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back to index backGLOBALtalk July,  2014


Japan: Proposed exception to five-year rule on fixed-term employees

In April 2013, an amendment to Japan's Labour Contract Act came into effect to institute a "5-year rule" with respect to the use of fixed-term employment contracts.  Under this rule, employers must move fixed-term employees onto indefinite term contracts if -

- the employee has worked for the same company under fixed-term employment contracts for more than five-years starting from 1 April 2013;

- there is no break in employment of six-months or more;

- the fixed-term employment contract is renewed more than once; and

- the employee asks to become an indefinite term employee.  

This amendment is significant because the acceptable grounds for terminating the employment of indefinite term employees are very limited in Japan.

The current government has been considering easing certain employment regulations including the 5-year rule.  This issue has come to the fore as a result of Tokyo's successful bid for the 2020 Olympics.  Employers are concerned that special projects in preparation for Olympic-related business opportunities will take more than five years to complete.  The 5-year rule would make the use of fixed-term employees difficult as an employer might be required to move an employee hired specifically for a long-term project onto an indefinite term contract after five years.

In response to these concerns, the Government recently introduced legislation which provides limited exceptions to the 5-year rule.  The legislation is expected to come into effect from 1 April 2015.

Under this legislation, an employer is not obliged to accept an employee's request to become an indefinite term employee after five years (for up to 10 years) if:

- the employee has special knowledge and skills;

- the employee is compensated above a certain threshold; and

- the employee is employed to work on a project that is not indefinite but is expected to take longer than five years to complete.

The legislation also provides an exception for employees who have been rehired by the company on fixed-term employment agreements after reaching the company's mandatory retirement age.  Then, there is no limit on how long the employer can employ the rehired employee on fixed-term agreements.

Note that the legislation does not require an employer to enter into a five-year or longer fixed term agreement.  Employers may use short fixed-term agreements, for example 6 months or 1 year and they will have some discretion as to whether to renew the fixed-term agreement. A decision not to renew during the planned term of the project would, however, have to be made for a reasonable reason.   

Currently, the legislation does not detail what will qualify as "special knowledge and skills" although the Government has suggested that employees with higher degrees, professional licenses or skilled engineers would probably qualify.   Similarly there has been no official indication of the threshold level of salary that will be necessary to qualify for the exception but an annual salary of JPY10.75 million yen (which is used as one of the criteria for "employees with special knowledge and skills" in a different context) has been referred to as a reference point to consider.   It is likely that further details will be provided later in the legislative process.

Source: DLA Piper - GAI




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