Japan: Supreme Court Rules on Unequal Treatment of Fixed-Term Employees

(Nov. 19, 2020) On October 13 and 15, 2020, Japan’s Supreme Court rendered five judgments on whether it is reasonable to treat fixed-term employees differently from their counterpart permanent employees in the payment of bonuses, retirement allowances, holiday extra pay, and paid leave. Employees with nonregular status (e.g., fixed-term employees, dispatched workers, temporary workers) represent nearly 40% of Japan’s workforce.

Article 20 of the Labor Contract Act as amended in 2012 (Act No. 128 of 2007, amended by Act No. 56 of 2012) prohibited any “unreasonable” disparity in work conditions between permanent and fixed-term employees. (This article 20 was removed from the Labor Contract Act and its contents were incorporated in the Act on Improvement of Personnel Management for Part-Time and Fixed-Term Employees (Act No. 76 of 1993) by Act No. 71 of 2018.)

In 2018 the Supreme Court set a precedent that what constitutes unreasonableness must be established for each specific condition related to wages and other benefits in a contract. (2017(Ju)442, Sup. Ct., 2d Petty Bench, June 1, 2018, Minshu 72-2, at 202.) Following this, the Supreme Court First and Third Petty Benches examined the nature and purposes of the benefits and compared the jobs of the fixed-term employees and the counterpart permanent employees with regard to the nature of their work, the scope of their responsibilities, and the possibility of their reassignment. The following are the court’s conclusions regarding particular conditions in the five cases.

  1. 2019(Ju)1055, Sup. Ct., 3d Petty Bench, Oct. 13, 2020

It was not unreasonable that the fixed-term employees were not entitled to receive bonuses and paid sick leave.

  1. 2019(Ju)1190, Sup. Ct., 3d Petty Bench, Oct. 13, 2020

It was not unreasonable that the fixed-term employees were not entitled to receive a retirement allowance.

(Postal worker cases)

  1. 2018(Ju)1519, Sup. Ct., 1st Petty Bench, Oct. 15, 2020
  2. 2019 [Reiwa](Ju)777, Sup. Ct., 1st Petty Bench, Oct. 15, 2020
  3. 2019 [Reiwa](Ju)794, Sup. Ct., 1st Petty Bench, Oct. 15, 2020

It was unreasonable that the fixed-term employees were not entitled to winter and summer paid leave (cases 3 & 5), paid sick leave (case 4), holiday extra pay (cases 4 & 5), customary holiday extra pay (case 5), and an allowance for dependents (case 5).

In case 2, the fixed-term employees’ annual contract had been renewed and they had worked for a long time, such as 10 years. The court’s Third Petty Bench acknowledged that their tasks and those of regular workers were basically similar, but pointed out that their job responsibilities were not the same. In addition, it stated that the company’s retirement-benefits payment system is meant to secure personnel who can perform duties as regular employees. For these reasons, the court concluded it was not unreasonable to pay a retirement allowance only to regular employees. However, one of the five justices on the petty bench—Justice Katsuya Uga— wrote a dissenting opinion, pointing out that the retirement allowance is, in part, intended to reward workers for working for many years regardless of their job status; the employer and the plaintiffs expected that the annual contract would be renewed many times; and the plaintiffs’ tasks were not much different from those of their regular status counterparts.

Japanese media outlets have reported that many irregular workers were shocked by the first two decisions and afraid their employers would, on the basis of the decisions, stop paying bonuses they had received. Experts have warned that because the decisions are based on specific facts, employers should not assume that bonus and retirement allowances are not necessary for fixed-term workers in their workplaces.

The Ministry of Health, Labour and Welfare (MHLW) has taken steps to correct the unequal treatment of irregular workers, including issuing the Equal Pay for Equal Work Guidelines in December 2018. (MHLW Notification No. 430 of 2018.) The guidelines include sections on bonuses, holiday extra pay, and sick leave. In addition, the MHLW provides information on “ensuring fair treatment of workers regardless of their status” on its website.

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