According to the legal doctrine of abusive dismissal, which is legislated in art.16 LCA (Labor Contract Act 2007), it is generally considered that unless the employer proves a permissible reason for dismissal, the dismissal will be held to be abusive and therefor invalid. This doctrine is applied for the cases of dismissal by reason of misconduct or incapability of employee and by economical reason of employer. The employer is required to prove the facts to substantiate his reasons for dismissal. Once the employer discharges his burden, the employee will take on the burden of proving that the dismissal is still impossible with regard to the common sense of society according to the circumstances of the case.
Misconduct of Employee
By the judgment whether the dismissal of employee has objective reasonable ground and is considered to be appropriate in general societal terms, the following elements are to be taken in to consideration, namely:
size and type of company
nature and extent of employee’s misconduct and its damages
history of misconduct or work performance of the employee in question
extent of the employee’s repentance after commitment of misconduct
comparison with disciplinary measures taken against other employees for the same and similar misconduct.
If the dismissal has done as the disciplinary sanction, the gravity of misconduct shall be more significant in order to be judged that this dismissal as disciplinary sanction against the employee is objective reasonable and appropriate in general social terms. The reason is that the disciplinary dismissal measure lead to depriving the employee of retirement allowance. The amount of retirement allowance for ordinary employee, but not for atypical employee as fix term contract employee or dispatched worker, increases according to the length of duration of employment relation. For example it is not uncommon in Japan that a employee who is employed for 30 years by the same employer, obtains the amount of retirement allowance equivalent to 30 or 40 months payment.
By the judgment whether dismissal as disciplinary sanction is abusive and unlawful, the due process plays important roll. The court shall take in consideration, whether the employee was given an opportunity to give an explanation in his/her defense, and whether he/she had received a proper warning upon commitment a similar misconduct in the past.
2. Dismissal by Reason of Employee’s Incapability
Second category of dismissal is the one by reason of employee’s incapability.
If the employee loses his occupational capacity as a result of injury or illness, nature and extent of incapability is to be considered and the court judges whether the employee became unable to fulfill the requirement of occupation for unforeseeable period.
Insufficient job performance can be also a reason for dismissal. The court will examine the nature and degree of insufficient performance to see if the employer has no other measure than dismissing the employee. If the employer makes only insufficient effort to match the employee to a job more fitting to the employee’s ability, the court tends to judge that the dismissal is not objective reasonable and not permissible with regard to the common sense of society. The court examines very carefully whether inability of the ordinary employee in long term employment is so significant that the employer cannot find the alternative function in the company. The employer is expected to give the employee the additional vocational education, in so far as it does not go beyond the capacity of employer.
This cautious attitude of courts about legality of dismissal by reason of incapability or insufficient performance of worker has its ground in the characteristic of employment relationship and custom of it in Japan.
In Japan, the most of workers are hired immediately after their graduation from school or college. The employer expects usually no specific job related knowledge or skill or other occupational qualification from students. The labor contract has usually also no description about the function of workers, if ever the written contract is made, what is not usual for ordinal worker with long term employment expectation.
In the process of hiring, Japanese company examines first of all the personality of applicants and their potential ability to accommodate to the changing environment in company. Most of employers think that the most important personality as employee is cooperative attitude not only to employer but also to other employee at work place.
As I mentioned above, the employment contract with students contains usually no description about their occupational function. Young employeres do not know usually what function will they take over after introducing education in the company. And it is also common in Japan that after some praxis at a department, 3 or 4 years later, for example at personal section, employees move to another division, for example to the accounting section with promotion and payment increase.
It is also usual that the employer orders the employee to move from one work place to another work place, for example from Tokyo to Osaka.
So, for Japanese employee is flexible accommodating ability is more important than the specific occupational qualification acquired outside of the company, for example at University or professional school. Concerning the occupational function oriented specific business knowledge, the Japanese workers are expected to acquire that on the job (in-house) training in the company.
In this context, the employer may not easily put the responsibility to the employee, when the employee made a mistake or could not show the sufficient performance. The company has been having dominant influences in Japanese society and social system. There was and is still today a relatively strong expectation among Japanese people that the company has a role of family or educational institution for the ordinary employee with long term employment.
As to the middle-aged and older workers, the employer may not also easily dismiss them for the reason of their incapacity or bad performance. These older workers have been working many years for the company and have contributed to the development of the company. So the company owes the elder worker a kind of debt and it is not appropriate in general societal terms that the company discharges them only because they can’t show sufficient performance.
Of course the company are not legally bound to keep the employment beyond their capacity. If the company is small or has not enough financial resources, it is not to be expected to retain the work force. This is the reason why the Japanese courts examine very carefully the already mentioned elements in each case.
On the other side, there is no such common sense for the high skilled employees with high remuneration who are recruited in mid-career from other company and take over the specified functions at specific department of the company. Also the same thing can be said as to the atypical employee, namely fix term employee or dispatched worker or part time worker. They have been treated not as “family” or “community member” in Japanese companies. So the courts are more likely to approve the dismissal of high skilled staff or atypical employee in Japan
3. Dismissal by reason of economical Reasons
Art.16 of Labor Contract Act providing the restriction of abusive dismissal is also applied for dismissal by reason of firm’s economic necessity. Since the latter half of the 1970s, the courts have developed four criteria for determining, whether dismissal for economic reason is objective reasonable and appropriate in general societal terms. Four criteria are as following:
① whether there was sufficient economic necessity of reduction in personnel.
② whether the employer made reasonable efforts to avoid dismissal,
③ whether the selection is done fairly on the basis of objective criteria,
④ whether the employee in question and/or the union is sufficiently informed and consulted by the employer
Regarding criteria ①, the courts demand in 1970s and 80s severe financial difficulty for dismissal. But nowadays, the courts tend to be more fore flexible about economic or financial necessity. Many judicial decisions don’t demand financial difficulty anymore and affirm that criterion ① is satisfied with the fact that excess personnel in the company exists.
As to criterion ② the courts examine whether the employer implemented measures such as voluntary retirement, transfer or reductions of temporary worker or part time worker.
As to criterion ③、there is no rigid rule such as the American seniority rule or as German rule of social selection. The courts tend to approve the criteria for selection when they are made by collective bargain between the employer and the union.
The criterion ④ has its ground also in the Japanese labor Union Act. According to Art.7 the employer is required to bargain with the union representing the concerned employees. The employer will usually engage in extensive negotiation with union to work out the scale and procedure of reduction.
But the labor unions are in Japan usually organized in the big company. The labor unions organized outside the company belong to the minority group in Japanese labor organization. The employees of small company are often not organized by the union.
Japanese labor legislation does not impose on the employer the requirement to create a social plan to reduce the hardship of collective dismissal. On this background, the dismissed workers in small company can receive only little amount of economical compensation for discharge.
We can see a kind of so called “principle of proportionality” in Japanese Dismissal Law, similar to the German Dismissal Law doctrine, which is theoretically established by Prof. Urlich Preis, university of Koeln.
4. Remedial Rules
When the dismissal is not objective reasonable and not appropriate in general societal terms, it is declared to be unlawful and void, The courts usually deliver a judgment affirming his status as an employee in the defendant’s company, and order to pay the unpaid wages, plus interest from the time of attempted dismissal until the restoration of status.
The amount of any eventual income from other employment in the discharged period, will be deducted from the payment by the employer, However, any reduction for this interim earning from other employment ist limited to 40 % of the unpaid wages (cf. Art.26 LSA).
When the courts judge the dismissal as unlawful and invalid, and order the payment of unpaid wages, the additional payment for damages by reason of torts is not allowed usually.
On the other hand, there is the discussion in Japan, whether the employee should be able to claim for the remedy for damages without demanding his status as an employee of the defendant company. In recent years, the number of litigations is increasing, in which the dismissed employee don’t claim for invalidity of dismissal and his status as an employee in the company. The discharged employee insists that the committed dismissal is unlawful and constitutes a tort. Since the wage is remuneration for work, theoretically speaking, if the employee is not ready to work for his/her employer, the tortious dismissal does not constitutes the cause of the non- payment of wages. Until recent years, the courts and literature followed this stance. But as mentioned already, confronting increasing number of such law suits claiming for tortious damages, the courts and literature tend to show the positive attitude to this question.
These new tendencies seem to be understandable. It is sometimes very difficult to judge whether a dismissal is lawful or not in a manner of a “black and white” approach. Such a “null and void” practice for cases of dismissal force the judge in some instances to an extremely artificial decision and consequently fails to deliver the appropriate or proportionally adequate justice to both parties of dispute. And in addition to that, many Japanese dismissed workers show hesitation to demand reinstatement to the defendant company and the employer want to avoid it definitely at any cost. So instead of “null and void” approach with reinstatement of the employee, a pecuniary solution with tortious damages is sometimes needed and more appropriate in considering about the nature of dismissal disputes. We may add the fact that the severance pay is not required by any legislation in Japan.
5. Application by Analogy of Doctrine of Abusive Dismissal to the Refusal of Renewal of Fixed term Employment
In case of fixed term employment, the termination of contract comes with their expiration. In many countries, above all in European countries, using the fixed term employment contracts are restricted in many ways.
Typical regulation of fixed term contract is restriction of reasons for fixing term of contract or limitation of numbers of renewal and/or length of fixed term.
In Japan, the courts have developed the case law, which restricts the rejection of renewing the fixed term contract by way of analogical application of doctrine of abusive dismissal. When the employee with fixed term contract has reasonable expectation for renewal of contract and this expectation is worth to protect, so the employer cannot easily reject the renewal and legal doctrine of abusive dismissal is analogically applied for them.
In the decision, whether the expectation of a fixed term employee is reasonable and should be legally protected or not, the courts take in to account the elements such as the number of renewal, length of continuation of employment, nature of the job (constant or temporary), manner of renewal by the employer (whether the employee is well informed or not), usual practice of renewal in the company.
When the rejection of renewal is unlawful, the fix term will be renewed with the same condition as before. That means that the renewal of the fixed term contract doesn’t convert into the contract with unlimited period.
In 2013, the case law is legislated into the Labor Contract Law (art.19). In addition to this rule, the amendment of the Labor Contract Act in 2013 also added new regulation of fixed term employment. According to the art.18, the fixed term employee with contract period of over 5 years in total are allowed to convert their employment contract to employment contract without definite period. Unless otherwise provided, the conditions of employment of the converted employment contract (wages, function, working hours etc.) without definite period shall be the same as that of the pre-existing fixed term employment contract.
This kind of regulations limiting the length of fix term contract is well known in European countries, but it is new for Japanese Labor law. We will see what will happen in coming 5 years.
As we saw, apart from the discriminatory dismissal, the restriction of reasons of the dismissal were not restricted by the legislation. From around 1950s, the judge made law is developed and afterwards incorporated into the legislation. There is a kind of segregation in the Japanese labor market between the ordinary employees with unlimited term employment one side and the atypical employees with fix term contract and the high skilled staff with relatively short term employment on the other side.
This kind of separation between so-called “membership oriented employee” and ”job oriented employee” has been economically functioned relatively well in the past.
In confronting the globalization and ITC revolution in the socio economic society, though, this segregation system of Japanese labor market is declining in its functionality. Transparency and fairness between the employees with diversity in the Japanese labor market become more and more necessary for efficient business. The principle of equal treatment of employee plays a essential role in this context. The recent legislation in the Labor Contract Act, which restricts the refusal of renewal of fixed term employment and demands the conversion into the unlimited employment and equal treatment between the fixed term workers and unfixed term workers, is one of the inevitable step for this development.
There is a opinion in Japan that the Japanese law of dismissal or the termination of employment is to rigorous and constitutes the regal obstacle for the doing business, and should to be deregulated. They are also against the already mentioned legislation in the LCA. As I said, there are some points in the Japanese law of dismissal, that needs to be reformed, especially in the field of remedial rule. But the Japanese law of dismissal is in principle flexible enough for doing business and plays important role for maintaining the relationship of mutual trust between the employer and employee, which is most essential thing for doing long term business. The Law of dismissal is so to speak the keystone of “FLEXICURITY” of employment, and an indispensable devise for cultivation of creative workforce in post-industrial society.