reducing the size ofa company’s workforce to cope withfinancial difficulties faced by thecompany. Unlike the other two types,
this dismissal can be carried out
without cause, as long as theemployer satisfies certain requirements established and refined underyears of case law precedent.

Part I of this article will focus on
ordinary dismissals. Part II will be
published in the next issue and will
discuss dismissals for the purposes ofdownsizing. Punitive dismissals will becovered in Part III, which will appear inVolume 5 of this newsletter.

A snow-covered town in Niigata prefecture

Contents
Terminating Employees in Japan – An
Overview, Common Pitfalls and How
to Avoid Costly Mistakes (Part I of III) ................1
Illustrative Cases .................................................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 and Employment
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

Requirements for “ordinary dismissals”
A variety of labor-related statutes andcase law interpreting those statutes
provide the requirements for ordinary
dismissals. At the most fundamental
level, the Labor Contract Act provides
that an employer abuses its right toterminate an employee when it carries
out a dismissal without objectively
reasonable grounds, or when thatdismissal offends generally acceptedsocietal norms.
Although difficult to define precisely,“objectively reasonable grounds” aretypically exemplified by the following:(i) an employee is unable to achieve
the expected job performance due
to an injury or illness unrelated tohis or her work;(ii) an employee lacks the requisite
abilities, skills or qualifications forthe position in question and improvement does not appear likely
in spite of the employer’s attempts
to help the employee improve; and(iii) an employee demonstrates a consistent inability to get along withco-workers, or engages in suchacts as the commission of a serious crime (the disciplinary aspectsof this third ground may in somecases overlap with those of punitive dismissals).
The Labor Standards Act requires thatthe basis for termination be set forth in
the company’s work rules (or an
employment agreement if there are nowork rules). It is crucial that the relevant provisions of the work rules (or an
employment agreement) be as comprehensive and specific as possible.
Failing to meet this requirement can beperilous, as a dismissal not based on
the work rules or an employment
agreement will almost certainly befound to be unreasonable and therefore legally invalid.
Even if there are objectively reasonable grounds for dismissal, a court
may still find the dismissal invalid if it isdeemed too harsh on the employee as
determined by prevailing societal norms.
Rather than outright dismissal, for instance, a court may require an employer to take less draconian mea-

2Vol. 3 February 2014

sures such as demoting the employee
to a more manageable position or
cutting the employee’s pay. The court
may also consider how employees incomparable positions and industries
are treated to determine what is
acceptable under prevailing societal
norms.
Given that poor performance is one
factor that may justify dismissal, one
could be forgiven for concluding that it
is easier to terminate mid-career employees in managerial positions or highly
specialized individuals for poor performance. This is especially true compared
to regular employees hired fresh out ofcollege. After all, an employer rightly
has higher expectations for mid-career
employees, especially ones who arehighly compensated. While the bar isindeed set lower for employers wishing
to terminate such employees for poor
performance, it would be a mistake toassume that termination is an easy or
simple process. At a minimum, in fact,
an employer must conclusively provethat it had clear expectations for theemployee, that those expectations were
properly communicated to the employee, and that the employee failed tomeet those standards. Accordingly,
during the hiring process, employers
should provide something in writing to
mid-career employees explaining precisely
the level of performance the company
expects from them. Moreover, it iscomparatively easier to dismiss employees on probation, though evenhere the termination must be based on
objectively reasonable grounds andcannot violate prevailing societal norms.
Restrictions on Dismissals
A number of labor-related acts set forthvarious restrictions on terminating
employees and prohibit dismissals
based on the following:
•

•
•
•

Such factors as an employee’s
nationality, religion and social status(e.g., being born out of wedlock).
Union membership or taking partin lawful union activities.
Marriage, pregnancy, childbirth, taking
childcare or family leave.
The reporting of labor law violations
such as violations of the Labor
Standards Act, or justifiably blowing

the whistle on an employer’s unlawful
activities, etc.
In addition, dismissing an employee
during the following periods is also
prohibited:••

During maternity leave and for 30days thereafter.
While an employee is on medical
leave to receive treatment for
injuries or illnesses suffered in thecourse of employment and for 30days thereafter.

Essential Steps
Assuming the substantive requirements
for dismissal described above are met,
an employer should still take one of
the following steps to ensure that thetermination is legal: (i) provide thetarget employee with at least 30 days’
written notice; (ii) in lieu of 30 days’
written notice, provide the target
employee with at least 30 days’ worthof pay; or (iii) a combination of noticeand pay (e.g., 20 days’ written noticeand 10 days’ pay). In addition,companies are required to issue todismissed employees a certificate ofcessation of employment and/or acertificate showing the grounds of
dismissal if the employee so requests.
Final Pointers
Possibly the harshest result for an
employer is when a court finds that an
employee was invalidly dismissed andorders the employer to rehire theemployee and pay the employee fullback wages despite the fact that theemployee has performed no work
while the case was being litigated.
Because courts determine the validityof dismissals on a case-by-case basis,
an employer must be extra vigilant inorder to maximize the chances that atermination will be found valid. In addition
to meeting the requirements describedabove, an employer should also:••

Provide the target employee with as
many warnings as possible to lessen
the chance that the employee will beable to claim surprise.
Provide the target employee withclear and specific instructions on

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Labor & Employment Law Newsletter•

how to improve his or her work
performance.
Keep ample records to validate thedismissal, such as e-mail messages, warnings and other evidence toshow violations of the company’s
work rules.

Vol. 3 February 2014

Validly dismissing an employee requires extensive preparation and an
appropriate strategy. The same is true
for a company attempting to convince
an employee to resign voluntarily
instead of being dismissed outright.
No two situations are alike, of course,

and an employer therefore needs totailor its approach depending on thespecific circumstances of each case.
To avoid costly missteps, contact alabor law specialist as early in thedismissal process as possible.

wards individuals outside the company,
and continued to interfere with thework of others in the company.

others. These efforts include allowing
the employee to take a recuperative
leave of absence, consulting with
doctors to confirm and monitor theemployee’s condition, reducing an
employee’s workload, or transferring
employees to other departments.

Illustrative Cases
To understand how Japanese labor
law applies to dismissals and how
difficult it can be to validly dismiss
employees, it is useful to review indetail how Japanese courts handle
actual disputes involving dismissed
employees. Below are summaries of
selected cases illustrating this complex
area of Japanese law.

1． February 18, 2005 Judgmentof the Tokyo District Court
Plaintiff-employee began suffering frommanic depression to such an extent
that he could no longer adequately
perform his duties at work. His
employer Kando Co., Ltd. tried to help
him first by allowing him to take anextended period of leave, and then bytransferring him to other departments
within the company. However, Kando
claimed that the employee continued
to use abusive language and engage
in odd behavior, making it difficult tomaintain order in the workplace. Moreover, the employee’s job performanceremained subpar. As a result, Kando
terminated his employment, and theemployee brought suit challenging thedismissal and seeking back wages.
After a trial on the merits, the court
found that the employee, in an
attempt to recover from his manic
depression, took a seven-month leaveof absence from work. Prior to thatleave, the employee often missed work
due to his manic depression,
disrupting the work of other employees in the process. Moreover, after
returning from his seven-month leave,
the employee continued to miss work
frequently, was still unable to consistently perform his work properly,
exhibited unprofessional behavior to-3

On the other hand, the court found thefollowing facts in the employee’s favor:(1) The employee’s doctor indicatedthat, at the very least, the employee was able to perform clerical
work for Kando;(2) the employee’s odd behavior was
not constant, occurring only about
once a day;(3) Kando did not incur any damages
from the employee’s strange
behavior;(4) the employee did not appear to
exhibit any symptoms of manic
depression when he testified incourt;(5) under Kando’s leave policy, theemployee was entitled to takeadditional time off to recover fromhis manic depression, and Kando
should have made him take thatleave before terminating him; and(6) because Kando continued to employ
other employees who exhibited
symptoms similar in severity to
the employee’s, it was inequitable
to dismiss only him.
Based on these findings, the court
concluded that Kando had improperly
terminated the employee’s employment and held the dismissal invalid.
Practical Pointers
Companies are expected to makeconsiderable efforts to help ailing
employees return to work, even if it isa burden for a company to keep sick
employees on the job who are unable
to fully perform their duties, or who
have trouble communicating with

Companies dismissing sick employees
without taking these kinds of measures face likely defeat in court. A court
will generally be persuaded by a doctor’s
expert medical opinion. Therefore, prior
to terminating a sick employee, companies should obtain an opinion from a
doctor clearly stating that an employee
is no longer able to continue working
due to illness.

2. October 5, 2012 Judgmentof the Tokyo District Court
Plaintiff-employee was a journalist
employed by Bloomberg L.P. Bloomberg was unhappy with the employee’s
work and tried to have him improve byimplementing a performance enhancement plan. However, the employee’s job
performance continued to disappoint,
leading Bloomberg to dismiss theemployee on the ground that he lacked
the requisite journalistic skills. The
employee brought suit challenging thedismissal and seeking back wages.
At trial, Bloomberg alleged that theemployee often left the workplaceunannounced and continued to do soeven after Bloomberg had warned him
to stop. In terms of his job performance, Bloomberg claimed that theemployee did as he pleased without
collaborating closely with editors andother reporters and exhibited poor
communication skills. Bloomberg further
contended that the employee’s news

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articles were not well written, and thatthe slow pace of his writing resulted in
fewer articles than Bloomberg had
expected.
In its decision, the court stated that theemployee’s employment agreement
did not require performance higher
than that of an average mid-career
employee. Therefore, even if Bloomberg’s claims of poor performance
were true, the dismissal would still be
invalid unless Bloomberg could establish that the employee’s job performance was so abysmal as to make it
extremely difficult for Bloomberg tocontinue employing him.
As far as Bloomberg’s specific allegations of poor work performance, thecourt held that:(1) The employee’s unannounced absences were not nearly as serious
as Bloomberg made them out to be,i.e., the absences did not make itparticularly difficult for Bloomberg
to continue to employ him, andBloomberg’s instructions on thematter were neither clear nor
specific enough for the employee
to follow;

Vol. 3 February 2014(2) the employee sufficiently collaborated with editors and other reporters;(3) Bloomberg failed to establish thatthe employee exhibited poor communication skills;(4) Bloomberg’s rules did not specify
a minimum writing speed, theemployee’s slow pace of writing
articles manifested itself only a
few times over a five-year period,and Bloomberg failed to implement
any meaningful measures to improve the employee’s writing skills;(5) Bloomberg’s rules failed to specify
the required number of articles
that the employee needed to write,
and the employee’s output was
not markedly lower than otherreporters; and(6) even if the employee’s articles
weren’t up to the quality standards that Bloomberg had expected,
the employment agreement did
not contain any requirements
regarding the quality of articles,
and the employee’s articles were
nevertheless of sufficient quality
to justify his continued employment with Bloomberg.
For these reasons, the court conclu-

ded that, looking at the matter objecttively, the employee’s dismissal was
unreasonable and therefore invalid.
Practical Pointers
Companies typically hire mid-career
employees with the expectation thatthey already possess the necessary
skills and knowledge to perform
adequately in their new job. However,
it is not a simple matter to terminate
mid-career employees, even those
who lack the expected skills and/or
knowledge. Once a company hires an
employee, the company is required to
do its utmost to keep that individual
employed. Here, Bloomberg apparently
made an attempt to improve theemployee’s job performance. However,Bloomberg failed to provide theemployee with sufficiently specificguidance. Moreover, Bloomberg set
goals that were too difficult for theemployee to achieve. Therefore, thecourt likely concluded that Bloomberg’s efforts fell short of what isrequired of an employer. In light of theabove, one may reasonably conclude
that courts do not easily allow thedismissal of mid-career employees
due solely to issues of job performance.

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
Partner
Hiromasa Ogawa

Counsel/Associates
Izumi Okada
Hitomi Sakai
Norio Mitsuuchi
Tatsuro Terada
Ayako Shinmura

Darcy H. Kishida*
Hirokazu Amemiya
Minoru Saito
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 editorialassistance for this newsletter.

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Labor & Employment Law Newsletter© Kojima Law Offices 2014