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The Global Downsizing Handbook for Japan



Japan is an employment market characterized by the lifetime employment system and the annual merit sequence system. For a long time, Japanese companies seldom lay off employees directly, but instead respond to operational difficulties through internal adjustments, early retirement recruitment, and outplacement. However, with the impact of economic globalization, technological change and the new crown epidemic, Japanese companies are also facing problems such as high labor costs, irrational talent structure, and poor business transformation, making layoffs a necessary option.

However, layoffs in Japan are not an easy task, as Japanese labor laws provide strict conditions and procedures for layoffs, and failure to comply may expose you to charges of wrongful termination and the risk of compensation. Therefore, it is important for corporate HR to be aware of the following aspects before proceeding with a layoff:

Japanese labor laws and regulations

Japan’s labor laws and regulations include a number of laws, including the Labor Standards Law, the Employment Contract Law, the Minimum Wage Law, the Occupational Safety and Health Law, the Workers’ Disaster Compensation Insurance Law, and the Occupational Stability Law. These laws stipulate the conditions and procedures for the establishment, change and termination of employment relationships, as well as basic standards for wages, working hours, vacations, safety and health, and social insurance. Among these laws, the most relevant to layoffs are the Labor Standards Law and the Employment Contract Law.

The Labor Standards Law is the most basic labor law in Japan. It stipulates that employers may not treat workers unequally in terms of wages, hours of work, or other labor conditions on the basis of nationality, creed, or social status; that employers may not force workers to perform work against their will through violence, threats, or other means; that employers may not dismiss workers without reasonable cause; and that employers may dismiss workers only by giving them 30 days’ notice or by paying a severance payment equal to 30 days’ wages. Employers cannot dismiss a worker without a reasonable cause; workers must be given 30 days’ notice or paid an advance payment equivalent to 30 days’ wages; and employers must issue a certificate of dismissal and return the worker’s belongings.

The Labor Contract Law, a new law enacted in 2008, regulates the content and form of labor contracts, as well as the conditions and procedures for changing and terminating labor contracts. Of these, the most relevant to the issue of layoffs are Articles 18 and 19. Article 18 stipulates that the termination of an employment contract must be objectively reasonable and socially acceptable; article 19 stipulates that the termination of an open-ended employment contract must be based on special grounds. These two provisions actually limit the freedom of employers to unilaterally terminate employment contracts (i.e., layoffs) and provide a certain degree of protection to workers.

Layoffs in Japan

Layoffs in Japan can be categorized into two main types: direct layoffs and indirect layoffs. Direct retrenchment is a method in which an employer unilaterally terminates an employment contract with a worker by notice or negotiation, causing the worker to lose his or her job. Indirect layoffs are those in which an employer voluntarily or forcibly removes a worker from his or her previous job through internal adjustments, early retirement recruitment, or outplacement.

Direct layoffs can be further divided into ordinary dismissal, disciplinary dismissal, and finishing dismissal. Ordinary layoffs are those in which an employer dismisses a worker for personal reasons (e.g., lack of ability, violation of regulations, etc.). Disciplinary dismissal is when an employer dismisses a worker on the grounds of a major fault (e.g., serious breach of duty, harm to the company’s interests, etc.). Sorting out is when an employer dismisses a worker for reasons related to the company’s operations (e.g., poor performance, business restructuring, etc.).

Indirect layoffs can be further categorized into internal restructuring, early retirement collection, and outplacement. Internal restructuring is a way for employers to transfer workers to other departments or positions by adjusting the organizational structure, job setup, and job content. Early retirement recruitment refers to the way employers encourage or require workers of a certain age or seniority to retire early by providing certain compensation or benefits. Expatriation is a way for employers to send workers to work elsewhere temporarily or permanently through cooperation with other companies or organizations.

Redundancy Considerations in Japan

Layoff considerations in Japan can be considered from the following perspectives: legal risks, economic costs, social impacts, and talent retention.

Legal risks refer to legal issues such as wrongful dismissal lawsuits, arbitration applications, and labour inspection office complaints that may arise from layoffs. In order to avoid or reduce legal risks, when conducting layoffs, corporate HR must comply with the relevant legal provisions, especially the Labour Standards Law and the Labour Contract Law on the conditions and procedures of layoffs. Specifically, there must be sufficient reasons for layoffs, adequate consultation with workers or trade unions, fair and reasonable selection of targets for layoffs, advance notice or payment of advance dismissal payments, issuance of certificates and return of property, etc.

Economic cost refers to the economic loss or expenditure that may be brought about by layoffs, including termination notice, compensation, litigation costs, and brain drain costs. In order to control or reduce economic costs, corporate HR must take into account the impact of layoffs on the company’s performance and human resources when conducting layoffs, and try to adopt the lowest-cost and most efficient layoff method. Specifically, it is necessary to set a reasonable scale and target of layoffs according to the actual situation and future development direction of the company, choose the layoff method that best suits the interests of both the company and the workers (e.g., direct or indirect layoffs), provide appropriate compensation or benefits, and try to avoid litigation disputes and so on.

Social impact refers to the negative impact that layoffs may have on the company’s image, reputation and social responsibility. In order to mitigate or eliminate the social impact, corporate HR must take into account the impact of layoffs on society when conducting layoffs and try to adopt a humane and social approach to layoffs. Specifically, this means respecting the personality and dignity of workers, avoiding discrimination and insults, protecting the privacy and credibility of workers, providing necessary psychological support and career guidance, maintaining good communication and collaboration with social groups and the media, and assuming the corresponding social responsibility.

Talent retention refers to the negative impact that layoffs may have on the company’s remaining or potential talent. In order to maintain or improve talent retention, corporate HR must consider the impact of layoffs on the company’s culture, atmosphere, morale, loyalty, etc., and try to adopt incentivising and nurturing layoffs when conducting layoffs. Specifically, this means clarifying the objectives and criteria for redundancy, conducting the redundancy process openly and transparently, giving full trust and support to the remaining employees, providing reasonable remuneration and promotion opportunities, strengthening training and development programmes, and establishing an effective communication and feedback mechanism, among other things.

Case Studies of Layoffs in Japan

In order to better understand how layoffs are conducted in Japan and what to look for, we can refer to some representative layoff cases. Below are three case studies of different types of layoffs:

Disciplinary Layoff Case: Toshiba Corporation – Toshiba Corporation is one of Japan’s largest integrated electrical companies and one of the world’s largest manufacturers of nuclear power equipment.In 2015, Toshiba broke out of a seven-year accounting fraud scandal involving as much as ¥152 billion (RMB 9 billion), causing the company’s share price to plummet, its credibility to be tarnished, and its performance to decline. In response to the crisis, Toshiba decided to carry out large-scale disciplinary dismissals. According to Toshiba’s announcement on 15 September 2015, Toshiba will carry out disciplinary dismissals of top executives involved in accounting fraud, including eight current or former directors such as former president Atsutoshi Nishida and former vice president Minoru Sato, as well as other relevant department heads and a total of 48 people. At the same time, Toshiba will also impose punitive measures such as demotion or salary reduction on other executives who were not directly involved in the falsification but who have managerial responsibilities, including nine current directors such as current President Hisao Tanaka and current Vice President Kazuki Sakamoto, as well as other relevant department heads and others totalling 40 people. In addition, Toshiba will provide ethics education to all current employees and establish a new internal control system.

This case illustrates that disciplinary dismissal is a form of direct redundancy in response to a worker’s gross fault, which requires the employer to have sufficient evidence of the worker’s fault and to consult with the worker or the union. Disciplinary dismissal is also a form of redundancy that has a significant impact on a company’s image and reputation, and requires the employer to deal with the problem in a timely and transparent manner and take appropriate improvement measures.

Example of disciplinary dismissal: Sony Corporation – Sony Corporation is Japan’s best-known electronics and entertainment giant and one of the world’s largest manufacturers of televisions and game consoles. However, in recent years, Sony has faced strong challenges from competitors such as Samsung, Apple, and Huawei in the fields of TV sets, mobile phones, and cameras, resulting in a continuous downturn in the company’s performance and widening losses. In order to cope with the crisis, Sony Corporation decided to carry out a large-scale organisation of dismissals. According to Sony’s announcement on 12 April 2012, Sony will cut 10,000 employees globally between 2012 and 2013, accounting for 6% of its total workforce. Among them, about 4,000 people will be cut by selling or closing some factories and subsidiaries, etc., about 3,000 people will be cut by early retirement recruitment, etc., and the remaining about 3,000 people will be cut by internal adjustments and other means. At the same time, Sony will reorganise and transform its TV, mobile phone and camera businesses with a view to restoring profitability.

This case illustrates that collation dismissal is a form of direct redundancy for business reasons, which requires the employer to have a good reason for the redundancy and to select the target of redundancy in a fair and reasonable manner. Collation dismissal is also a form of redundancy that has a significant impact on the economic costs and retention of talent, requiring the employer to provide appropriate compensation or benefits, and to adopt appropriate incentives and development measures.

Early Retirement Collection Case: Japan Airlines – Japan Airlines is the largest airline in Japan and one of the largest airlines in Asia. However, due to the impact of the global financial crisis in 2008 and the Great East Japan Earthquake in 2011, Japan Airlines fell into a severe debt crisis, which led to the company filing for bankruptcy protection in January 2010. In order to achieve restructuring and revival, Japan Airlines decided to conduct a large-scale early retirement fundraising. According to an announcement made by Japan Airlines on 1 February 2010, Japan Airlines will reduce its global workforce by 16,000 employees during FY2010, accounting for one-third of its total workforce. Of these, approximately 12,000 people will be laid off through early retirement recruitment and approximately 4,000 people will be laid off through the sale or closure of some subsidiaries. At the same time, Japan Airlines will adjust and optimise domestic and overseas routes, the number of aircraft, and service offerings with a view to reducing costs and improving efficiency.

This case illustrates that early retirement recruitment is a form of indirect redundancy for workers of a certain age or seniority, which requires the employer to provide a certain amount of compensation or benefits and to respect the voluntariness of the workers. Early retirement recruitment is also a form of redundancy that has a significant impact on the social impact and social responsibility of the enterprise, requiring the employer to take into account the life and employment difficulties of the worker and to provide the necessary psychological support and vocational guidance.

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