Japan Business Law: Key Points Corporations Should Consider in Employment Contracts

When conducting business and employing workers, an employment contract will be established between each employee and the employer. This article will explain the basic knowledge of employment contracts, the differences between employment contracts and notices of working conditions, and points to be cautious about in the contents and creation process.

Overview of Employment Contracts and Differences from Notices of Working Conditions

Employers often do not create individual employment contracts but instead use the issuance of notices of working conditions and the presentation of work rules as substitutes. However, work rules only set common working conditions for all employees and do not have legal binding power like employment contracts, thus not reflecting each employee’s individual circumstances legally can be challenging.

Relation with Work Rules

If work rules are established, individual employment agreements must offer conditions better than those stipulated in the work rules. If an individual employment agreement offers worse conditions, it will be invalidated under the Labor Contract Law Article 12, and will need to be corrected to meet the standard set by the work rules.

Explicit Items in Employment Contracts and Notices of Working Conditions

Absolute explicit items include essential working conditions that must always be notified in writing, excluding matters related to promotions.

The specific items are as follows:

・Employment contract duration (including terms about renewal if the contract is for a fixed term)
・Workplace
・Job content
・Start and end times
・Overtime work beyond standard working hours
・Break times
・Shift work
・Holidays and leave
・Wage calculation methods and payment dates
・Termination (including matters related to dismissal)
・Promotions (not necessarily disclosed through the notice of working conditions, may also be covered by the distribution of work rules)

Workplace and Job Content

When there is a possibility of transfer, it should be explicitly stated in the employment contract. The terms about workplace changes should be clear, especially if relocation could occur within or outside the premises.

Fixed Overtime Pay Provisions

Fixed overtime pay is a method where overtime compensation is predetermined and added to the monthly salary regardless of actual overtime hours worked. For its validity, the portion of the salary corresponding to overtime must be clearly separated from the basic salary, and any overtime work exceeding the fixed amount must be compensated for.

How to Create Employment Contracts and Points to Note

Employment contracts should be prepared in a format suitable for the target group, which includes full-time employees, part-timers, and temporary staff. Each type of employment may require specific clauses to be included in the contracts.

Target of Employment Contracts and Notices of Working Conditions

・Full-time employees
・Contract workers
・Part-time and temporary workers

Points to Note for Employment Contracts based on Working Condition

Full-Time Employees As mentioned earlier, if there is a possibility of relocation, it is necessary to include provisions such as “may be required to transfer to any branch nationwide” according to the company’s needs. Additionally, at the time of the contract, adding a clause that “may assign other duties due to a job reassignment” prepares for possible changes in the scope of work in the future.

Contract Employees The main differences from full-time employees are the duration of the contract and whether it is subject to renewal. If there is a possibility of contract renewal, it is necessary to explicitly state the criteria for renewal. Even when renewing a contract, it is important to understand that a new employment contract must be signed, even if the working conditions do not change.

Part-Time and Temporary Workers Regardless of whether the contract is for a fixed or indefinite term, it is legally required to document the absolute explicit items. It is also necessary to document relative explicit items to prevent disputes between the employer and the employee. Examples of relative explicit items include specifying the employee’s share of costs for job training, uniforms, and work supplies within the scope of rules set by the company.

Probation Period If there is a probation period (typically around three months), specify the start and end dates of the probation period, as well as the wage during this period. It is also recommended to include possible reasons for not proceeding with formal employment (such as unexcused absences) under the dismissal causes in the work rules. Please be aware that setting an unduly long probation period may risk being deemed invalid.

Conclusion

This article covers the key points regarding employment contracts when work rules are established. The necessary content and points of attention may vary depending on the individual circumstances of each worker. To reduce risks of labor disputes, it is recommended to have these documents checked by experts.

First & TandemSprint LPC is available for consultations and legal checks by lawyers, so feel free to contact us anytime.

* Please note that the content of this article is based on laws and information as of February 2024. This article is intended to provide general information and does not constitute legal advice. While we strive to present accurate information, we do not guarantee the content.

Author: Tomohiro Ono, Attorney at Law
First & TandemSprint LPC