What you need to know before hiring in Japan: A guide to terminations

Published

May 10, 2023

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In many aspects, Japan’s labor market is like no other in the world. While it is arguably most known for employees’ long working hours, it’s the employment tenure that is most surprising. According to OECD, the average duration of service is 12.4 years—one of the lengthiest worldwide.

That being said, sooner or later, each labor contract comes to an end—either through voluntary resignation (including early retirement) or other reasons. It’s important to know that it’s extremely difficult to terminate an employee without their consent.

Read on to learn about employment contract termination policies in Japan and how working with an EOR can help you navigate offboarding employees.

Five essential things to know before hiring in Japan

The standard notice period is 30 days. If you’re planning to terminate an employee, then you’re required to give them a 30 days’ notice or offer payment. In case of a voluntary resignation, an employee needs to give at least two weeks’ notice.
Employees on maternity leave are protected by Japanese law. Workers who are pregnant are entitled to a maternity leave of 14 weeks. These terms of employment guarantee their employment security.
Employees can go to the supreme court if they deem the termination unlawful. If an employee feels they have been unrightfully let go they can file a claim against the employer. The court might void the termination decision. Alternatively, the worker can file a petition before the labor tribunal, and if the dismissal is null and void, the worker can get their job back. The employee has the right to be paid for the time between the termination and when the decision was made by the supreme court, with interest. The worker can challenge the dismissal decision at any time.
No severance pay is required by the Japanese employment law. When terminating employees in Japan, you don’t have to offer a severance package. Still, many companies decide to include it in their contracts. It makes it easier to convince workers to resign through voluntary resignation, instead of being terminated by the employer. Most employment contracts observe severance pay equal to anywhere between six and 12 months of the employee’s work.
Japan has a fast-track procedure for challenging dismissals. To ensure that termination of employment disputes are resolved quickly, Japan introduced the Labor Tribunal Act. It limits the number of court hearings to a maximum of three sittings. This encourages companies to mediate with their terminated workers and—ideally—agree on a severance payment without entering a trial. Alternatively, employees might decide to choose reinstatement and return to their work duties.

Termination rules in Japan: What are acceptable grounds for firing an employee?

Japanese law is very strict, and terminating an employee is possible only in extreme cases. The inability to prove that the dismissal was justified will classify as an ‘abuse of rights’ if they decide to take it to court.

Objectively reasonable grounds for termination of employment include:

Employee’s inability to work caused by injury, disability, sickness or permanent damage, poor performance, breach of trust due to a serious fraud during the employment period
Failure to fulfill work responsibilities and duties, not following work policies and internal rules
Redundancy caused by downsizing, bad economic situation, or corporate dissolution.

All of the above terms of employment should be incorporated in the work rules or the employment contract.

Dismissals dictated by economic causes including restructuring and redundancy are very restricted in Japan. They can only take place under the following circumstances:

The number of employees must be reduced
It’s necessary to use the “unilateral termination of employment contract”
Employees whose contracts are to be terminated are selected adequately
The termination process is done correctly and the employer does everything in their power to avoid the redundancies.

What are the mandatory notice periods and termination pay for Japanese employees?

Japanese employment law requires companies to offer 30 day notice. If they deem the employee redundant and don’t need them to come to work, they can choose to pay out compensation. The payment must be equivalent to the worker’s 30 days’ salary. What’s more, the employer must be ready to pay out the same day they terminate the employee.

It’s worth noting that many employment contracts observe a longer notice period and/or a higher termination payment.

The case looks different for disciplinary dismissals. Among others, the employer doesn’t have to offer a notice period or severance if the employee:

Is in a probationary period of time and hasn’t served at the company for more than two weeks
Made a false statement in their job application and misled the employer about their qualifications
Is guilty of business misconduct, such as disclosing confidential information to third parties, fraud, or abusing their power over other workers
Has a fixed-term contract and their tenure is shorter than two months
Works on the basis of a seasonal work contract, for a period shorter than four months.

Japanese employment law relieves the hiring party of termination pay and notice periods if they fall victim to unexpected circumstances, such as a natural disaster that disrupted company operations.

The easiest way to comply with Japanese termination requirements

As labor law differs from country to country, understanding termination and notice periods across the globe can seem like a complex endeavor. Among others, you need to learn about applicable notice periods, severance packages, and acceptable grounds for contract terminations. Luckily, there are experts who can take this off your plate.

Instead of handling everything by yourself, you can work with an EOR that will take care of all termination requirements for you–irrespective where you hire.

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Frequently asked questions about terminating employees in Japan

Do you need a reason to terminate an employee in Japan?

Japanese employment law is very strict when it comes to justifiable reasons for employee layoffs. If a worker believes that their termination of employment was unlawful, they can enter a legal dispute.

Many companies decide to offer attractive severance packages to incentivize employees whom they’d like to resign voluntarily. There are four types of dismissals recognized by Japanese employment law:

Normal Dismissal–Futsu Kaiko, which lets employers terminate contracts due to objective grounds like the worker’s lack of skill, poor performance, inability to work as part of a team, etc.
Redundancy Dismissal—Seiri Kaiko, when a company undergoing operational changes decides to terminate an employee. The employer needs to prove that the termination was inevitable.
Suggested Dismissal—Yushi Kaiko. An employer suggests to the worker that they resign voluntarily, as an alternative to an impending disciplinary dismissal.
Disciplinary Dismissal—Chokai Kaiko. Employers can let their workers go disciplinarily if the former commits severe violations. These include abuse of rights, disclosing company trade secrets, harassment, or refusing to move to a different role or office/branch.

What is always required when an employer terminates an employee in Japan?

To terminate an employee in Japan, you must provide objective grounds for dismissal, as discussed above. Any employment contract can be terminated if both parties agree to it. In case of a voluntary resignation, the employee is obliged to give at least 15 days’ notice. Since dismissals in Japan are highly restricted by employment law, many companies opt for voluntary retirement to amicably end the employment contract. An employer must provide at least a 30 days notice period or offer payment in lieu of notice.

What qualifies as wrongful dismissal in Japan?

Japan’s employment law is very strict, allowing for only four types of legal dismissals (discussed above). The reason for employee termination must be objective and reasonable. Anything beyond the four permissible contract termination types is an unfair dismissal, known as “Futu Kaiko”.

Can an employer terminate an employee who is a member of a Japanese labor union?

A company can terminate an employee who is a labor union member provided that they meet the labor standards, rules, and procedures included in agreements signed between employees and management. Bear in mind that Japanese employment law prohibits terminating workers for being members of unions.

Can an employer terminate an employee for refusing overtime work?

An employer cannot dismiss an employee if they refuse to perform work exceeding their standard work hours. The worker needs to sign a document to confirm their willingness to work after hours or on days off (i.e., Notification of Agreement). Forcing an employee to perform their duties beyond standard working hours, without a signed agreement, is an illegal practice and can result in a penalty.

Can an employer terminate an employee due to their age?

The short answer is no, as it would classify as discrimination. Dismissals based on age are illegal and an employee who is subject to it might take it to court.

As of 2023, Japan is undergoing retirement reforms. The threshold will be raised by a year every two years, with the retirement age set to reach 65 by 2031. Those who enter retirement at the age of 60 will experience a period of zero pension payouts until they’ve reached the ‘legal’ age. To bridge the financial gap, the Japanese government encourages seniors to continue their professional work. So, terminating workers who are close to reaching retirement age might be especially scrutinized by labor unions and courts.

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If you’re a foreign company hiring employees and contractors overseas, then Rippling will help you handle your entire employee lifecycle—from onboarding to offboarding your workers.

Check how Rippling can help you navigate the complex world of global terminations all the while staying legally compliant.

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