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Termination of Employment Agreement

Termination of Employment in Japan


In principle, an employer possesses a wide range of freedom as to whom to employ, but once it has employed a worker and given him a fixed status on the basis of the employment relationship, it does not have such a wide range of freedom as arbitrarily deprives him of that status. Therefore, the Labor Standards Law stipulates that minimum standards should apply as follows:

   
Obligations required by Labor Standards Law concerning dismissals
1 A dismissal shall, if it lacks objectively reasonable grounds and is not considered to be appropriate in general
   societal terms, be treated as an abuse of right and be invalid. (Labor Contract Act  Article 16. (Dismissal))
2 An employer shall provide at least 30 days advance notice if the employer wishes to dismiss an employee.
   If an employer fails to do so, he/she must pay the average wages for a period of not less than 30 days
 in lieu of advance notice of dismissal.  The number of days of advance notice may be reduced by number of
 days for which the employer pays average wages. (Article 20)
3 Even employees in a probationary period shall be given advance notice as above, when they have been
 employed consecutively for more than 14 days. (Article 21)
4 The exceptions are;
 (1) If continuance of the enterprise has been made impossible by a natural disaster or other unavoidable cause
      (excluding financial difficulties),
 (2) When the reason is attributable to the employee, and the employer previously applies and obtains the
   approval of the Labor Inspection Office for an exception of dismissal notice(Article 19). 
       In this case, the employer is able to dismiss the employee without notice or compensatory payment.
      (Article 20)

The court ruled that the exercise of the right of terminating employment contract, in view of its purport and purpose, should be allowed only when there is a rational reason for it. Also, dismissals, which constitute an abuse of authority, are not allowed. Therefore, employers cannot readily discharge employees.

The following are examples of reasonable grounds for dismissals:
1) Incapability, incompetence or lack of aptitude
2) Situations considered a necessity by management
3) Infringement upon company rules or order by employee
The following explains case 1), the one which generates the most number of questions.
 

     
Dismissals based on the Incapability, incompetence or lack of aptitude
If a company hires an employee through a head hunting service, there is a risk that the employee may fail to meet company expectations. It is significant point whether the employer specified a position for the employee before or after making the employment contract.
Some court precedents have noted that specific standards of employee competence and achievement must be included in writing in the contract. Following are points to be considered when making an employment contract with an applicant being considered for a specific position.

1. Prepare and make employment contract
2. Stipulate in the contract that the employee is being hired because the position is specified as sales manager,
    marketing manager, human resources manager, and e.t.c.
3. Stipulate job description required by the employer in the contract and add general clauses
4. Stipulate target objectives i.e. what the company expects of the employee in the contract
5. Stipulate appropriate terms for salaries, bonuses, and e.t.c.
6. State clearly the criteria in terminating the contract

An employer should make clear in what cases a company will terminate a contract or curtail salaries. If both employer and employee do not acknowledge such agreements, it may result in disagreements or disputes.

Please note that the requirements and procedures for effectuating a dismissal may vary according to the labor laws of the country with which labor agreements are concluded.  Cases that are witnessed occurring most at foreign affiliate companies in individual labor disputes mediated by the Labor Bureau, Labor Trial and Labor Court are that dismissals following a corporate concept (ex. at-will based) are invalid, and that back pay the number of months accrued from when the dismissal was effectuated(approximately 6 to 24 months) as well as a settlement package is granted to the employee.
In the event such disputes arise, the company spends time and money, resulting in heavy losses based on the fact that the company was unable to resolve the dispute. In order to prevent these problems from occurring, we recommend a labor agreement be reached that reflect on the differences in labor laws.

If you need further information about working conditions, please feel free to contact me.

 
Yumiko Kamioka
Labor and Social Security Attorney, U.S. CPA
MASHR CONSULTING Co.,Ltd
Yamashita-cho 24-8-805, Naka-ku,
Yokohama-city, Kanagawa 231-0023
TEL 81-45-212-0681 FAX:81-45-212-0682
E-mail: ykamioka-hr@mashr.co.jp
http//www.mashr.co.jp
 

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