• Japan: Amendments to the "Ordinance for Enforcement of the Act on the Succession to Labor Contracts upon Company Split" etc.
  • October 25, 2016 | Authors: Yuichiro Mori; Yuto Watanabe
  • Law Firm: Jones Day - Tokyo Office
  • Amendments to the "Ordinance for Enforcement of the Act on the Succession to Labor Contracts upon a Company Split" ("Succession Act Ordinance") and the "Guideline for Appropriate Implementation of Measures to be Taken by a Split Company or Succeeding Company Related to the Succession to Labor Contracts or Collective Agreements Executed by a Split Company" ("Succession Act Guideline") came into effect as of September 1, 2016.

    Under the Japanese laws, labor contracts are automatically transferred upon a company split (Kaisha-Bunkatsu) without requiring the individual consent of the employees, pursuant to a company split agreement. However, employees who do not engage in the primary activities of the successor business ("Non-Essential Employees") may choose not to have their labor contracts transferred pursuant to the company split.

    The Act on the Succession to Labor Contracts upon a Company Split ("Succession Act"), Succession Act Ordinance, and Succession Act Guideline all contain procedures designed to increase employee awareness of the effect of employment transfers. They encourage communication between employers and employees by imposing obligations on companies to consult with their employees and ensure they are well informed before embarking on the company split process. Specifically, companies must: (i) consult with the union or other representative that represents the majority of employees and inform them about the reasons for the company split (and any other relevant matters); (ii) conduct individual consultations with relevant employees regarding the succeeding company and the impact of the company split; and (iii) issue notices to the employees who will be transferred, outlining any changes to their employment conditions as a result of the company split.

    Under the previous Succession Act Guideline, companies were not required to conduct individual consultations with Non-Essential Employees under the step in (ii) above but were required to issue a notice under the step in (iii). The amended Succession Act Guideline includes Non-Essential Employees among the employees with whom companies are required to individually consult, and as a result, Non-Essential Employees will be given greater notice of the intended transfer and more time to determine whether or not to consent to it.

    In addition, the "Guideline for Matters to be Noted by Company Carrying Out Business Transfers or Mergers" ("Business Transfer Guideline") also came into effect as of September 1, 2016. Under Japanese law, an employee's individual consent is required to transfer a labor contract upon a business transfer (Jigyo-Joto). However, since there were previously no rules governing how employee consent should be obtained, employees often consented without being fully informed about the business transfer. The Business Transfer Guideline now provides a number of requirements with which companies must comply in obtaining employee consent to a transfer of their contract. These procedures are similar to those stated above in respect of company splits and are similarly designed to increase employee awareness regarding business transfers. For example, the Business Transfer Guideline requires that the assignor company fully explain the business transfer to employees whose employment will be transferred and to consult with them so as to gain their informed consent.

    These ordinances and guidelines have not made any fundamental changes to the laws governing succession to labor contracts upon a company split, but they do impose stricter procedural requirements on companies. Companies should be careful to ensure they comply with these ordinances and guidelines in order to avoid any doubt as to the validity of employment transfers.