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Drafting a contract of employment that is fully compliant with all of the Japanese labor laws is vital to successfully setting up your company in Japan. This article will go over the employment conditions that are required to be stated in your company’s contract of employment, as well as the key points to consider when drafting your contract of employment .

Working Conditions

The Japanese Labor Standards Law requires that your contract of employment clearly states (in writing) the following matters in regard to working conditions: 

• Terms of the agreement
• Period of the contract of employment
• Place of work and job duties
• Procedures regarding overtime work
• Starting and ending time of work, in addition to breaks (i.e. lunch breaks), days off, and leave
• Wage amount, how wages are calculated, payment procedures, as well as the date of closing accounts and of payment
• Matters regarding dismissal

• If you also have part-time workers, you will need to state (in writing) whether they will be entitled to pay raises, bonuses, and/or retirement allowances.

In addition, Article 15 of the Japanese Labor Standards Law stipulates that should the working conditions stated on the labor contract differ from the actual responsibilities, the employee has the right to cancel his/her contract of employment immediately.

To learn more about what constitutes a contract in Japan, view our recommended article on this topic by clicking here. 

contract of employment — Term

Contracts of employment can be made for a period of no longer than three years — however, in special cases (such as completing a project), the contract period may exceed three years. Contracts of employment without a definite period do not apply to this three-year period. 

In cases where an employee is determined to have “highly specialized skills”, or is 60 years of age or above, a contract of employment valid for up to five years is permissible. Finally, a fixed-term contract of employment that exceeds five years in total (through updates, renewals, etc.) is eligible to be converted to a contract of employment without a definite period if the employee makes a request. 

Probation period

A limited period of probation can be set prior to officially employing a prospective worker, as long as this period is used for its intended purpose of determining whether or not the probationary worker is suitable and qualified for the job. In cases where the employer decides to not fully employ a probationary worker, the matter is treated in the same way as an employee dismissal, and thus requires the same reasons and conditions as the grounds for employee dismissal set forth in the Japanese Labor Standards Law. 

Re-assignment and dispatching of employees to other companies

Redeploying workers is very common in Japan, whereby workers are put through re-assignments and external assignments, and in some cases being required to relocate. Employers have a good amount of freedom in changing an employee’s duties or temporarily assigning an employee to another company, provided it’s necessary for the employer’s business. Abiding by the Employment Security Act (ESA) is required when temporary external assignment of an employee is involved, so we recommend reading the official English translation of the ESA by clicking here.

Change of contract of employment that is unfavorable to the employee

Wages, working hours, and other labor conditions can be changed via an agreement between the employer and the employee. However, any changes to the working conditions that prove to be unfavorable to the employee are not permissible, unless there are reasonable grounds to make said changes in accordance with the Rules of Employment.

Predetermined indemnity

Article 16 of the Japanese Labor Standards Law stipulates that employers may not predetermine a sum payable to the employer in the event a contract breach has occurred, or if an indemnity (security) amount for damages was incurred. Examples of such matters include but are not limited to: amount payable to the employer due to the employee quitting before contract expiration, damages caused by the employee to company property, and more. Of course, in cases where the employee causes damage to the employer due to an intentional act or negligence, said employee will be liable for the damages that occurred.

Benefits

Benefits are a big factor in a job candidate’s decision to work at a particular company. Listed below are the mandatory employee benefits that are required by labor laws of Japan: 

• Health insurance (kenkōhoken-ryō) – 50% covered by the employer for Social Security (shakai hoken)
• Welfare pension premium (kōsei nenkin hoken-ryō) – 50% covered by the employer
• Partial coverage of Employment Insurance Premium (koyō hoken-ryō)
• Full coverage of Workers’ Accident Compensation Insurance (rōsai hoken-ryō)
• Annual paid leave (nenji yūkyū kyūka)

In regard to paid leave, both permanent and contract employees are entitled to a minimum of 10 days paid leave per year, after six months of employment. The number of paid leave days rises incrementally with longer service to the company, up to 20 days of paid leave with more than 6.5 years of employment at the company. However, paid leave is also used as sick leave, as Japanese companies typically do not provide separate sick leave. With that being said, there are foreign companies in Japan that provide sick leave to their employees in the form of a special benefit. 

Other notable benefits include:

• Business Expenses – fully reimbursed to employees (travel, meals, lodging)
• Paid Leave
  • Maternity Leave – guaranteed coverage of a period of 6 weeks prior to the expected birth date to 8 weeks after giving birth 
    • The employee salary will be covered by social insurance up to a limit of ⅔ of the base salary 
  • Child Care Leave – applies to both female and male employees 
    • Starts the day maternity leave ends until the child reaches the age of 1
    • Payment will be covered by the labor insurance and covers ⅔ of the base salary
  • Nursing Care Leave – maximum of 93 days to take care of close relatives 
• Special Occasions
  • Leave due to death in the family 
    • Up to 5 days of paid leave for the loss of a father, mother, spouse, or child 
    • Up to 3 days for the loss of a grandparent, grandchild, sibling, child’s spouse, or spouse’s parent 
    • If the employee is the chief mourner (in charge of arranging the funeral service) an additional 2 days of leave is added 
  • Leave to attend Buddhist memorial services – for the first year of memorial service of a deceased parent, spouse or child is 1 day 
  • Transfer Leave – up to five days in the case of a transfer
  • Leave for marriage – 5 days for an employee’s marriage

This page is intended to be used for informational purposes only and should not be a substitute for obtaining professional legal advice.