Termination of Employment Contracts in Japan

1. Grounds for Termination

All grounds for dismissal need to be set out in the employment contract and work rules (if there are work rules). A dismissal of an employee without an objective and logical reason based upon social convention will be invalid as an abuse of right to dismiss. In practice, the Japanese courts are very strict in their definition as to what is “objective, logical and reasonable”.

2. Collective Dismissals

While there may be a number of concurrent dismissals in case of a redundancy dismissal, there is no concept of “collective” dismissal under Japanese law.

3. Individual Dismissals

All dismissals are individual dismissals under Japanese law.

a. Is severance pay required?

There is no statutory obligation to pay any severance pay for termination. That said, it is common practice for employers to voluntarily offer severance payment to obtain the employee’s consent to leave voluntarily.

4. Separation Agreements

a. Is a Separation Agreement required or considered best practice?

If there is no cause for dismissal, or any other cause for termination such as reaching retirement age or expiry of a fixed term contract, employee consent on termination will become necessary – this can be an oral agreement, but having a separation agreement would be best practice.

b. What are the standard provisions of a Separation Agreement?

Termination date, mutual agreement on termination, severance pay, confidentiality, waiver (confirmation of no other rights and obligations existing between the parties), confirmation of return of company property, jurisdiction.

c. Does the age of the employee make a difference?

In practice, it may, but separation agreements are subject to individual negotiations, so there is no statutory difference.

d. Are there additional provisions to consider?

Whether to include restrictive covenants.

6. Remedies for employee seeking to challenge wrongful termination

When a court holds that dismissal of an open-end employee is void, the court will order the employer to reinstate the employee, provide back pay and otherwise treat the employee as if he/she had been employed during the period he/she was dismissed.

In a labor tribunal case at a court, the tribunal committee has more flexibility on the types of remedies available.

For more information, please contact L&E Global.
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