The Employment Contract Law (“ECL”) or “Roudou- Keiyaku-Hou” came into effect in Japan on 1 March 2008. The enactment of the ECL was reportedly prompted by an increase in the number of labour disputes in Japan in recent years. According to the Health, Labor and Welfare Ministry of Japan, there were some 103,000 inquiries regarding labour contracts in the 2002 financial year, which had increased to around 187,000 by the 2006 financial year.
The ECL seeks to codify the principles that have been established in judicial decisions in Japan over a number of years. Its key features are:
- Basic requirements: The ECL provides that an employment • contract should be entered into, and amended, by agreement on equal footing between an employer and an employee and, as far as possible, confirmed in writing.
- Requirements for amendment of rules of employment • (“Shugyo-kisoku”): The ECL provides that an employer can amend the rules of employment either by obtaining the consent of the employees, or alternatively by announcing the amended rules to the employees, provided that the amendments are reasonable.
- Restrictions on dismissal: Unilateral termination of employment • by an employer will not be valid unless there is a ‘persuasive reason’. If the court finds that the termination lacks a persuasive reason, then the employment contract is deemed not to have been terminated.
- Restrictions on termination of fixed-term employment • contracts: The ECL prohibits the dismissal of an employee prior to the end of a fixed-term contract, except where there is a compelling reason. It also prohibits the practice of repeated renewals of fixed-term contracts.
In practice, the ECL is unlikely to have any real impact on the ultimate decisions that are reached in the Japanese courts. For this reason, it has been subject to criticism by commentators who feel that the current legal regime is in need of reform.
Nevertheless, foreign investors who are unfamiliar with Japanese labour law and practices may welcome the ECL as a useful guide and a more transparent and accessible enunciation of the general principles that have previously been set out only in court decisions.
George Cooper
Practice Leader
Workplace Law & Advisory - Asia
Direct +65 6236 9941
Telephone +65 6236 9939
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