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Notice period in Japan

Termination procedure in Japan

Non-compete clause in Japan

Waivers in Japan

Transfer of undertakings in Japan

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End of employment in Japan

The regulations around end-of-employment in Japan can be complicated. As an employer, you need to manage this process carefully to avoid facing legal disputes that could hurt your company’s reputation.

In this guide, we will provide everything you need to know about end-of-employment, such as notice periods, post-termination restraints, transfers of undertakings and more.

Lifetime employment in Japan

Embedded in Japanese work culture, lifetime employment is a concept that refers to traditional employment practices where companies hire employees with the expectation that they will stay with the company until retirement.

In Japan, employees often enjoy a high level of job security, as companies typically do not lay off workers except in extreme circumstances. Promotions and pay raises are often based on how long someone has been with the company, which encourages loyalty and commitment.

With this practice, employers typically hire new staff straight from school or university with an unwritten understanding that they will remain with the company until they retire. This lifetime employment system offers benefits like a stable work environment, a strong company culture, and a mutual commitment between employees and employers. When done well, it can help companies save on recruitment costs and reduce turnover rates.

Notice period in Japan

Under the Labour Standards Act, both employers and employees must give at least 30 days’ notice before ending employment. If either party fails to provide this notice, they may be required to compensate the other party for the equivalent of 30 days’ wages.

Some companies may have specific policies or employment contracts that require longer notice periods, particularly for higher-level positions or permanent employees. In cases of severe misconduct, employers can terminate employment immediately without notice.

Leave notice under probationary period in Japan

Even during the probationary period, if an employee in Japan has been working for a company for 14 days or longer, all regulations for dismissal, including the notice period, apply just like for regular employees. This means employers need to provide 30 days’ notice before ending employment. If they choose to dismiss the employee without giving the full notice, they must pay at least 30 days’ worth of average wages.

Severance pay in Japan

There is no legal requirement for severance pay in Japan. It typically depends on the contractual agreement between the employer and the employee. However, many larger companies tend to offer severance pay, or where company-specific regulations stipulate such payment upon termination of employment.

While it is not mandatory, some businesses choose to provide severance payments based on tenure or other internal policies. On the other hand, terminated employees are not entitled to receive severance pay in Japan, unless otherwise specified in their individual employment contract or company’s labour policy.

Probationary period in Japan

Most probationary periods in Japan typically range from 3 to 6 months. This period is established to allow both the employer and the employee to evaluate the suitability of the employment relationship.

Employers should remember that even during the probation period, if an employee has worked for 14 days or more, all dismissal regulations apply. This means that the employer must either provide 30 days’ notice before terminating employment or pay at least 30 days’ worth of average wages if they end the employment without giving notice.

Termination procedure in Japan

The termination process in Japan depends on the employment agreement and any collective agreements in place. It can vary based on the job role, location, type of contract, and reason for termination.

Since the rules about dismissals can be complicated, it is common for terminations to happen through mutual agreements, with most of the time employees receiving additional compensation.

Fixed-term contract termination in Japan

According to the Labour Contracts Act, an employer cannot terminate a worker under a fixed-term labour contract without a legitimate cause. If either party wishes to terminate the contract before the end date, they must usually provide a valid reason. Common reasons might include misconduct or inability to perform job duties.

While fixed-term contracts typically do not require a notice period if the contract simply expires, if the contract is being terminated early, a notice period (usually around 30 days) is recommended unless otherwise specified in the contract.

Non-fixed term contract termination in Japan

When terminating a non-fixed term contract, the employer must have a valid reason, such as poor performance, misconduct, or company downsizing.

If employers terminate a non-fixed term or open-ended contract for economic reasons, such as downsizing, they need to meet the following criteria:

Demonstrating the need to for staff reduction: It is essential to clearly justify why reducing the workforce is necessary for your business.
Termination as a last resort: You must show that all other alternatives have been considered before deciding to terminate employment contracts.
Fair selection process: The criteria for selecting employees for termination should be reasonable and transparent.
Engagement in meaningful dialogue: There should be open communication with the employee or their representative throughout the process.

Non-compete clause in Japan

Non-compete clauses are typically allowed in employment contracts, but there are some conditions to make sure they do not unfairly limit an employee’s future job opportunities. A non-compete clause is more likely to be enforceable if it is reasonable in terms of duration, geographic limitation, and the types of employment it restricts.

In addition, the employer and employee must clearly agree on terms for a non-compete agreement to be valid after employment ends.

Customer non-solicitation clause in Japan

Customer non-solicitation clauses in employment contracts are similar to non-compete clauses. Their legality and enforceability depend on certain factors. The main thing that determines if these clauses are valid is whether they are reasonable. This includes considering how long the restrictions last after employment and what geographic area they cover.

To enforce these clauses, there should be balance between the employer’s need to protect their business and the employee’s right to seek new job opportunities.

Employee non-solicitation clause in Japan

Employee non-solicitation agreements can be part of employment contracts. These agreements can stop an employee from trying to recruit former coworkers after leaving the company. To include a non-solicitation clause, it should be clearly stated in the work rules or the specific employment agreement.

While courts do not often discuss how enforceable these clauses are, there have been some cases where courts viewed a former employee soliciting coworkers as interfering with the former employer’s business. So, while employee non-solicitation clauses are generally allowed, whether they can be enforced may depend on the specific situation and how courts interpret their intent and impact.

Waivers in Japan

For a waiver to be valid, the employee must give it voluntarily and knowingly. The employee should have a reasonable amount of time to review the waiver and should not face pressure or termination threats for not signing.

To prevent claims that the waiver is not valid, here are the key things you should keep in mind:

Vol untary agreement: Ensure that when an employee signs a waiver, they do so by choice and fully understand what they are agreeing to.
Have a brief discussion: When talking about waivers, keep the meetings as brief as possible and involve only one or two managers.
Reasonable time to review: Give your employees enough time to review the waiver document thoroughly.
No coercion: It is important to make clear to employees that their job is not at risk if they choose not to sign the waiver.

Transfer of undertakings in Japan

Employment contracts are not automatically terminated or transferred during a business transfer. Instead, to transfer an employment contract, one would typically terminate the contract with the old employer (transferor) and enter a new contract with the new employer (transferee).

In a business transfer, employees from the selling company remain with that company. If their roles are to be transferred to the buyer, the employees typically need to resign from the selling company and then be hired by the buyer with a new employment contract.

In a merger, the merged company will no longer exist, and the surviving company will take on its contracts, including employment agreements. This means that employees from the merged company automatically become employees of the surviving company, keeping their original terms and conditions of employment.

In a statutory company split, the transfer of employees must follow the Labour Contract Succession Act. Some employees may automatically move with the business that is being sold. The company must give written notice about the split plan to the employees who will be transferred at least two weeks before the split is approved.
Employees have the right to object within two weeks of receiving this notice if they are:

Primarily assigned to the business being sold but not included in the transfer to the buyer, or
Not primarily assigned to the business being sold but included in the transfer to the buyer.

Minimise risk and missed opportunities with our end-to-end employment solutions

There are many ways an employment contract can come to an end. But whatever the situation, you need to understand the rules that cover the end of employment in Japan — or you could end up facing legal issues.

Our solutions ensure your business is protected from risks when a relationship with a worker comes to an end — whatever the reason. We can also help you to avoid missed opportunities by re-deploying talent where possible.

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FAQ's

What are the grounds for termination of employment in Japan?

Employers in Japan may terminate employment for reasons such as serious misconduct, poor performance, inability to perform the job or genuine redundancy, but the reason must be objectively reasonable, and the dismissal must be considered socially acceptable.

Common grounds can include:

Serious misconduct, such as fraud, theft, violence or serious breaches of workplace rules.

Poor performance, particularly where problems continue after the employee has been given appropriate feedback or support.

Inability to perform the role, including certain situations where the employee can no longer carry out their duties.

Redundancy or business reasons, where a company needs to reduce its workforce for genuine economic or operational reasons.

Japan has strong protections against unfair dismissal, so having a reason does not automatically make a termination valid. Employers should consider the circumstances, evidence and steps taken before deciding to dismiss an employee. Under Article 16 of the Labour Contracts Act, a dismissal that lacks objectively reasonable grounds and is not considered appropriate in general
societal terms are treated as an abuse of rights and is invalid.

Additional restrictions apply during certain protected periods, including absence before or
after childbirth and absence for medical treatment following a work-related injury or illness. The statutory protection generally continues for 30 days after the relevant absence ends. Separate rules prohibit dismissal or other disadvantageous treatment because an employee takes childcare or family-care leave.

Is there a notice period for ending employment in Japan?

Yes. Employers in Japan generally need to give employees at least 30 days’ notice before dismissal or pay them for any part of the notice period they do not work.

For example, if an employer gives 10 days’ notice, it will generally need to pay the employee 20 days of average wages for the remaining notice period.

There are limited exceptions to the 30-day rule, including certain cases involving serious employee misconduct or an unavoidable event that prevents the business from continuing. Specific requirements apply before an employer can rely on these exceptions. In these cases, the employer generally needs confirmation from the relevant Labour Standards Inspection Office. Statutory exceptions can also apply to certain categories of workers, including some daily workers and employees within a qualifying probationary period.

The notice requirement is separate from the reason for dismissal. Providing 30 days’ notice or payment instead of notice does not automatically make a dismissal lawful. The employer still needs an objectively reasonable and socially acceptable reason.

Employees resigning from an indefinite-term contract can generally give two weeks’ notice under Japan’s Civil Code, although employment contracts or workplace rules may set out a different resignation process.

What is the four-factor framework for redundancy dismissal in Japan?

For a redundancy dismissal in Japan, courts generally consider four factors: whether the redundancy is necessary, whether the employer tried to avoid dismissals, whether employees were selected fairly, and whether the employer followed a proper consultation process. These are generally assessed together rather than treated as four inflexible statutory conditions.

The four factors are:

Need for redundancy: The employer should be able to show a genuine business or financial need to reduce its workforce.

Efforts to avoid dismissal: The company should consider alternatives such as redeployment, reducing recruitment or seeking voluntary departures.

Fair employee selection: Employees should be selected using reasonable and consistent criteria.

Consultation and explanation: The employer should explain the reasons for the redundancy and consult with affected employees or their representatives.

Employers should keep records showing why redundancies were needed, what alternatives were considered and how employees were selected. A redundancy dismissal can be challenged if these factors have not been properly considered.

How do fixed-term contracts end in Japan?

A fixed-term contract in Japan generally ends automatically on the expiry date stated in the contract, without the employer having to dismiss the employee.

Ending the contract before the agreed expiry date is different. An employer generally needs unavoidable circumstances to terminate a fixed-term employee early.

Employers should also check whether the contract has been renewed before. If an employee has had repeated renewals or has been given reason to expect another renewal, the employer may not be able to simply let the contract expire without considering Japan’s rules on non-renewal. Under Article 19 of the Labour Contracts Act, an employee’s application for renewal may be deemed accepted where the statutory conditions are met and the employer lacks objectively reasonable and socially acceptable grounds for refusing it.

In certain cases, employers must give at least 30 days’ notice of non-renewal, including where a fixed-term employee has been renewed three or more times or has worked continuously for more than one year. Employment contracts should state the contract period, whether renewal is possible and the criteria used to decide whether it will be renewed.

Are non-compete clauses enforceable in Japan?

Yes. Non-compete clauses can be enforceable in Japan, but only when the restrictions are reasonable and necessary to protect a legitimate business interest.

Japanese courts generally consider factors such as:

the employee’s role and seniority.

the business information or customer relationships being protected.

how long the restriction lasts.

the geographic area covered.

the type of work or competitors covered.

whether the employee receives compensation for the restriction.

For example, a limited non-compete for a senior employee with access to trade secrets may be easier to enforce than a broad restriction preventing an employee from working anywhere in the same industry.

Employers can also use confidentiality and non-solicitation clauses to protect sensitive information and customer relationships without preventing the employee from taking another job.

Non-compete clauses should therefore be specific to the employee’s role rather than applying the same restriction to every employee. An excessively broad restriction may be invalid as contrary to public policy or as an unreasonable restriction on the employee’s freedom to choose an occupation.

What must employers pay at the end of employment in Japan?

At the end of contract in Japan, employers need to make sure that all amounts already earned by the employee are identified and paid correctly. This usually includes final salary, overtime, outstanding allowances, approved expenses and any bonus that has become payable under the contract or workplace rules.

If the employee asks for payment after leaving, outstanding wages and the employee’s belongings generally need to be dealt with within seven days. Where there is a dispute over part of the amount, the undisputed portion must still be paid within that period. The final payroll should also include the correct tax and social-insurance treatment, particularly where the employee leaves partway through the year.

Unused annual leave does not automatically have to be paid out under Japanese law. Whether it is paid depends on the employment terms, workplace rules and the circumstances of the departure. The same is true of bonuses that are discretionary or subject to a payment-date condition.

The employer should also provide the employee with the documents they need for their next steps, such as payroll, tax and employment-insurance information. A final-pay checklist avoids the common mistake of treating the last salary payment as the whole exit process.

When is severance pay required in Japan?

Severance pay in Japan is required when the employer’s employment terms or company rules provide for it. This may apply during redundancy, dismissal, retirement or resignation.

Japan does not require a statutory severance payment specifically for redundancy. However, many employers have a retirement or severance scheme that sets out when employees receive a payment. Once the scheme creates an entitlement, the employer must apply its eligibility, calculation and payment provisions consistently.

Severance may be payable when:

an employee is made redundant.

an employee is dismissed in circumstances covered by the company scheme.

an employee reaches retirement age.

an employee resigns after completing a required period of service.

Employers may also offer an additional payment during a redundancy or negotiated exit. This can be used as part of a mutual separation agreement.

The amount will usually follow the employer’s severance or retirement rules. Length of service and salary are commonly used to calculate the payment.

What is the retirement allowance (退職金) in Japan and when must it be paid?

A retirement allowance, or taishokukin, is a payment employees may receive when they leave a company. It must be paid if the employer’s work rules, employment contract or retirement scheme gives the employee a right to receive it.

Unlike a statutory pension, employers in Japan are not generally required to offer a retirement allowance. If a company does offer one, its rules should explain who qualifies and when payment is made. Employers that ordinarily employ at least 10 workers must include applicable matters concerning retirement allowances in their work rules, including the covered employees, the method of calculation and payment, and the timing of payment.

Employees may qualify when they:

reach the company’s retirement age.

resign after completing the required length of service.

are made redundant.

are dismissed in circumstances covered by the scheme.

The amount is usually calculated using factors such as salary and length of service. The reason for leaving can also affect the amount.

Retirement allowances are generally treated separately from normal salary for Japanese tax purposes and have specific tax rules. The allowance must be paid by the date specified in the applicable work rules or scheme. Depending on how the entitlement is structured, the Labour Standards Act’s rules on payment following an employee’s request may also need to be considered.

What is the Labour Tribunal (労働審判) and how does it resolve Japan termination disputes?

The Labour Tribunal is a court process intended to resolve individual employment disputes more quickly than a full civil case. It is often used where an employee challenges a dismissal, unpaid pay, a contract change or another issue linked to termination of employment in Japan.

The case is heard by one judge and two employment specialists. The panel first tries to help the parties reach an agreement. If settlement is not possible, it can issue a decision. The Labour Tribunal procedure is generally intended to finish within three hearings.

Either side can object to the decision within two weeks. If that happens, the case moves into ordinary civil court proceedings rather than simply ending there. A valid objection causes the Labour Tribunal decision to lose its effect, and an action is generally deemed to have been filed in the relevant court when the original Labour Tribunal petition was submitted.

The process is faster than a standard lawsuit, but it still requires preparation. The employer’s records may be central: performance evidence, redundancy planning, contracts, workplace rules and communications can all be examined closely. A well-documented and fair exit process gives the business more options if a dispute develops.

How does CXC help companies navigate strict Japanese labor laws on termination?

CXC helps companies manage employee terminations in Japan by providing local support with the reason for termination, required process, notice, final pay and employment documentation.

Through our Employer of Record service in Japan, we can support different types of employees exit. This includes dismissals, redundancies, fixed-term contract expiries, resignations and retirement.

CXC can help businesses check the employee’s contract and workplace rules before the termination proceeds. We also support the administration of Japan’s 30-day dismissal notice requirement, final salary, unused leave and any severance or retirement allowance the employee is entitled to receive.

For more complex exits involving performance concerns, repeated fixed-term contracts or redundancy, local support can help the business understand the requirements before communicating the decision to the employee.

With more than 30 years of workforce management experience, CXC supports companies managing employees across Japan and other markets.

Speak to our team to learn more about managing employee exits in Japan with CXC.

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