Hiring and managing employees in Japan requires careful attention to both local labor laws and cultural expectations. Japanese work culture emphasizes formality, respect, and deliberate decision-making. Employees tend to show strong loyalty and often remain with a company for many years — sometimes for their entire career.
At the same time, Japan has some of the strictest labor laws in the world. Employers must closely follow all employment regulations, or risk compliance issues and potential legal disputes.
These cultural and legal standards also affect employee termination; it can only occur for very specific reasons, and there is a clearly defined series of steps employers must follow.
Key takeaways:
- Japan has stringent employment laws, making compliance critical for employers.
- Employers must follow a structured termination process, including documentation and opportunities for improvement.
- Non-compliance can lead to legal disputes, financial penalties, and reputational damage.
Understanding Japan’s Employee Termination Regulations
For a long time, Japanese workers remained with the same company from the day they were hired until the day they retired. This provided a lot of job security and stability for both employers and employees. Employers didn’t lay off employees, even during economic downturns, and only terminated employees in extreme cases.
Although the tradition of “lifetime employment” is less common today, Japanese workers still tend to stay with a company for a long time — more than 12 years on average.
In 1947, Japan passed the Labor Standards Act, which governs working conditions in Japan. Its guiding principle is that “working conditions are those that should meet the needs of workers who live lives worthy of human beings.”
Along with many aspects of employment, the Labor Standards Act covers termination. Under Article 16 of Japan’s Labor Contract Act, passed in 2007, employees can only be dismissed for “objectively reasonable grounds” and appropriateness “in general societal terms.”
While in other countries, “reasonable grounds” include poor performance, Japan requires that employers first try to help employees improve their performance, and document their efforts, before terminating employment.
Valid Reasons for Termination in Japan
The phrase “objectively reasonable grounds” might seem hard to interpret, but it’s been firmed up over the years through case law.
Reasonable grounds for termination include an employee’s inability to perform a job (such as poor performance) or employee misconduct (such as theft, fraud, or company policy violations). The employer is required to provide objective evidence and documentation for the dismissal.
Job redundancies or company restructuring are also valid reasons, but strict restrictions exist. Employers must demonstrate a genuine business necessity and that the terminated employees were selected fairly and not based on criteria such as the employee's age or length of tenure. Courts will typically require that employers demonstrate that they've done everything possible to avoid a layoff.
Illnesses, injuries, or disabilities are other valid reasons to dismiss employees if the employee can no longer perform the job. However, employers are prohibited from terminating an employee who is pregnant, on maternity leave, or within one year after giving birth. It’s also illegal to terminate employees receiving medical treatment due to illness or injury sustained during employment, or for 30 days after treatment is complete.
Employers and employees can also part ways if the employee resigns. A resigning employee must give at least two weeks’ notice, though it’s common to provide 30 days’ notice, as a courtesy.
The Termination Process in Japan
There is a four-step process employers must follow when terminating an employee:
- Step 1: Documentation. If an employee is being fired for cause (such as poor performance), the employer must first provide warnings and carefully document the specific issues leading to termination. Documentation can include performance reviews, any records of misconduct, and evidence of the company’s efforts to support the employee. Documentation is also critical for justifying layoffs due to downsizing or restructuring.
- Step 2: Opportunities for improvement or explanation. Employees may be placed on a performance improvement plan that outlines clear expectations and measurable steps for improvement. They should also be allowed to explain any challenges they’re experiencing that may affect their performance.
- Step 3: Negotiation. The company is expected to make genuine efforts to consult and negotiate with employee representatives, such as labor unions. While this may not be legally required for individual dismissals, skipping or rushing this stage comes with risks. If a court later finds the termination invalid, the company could be forced to reinstate the employee with back pay.
- Step 4: Termination Notice. Under Japan’s Labor Standards Act, employers need to provide 30 days’ notice for dismissal, or provide 30 days’ pay in lieu of notice. The employer must clearly document the termination reason in writing. The only exceptions to the advance notice period are if the employee is terminated for misconduct or if it has become impossible for the business to continue due to a natural disaster or other justifiable reason.
A Japanese employment contract can include non-compete clauses, preventing a terminated employee from working for a competitive company. However, in practice (and in courts), a non-compete cannot unreasonably restrict a worker’s freedom to choose their occupation.
Although severance pay isn’t legally required in Japan, many companies still choose to provide it as a matter of policy. Severance pay can be negotiated in advance and included in an employment contract, and in some cases, labor unions may also be involved in negotiating the terms of payment for employees upon termination. In some cases, particularly redundancy, severance amounts may equal 6-12 months of the employee’s salary.
If an employee requests it, an employer must issue a certificate of employment. This is necessary documentation for the employee’s work history and future job applications. The certificate details the dates of employment, job title, and wages. Employees can request that the certificate state the reason for termination, and employers must provide it unless there is a legally valid justification for withholding that information. Failure to provide a certificate of employment upon request is a violation of labor standards.
Risks of Non-compliance with Japanese Law
If an employee feels that they were wrongfully terminated, they can challenge the termination. Japan prioritizes solving labor disputes quickly and gives employees the right to appear before a labor tribunal. The tribunal encourages mediation and a negotiated severance instead of a trial. Alternatively, the employee can go to court.
Wrongful termination claims often stem from insufficient grounds for the layoff, a lack of clear communication, and failure to follow proper procedures.
If the labor tribunal or court finds the termination of employment unlawful, the company might be forced to reinstate the employee. The employee also has a right to back pay from the termination date. Companies also risk financial penalties and reputational damage.
Alternatives to Termination in Japan
Due to Japan’s strict laws regarding termination, it’s a good idea for employers to explore other options before proceeding to that step. For example, if an employee isn’t performing up to standards and doesn’t improve under a performance improvement plan, the company might consider reassigning the employee to a different role.
If a company undergoes restructuring and/or needs to reduce staff for financial reasons, it can pursue alternatives to layoffs, such as voluntary resignation packages and early retirement incentives.
To help prevent layoffs, the Japanese government offers Employment Adjustment Subsidies. The subsidies financially support companies facing economic difficulties and help retain employees.
Under this program, the company furloughs employees or reduces their work schedules, and the government subsidizes employees' wages during that time, which can be as much as 90-100% of the employee’s earnings.
Since Japanese culture emphasizes harmony, companies often negotiate a voluntary resignation or financial settlement to end employment amicably.
How EORs Help Companies Remain Compliant with Japanese Termination Law
For global companies contemplating hiring Japanese workers, the labor laws can be daunting to navigate — especially since so much of Japan’s approach to its workforce is rooted in tradition and cultural norms.
Partnering with an Employer of Record (EOR) reduces a company’s risks when hiring internationally. EORs act as the legal employer of international employees and ensure compliance with all local labor laws.
If you need to terminate an employee in Japan, an EOR will walk you through the steps and required documentation. That way, you reduce the risk of an employee challenging the termination. You can also work with your EOR to explore alternatives to termination.
Compliantly Hire and Manage Japanese Employees With RemoFirst
Termination rules are only one piece of the puzzle when hiring in Japan. Employers must also comply with local labor laws governing other HR-related issues, such as employment contracts, working hours, and paid leave.
RemoFirst ensures that your company is fully compliant with all local regulations, including payroll, taxes, and benefits administration. We have the expertise to manage the HR needs of a global workforce so you can focus on your business instead of labor law compliance.
In addition, we can:
- Create compliant contracts
- Onboard new employees
- Ship equipment
- Manage employee benefits, including health insurance
- Assist with visa and work permit applications
Book a demo to learn more about how RemoFirst can help you hire in Japan or 185+ other countries around the world.
