Fair Treatment of Non-Regular Employees
More and more businesses in Japan employ non-regular employees (a category that includes part-time employees, fixed-term employees, and dispatched workers). According to recent statistics announced by the Japanese government, 38.2% of Japanese workers are non-regular employees. This has caused concern that differences in the treatment of regular and non-regular employees may be giving rise to a two-tier class system in the Japanese workplace. In order to ameliorate this situation, recently new legislation restricting disparate treatment of regular and non-regular employees has been enacted, and this year the Japanese Supreme Court issued two sets of important decisions interpreting the new legislation.
1.The New Act on Work Style Reform
Japan enacted a new Act on work style reform in 2019. In addition to other changes to employment law, the new Act provides that (i) unreasonable differences in the treatment of regular employees and non-regular employees are prohibited, and (ii) non-regular employees can request the employer to explain the details and reasons for such differences in treatment. These requirements already apply to large companies, and for small and medium-sized companies, the requirements will apply from April 1, 2021. The Act also establishes an alternative dispute resolution system to deal with disputes regarding differences in treatment.
2.Supreme Court Rulings on Fair Treatment of Non-Regular Employees
Earlier this year, in just one week, the Japan Supreme Court issued five important rulings in two groups (on October 13, 2020 and October 15, 2020) regarding fair treatment of workers under the new Act on work style reform.
A. Bonuses and Retirement Allowances for Fixed-Term Employees
The first two cases, involving a former fixed-term employee at a university and two former fixed-term contract workers at a subway kiosk, dealt with bonuses and retirement allowances for fixed-term employees. The employees brought claims for damages against their former employers, arguing that it was illegal for the company not to have paid them bonuses and retirement allowances because they had been performing the same duties as regular employees who did receive bonuses and retirement allowances.
Although the tasks of the regular employees and non-regular employees were essentially similar, the Supreme Court held that the refusal to pay bonuses and retirement allowances was not an “unreasonable difference” in light of the specific details of the duties (e.g., the level of difficulty of the work) and the degree of responsibility, etc., of the respective positions. The Supreme Court also noted that the non-regular employees were not subject to being transferred to other work locations.
B. Allowances and Paid Leave for Non-Regular Employees
The other three cases dealt with non-regular postal employees seeking entitlement to family allowances, holiday extra pay, paid sick leave, and winter and summer paid leave. In these cases, the Supreme Court held that it was illegal for Japan Post not to have given the benefits to non-regular employees.
One reason cited by the Court for this outcome was the purpose of the benefits. For example, one of the benefits, holiday extra pay, is an allowance paid to postal workers during the year-end and New Year period when New Year’s postcards create a very large volume of mail. The Court ruled that because the holiday extra pay constituted compensation for working during this difficult period, there was no reason to deny it to non-regular employees.
Similarly, in examining paid leave during summer and winter vacations, the Court noted that the purpose of the payments was to encourage employees to take time off in order to reinvigorate themselves, and so there was no reason to deny these payments to non-regular employees.
Notably, the Court did not credit Japan Post’s argument that the benefits provided to regular employees were based on the understanding that they would work continuously, because even though the non-regular employees’ contracts had to be renewed every six or twelve months, in actual practice Japan Post clearly expected the non-regular employees to be employed on a continuous basis.
These rulings do not mean that an employer never will be required to pay bonuses or retirement allowances to a non-regular employee, nor do they mean that every non-regular employee is entitled to receive family allowances, holiday extra pay, or paid leave. Instead, as the Court repeatedly stated in these decisions, whether such differences in treatment are unreasonable must be decided on a case-by-case basis in light of the various relevant circumstances, such as (1) whether the details of the duties and the degree of responsibility of the non-regular employee are of the same level as those of a regular employee, (2) whether denial of a benefit is consistent with the purpose of the benefit, and (3) whether a company makes an actual practice of employing non-regular fixed-term employees on a continuous basis. Accordingly, employers in Japan should take care to seek legal advice before establishing terms and conditions of employment that impose disparate treatment on regular employees and non-regular employees, in order to ensure that such disparate treatment can in fact be reasonably justified.
If you have any inquiries with regard to the above or if you need legal assistance in Japan, then please feel free to contact us. Thank you.
Kengo Ishikawa | Partner | +81-3-3214-2491
Keith Finch | Foreign Counsel | +81-3-3214-2491