• Japan: Increasing Litigation Relating to Article 20 of the Labor Contract Act
  • October 25, 2016 | Authors: Yusuke Hanada; Yuichiro Mori
  • Law Firm: Jones Day - Tokyo Office
  • Article 20 of the Japanese Labor Contract Act ("Article 20"), which was enacted in April 2013, prohibits employers from establishing unreasonable differences between the working conditions of fixed-term employees and indefinite-term (namely, permanent) employees, taking into account the following circumstances: the content of the employees' duties and the responsibility that accompanies those duties ("content of duties, etc."); the extent of changes in the content of duties, etc.; the location of work; and any other relevant circumstances. Recently, there has been an increasing number of cases brought by employees against employers invoking Article 20.

    In the recent Nagasawa-Unyu decision, a regular employee was rehired as a fixed-term employee upon reaching the age of retirement. The Tokyo District Court held that there was an unreasonable difference in the amount of wages paid to fixed-term employees and indefinite-term employees because the content of duties, etc. in respect of both were essentially the same. Such treatment resulted in a violation of Article 20 by the employer. This decision will affect companies that have a practice of re-employing retired employees under less-favorable employment conditions, where the content of duties, etc. remains unchanged.

    Further, in the recent Hamakyorex decision, a fixed-term employee claimed that there were unreasonable differences in the allowances paid to fixed-term employees and indefinite-term employees and that this amounted to a violation of Article 20 by the employer. At first instance, the court found that the only unreasonable difference between the conditions of regular and fixed-term employees was the nonpayment of commuting allowances. However, on appeal, the Osaka High Court found that there were further unreasonable differences by way of nonpayment of four types of allowances, including food allowances. These arbitrary differences were held to be unreasonable and constituted a violation of Article 20, and the court subsequently ordered that Hamakyorex pay approximately 770,000 JPY to the plaintiff.

    In both of these decisions, the courts used Article 20 to rule in favor of the fixed-term employees, including employees who had been re-employed after reaching the age of retirement. While it is common for companies to have generally established differences in the conditions of fixed-term and indefinite-term employees, as a result of these decisions, companies should carefully review their employees' working conditions to ensure there are no unreasonable differences in circumstances where the content of the employees' duties, etc. is the same.