• Japan: Mass Redundancy Vindicated on Account of Economic Necessity
  • August 27, 2014 | Authors: Lawrence C. DiNardo; Michael J. Gray; Jean Kuo; Vincent Wei Li
  • Law Firms: Jones Day - Chicago Office ; Jones Day - Shanghai Office ; Jones Day - Taipei Office ; Jones Day - Shanghai Office
  • Japan Airlines International Co., Ltd. ("JALI"), the core airline business company of the JAL Group, filed an application for the commencement of corporate reorganization proceedings together with Japan Airlines and JAL Capital Co., Ltd. in January 2010. After the commencement of these proceedings, and as a part of the corporate reorganization plan, the JAL Group made a decision to reduce its workforce by approximately 16,000 employees within its group companies, including JALI, by the end of March 2011.

    Based on this decision, JALI began its workforce reduction by repeatedly offering an early retirement program with favorable conditions (such as additional special severance) to its employees, including cockpit crew members and flight attendants. Despite JALI's efforts to achieve its workforce reduction target by holding explanatory meetings and collective bargaining sessions with the labor unions (to explain the corporate reorganization plan and the necessity of workforce reduction), and having individual meeting with employees, the number of employees who applied for the early retirement program did not meet JALI's target number.

    Accordingly, at the end of December 2010, JALI dismissed 81 cockpit crew members and 84 flight attendants (all of whom were indefinite term employees). Among those who were dismissed, 76 cockpit crew members and 72 flight attendants filed separate suits against JALI in the Tokyo District Court, claiming that their dismissal by JALI was void, seeking affirmation of the existence of employment relationship and back pay including wages to the date of confirmation of the court's judgment.

    Both of the district court judgments indicated that the requirements for dismissal under Article 16 of the Labor Contract Act also apply to a company under corporate reorganization or rehabilitation proceedings. Article 16 of the Labor Contract Act provides that any dismissal of an employee that is "deemed to be objectively lacking reasonable grounds and socially unacceptable" will be void. Further, under Article 16, in order for termination of employment due to business necessity ("economic dismissal") to be effective, the following four factors should be considered: (i) the necessity of decreasing employment levels, (ii) the necessity of choosing dismissal as means of restructuring, (iii) the fairness in selecting employees to be dismissed, and (iv) whether the procedure was fair. It should be noted that the district courts considered these four factors to be factors that should be considered overall and not as four separate conditions which must be met for an economic dismissal to be valid. In March 2012, the Tokyo District Court rejected the plaintiffs' claims in both cases on the basis that there was a valid "economic dismissal".

    The plaintiffs in both cases appealed to the Tokyo High Court. On June 3 and 5, 2014, the Tokyo High Court rejected both appeals. The plaintiffs made a final appeal to the Supreme Court of Japan on June 17, 2014. A decision from the Supreme Court remains pending.