Main Feature April / May 2010


What’s wrong with labour laws, practices and customs

Employment practices, laws and customs inevitably vary from country to country, but there are sometimes hurdles to doing effective business in Japan that would be inconceivable in other jurisdictions. Which other industrialised democracies, for example, allow underworld groups to manipulate labour laws to make union members essentially untouchable, or have labyrinthine and arcane regulations discouraging entrepreneurship?

And, while advocates of change have made some headway in certain areas, there is concern that the recent problems experienced by Toyota Motor Corp. may lead to more regulations being imposed on businesses instead of further liberalisation.
“From the political point of view, and in this whole environment of a failed economy, there is a desire in government to micro-manage the entire economy and slap more regulations in place, which is deeply detrimental long-term to foreign-affiliated businesses operating here”, said Charlotte Kennedy Takahashi, president of Oak Associates K.K.

Charlotte Kennedy Takahashi

Charlotte Kennedy Takahashi

The most damaging example, she believes, is in the area of labour laws and successive administrations’ withdrawal of the right of firms to hire, fire and manage their workforces flexibly.

The Cabinet in late March angered business groups by approving a bill to ban some firms hiring temporary staff on short-term contracts from agencies, reversing liberalisation measures introduced in 2004 by the previous administration. The move would affect up to one-third of 2 million workers, mostly in the manufacturing sector, reports said, and fulfil a key election pledge. Unions had complained that employers avoided having to pay short-term staff benefits and redundancy compensation by not renewing contracts after the economy slumped in 2008. Interpreters and some other specialists would be exempt from the new law.

The situation has become ludicrous, Kennedy Takahashi added, when a person leaves a company then joins a union and has the right to use the union to retroactively sue his or her previous employer.

“I firmly believe in employers being responsible towards their staff, but there has to be common sense”. By making it impossible to lay off staff in the depths of a recession, it becomes much more difficult for a firm to pick up steam as the economy takes off again. In addition, employees who deserve to be fired — such as for sexual harassment — are receiving massive payoffs in lawsuits brought by unions — some of which have been infiltrated by organised crime or extremist left-wing groups that reportedly take a cut of the payment.

“The cost to employers because of the hampered mobility of workers and the inflexibility of the legal environment, such as the difficulty of releasing staff, has become too high a risk, so many firms are shifting part of their workforce to Hong Kong and Japan is losing out”, Kennedy Takahashi said with a shrug. “This used to be a society in which people avoided confrontation, but today’s generation of workers is much less afraid to use the bad economic situation to its own benefit.”

Kazuki Okada

Kazuki Okada

Kazuki Okada, a partner at law firm Freshfields Bruckhaus Derringer LLP, is more positive about the labour situation in Japan, but agrees that the law is stacked on the side of the employee and the result can be corporate paralysis.

The key, he said, is for an employer to be very careful and plan properly before letting staff go. A firm is required to have “reasonable grounds” to dismiss a member of staff, although in most cases they will seek a voluntary resignation. It is also relatively rare for an employee to dispute; given that he or she must bear the cost of the legal fees, there is no concept of punitive damages and, therefore, little incentive for the employee to sue.

The requirements for a company to dismiss an employee are vague, so Okada believes it is important that the law establish clear rules, both procedurally and in terms of the maximum amount a firm would be required to pay a dismissed employee so that firms become more aware of the risks involved.

“It is critical for Japanese firms as well as workers here that they be permitted to fire people in order to reinvigorate the workforce”, he said, pointing out that firms hesitate to dismiss because the outcome is unclear. As a result, they are left with senior employees, who cost a lot of money and leave less room for young workers to be employed as regular staff.

“The older employees, the jobs-for-life generation, are being treated too well”, said Okada. And while proposals have been made before for dealing with this problem, nothing came of them and there is very little expectation that the current left-leaning government will pass any legislation that has a negative impact on workers.

Akiko Yamakawa

Akiko Yamakawa

There are other expectations among Japanese workers of their companies, said Freshfields Bruckhaus Derringer Senior Counsel Akiko Yamakawa, pointing out that workers here expect an increase in their salary every year while their counterparts in the West would expect any increase to be linked to their performance. Moves are also afoot for a shift to a German-style system of corporate governance in which listed companies are required to have an employee representative on their audit committee.

Yamakawa also described the reasoning behind a recent court decision to award compensation to an employee of McDonald’s Japan for unpaid overtime as “ridiculous”.

“The conclusion of the McDonald’s case was fair, given that the store manager was working ridiculously long hours and was receiving less compensation than employees of lower rank. Anyone in such a position would, of course, complain”, she said.

“However, the reasoning given by the court—that an employee needs to participate in management decisions concerning the whole firm in order to be exempt from overtime regulations — does seem unrealistic.

“For firms in the retail industry, the risk of these types of claims can be mitigated by providing adequate compensation, such as a special allowance for store managers”, she added. “If people are paid adequately, they generally do not complain”.


European Business Council (EBC) HR Committee Chairman Steve Burson has seen more urgency by authorities to improve the human-resources sector in the past 12 months than in the last 12 years — but he fears even that is not enough to stop Japan losing ground to rivals.
“I would like HR specialists to interact with one another more and to help them accomplish their goals through EBC advocacy efforts”, he told BCCJ ACUMEN. “There are problems in HR that we are just not hearing about”.
As the working population shrinks, the education system fails to improve, and fewer young Japanese seek overseas tuition, there will be fewer workers skilled to succeed in multinational firms, said Burson, president of H&R Consultants K.K.
“You can’t be competitive in the world if labour is expensive and unskilled, or lacking the motivation to work with the rest of the world”.
An “indecisive” government, he complained, fails to support innovative firms that would create the jobs missing now.


Gender gap

Issues facing women in senior positions at businesses remains a problem as there is a residual sense among some of their older male counterparts that a woman’s place is in the home — even though the thought is rarely voiced now, he said. But Kennedy Takahashi believes it is women’s own self-imposed barriers that are holding them back in the workplace as much as society’s expectations.

Although paid maternity leave has eased the plight of working parents, some firms want cheaper and more widely available childcare facilities and a ban on compulsory overtime to allow more mothers with business experience to return to work and help ease the skills shortage.

“Japanese women are competent, reliable and diligent workers”, said a UK chief executive who suggests the government implement incentives such as flexible work hours, tax breaks and subsidies to encourage mothers back to work. “Women are also more likely than men to speak English, which is useful if they work for foreign firms or Japanese firms with foreign clients or overseas offices staffed by foreigners”.

Work-life balance: taxing issue

Critics say the govern-ment could do more to achieve the Work-Life Balance Charter that it produced in December 2007 to combat overwork, boost job satisfaction, and reverse the declining birth rate.

If the extension period to file tax returns, for example, were to be extended from one month to four months, neither the payment-due date of estimated taxes or government revenues would be affected.

But it would allow about 70,000 zeirishi (licensed tax accountants) and thousands of other public and private workers to more evenly spread their workload throughout the year to reduce stress and hours in the hectic tax-return season, while cutting costs with fewer part-time staff and less overtime to pay.

This would also attract to the job more older and younger people, especially mothers or women planning a family or caring for elderly parents — and help satisfy charter objectives.

Immigration and old age

Another area that Japan needs to consider, if it is not to fall further behind its regional and global competitors, is immig-ration, which will be desperately needed within the next 20 years as the nation’s birth rate continues to contract and people live longer. The longer the delay in the debate about allowing more non-skilled foreigners to come here to find work, the longer the delay in the positive impact of their presence.

“If a firm is knowledgeable, keeps its eyes and ears open, then it can enter this market successfully”, says Kennedy Takahashi. “It may cost more than other markets, but if the product satisfies a need, there is great potential for greater rewards than other markets in the long-term”.

Yet there are caveats, she said.

Sakae Sugai

Sakae Sugai

“The Japanese government has been responsive in internationalising certain sectors, but the whole area of labour is mired in antiquated social values and that remains one of the greatest barriers to doing business here”, she said. “It would greatly benefit all if the government was not to address workers as children who need protection, but as adults who have full freedoms under the law and wrongs can be fairly judged in the interests of all parties, rather than a contrived bias to the worker.

“This recession will eventually be over and I hope at that point the government will not impose yet more rules limiting the mobility of labour”.

Employment culture and laws practiced abroad often share the same problems of acceptance as foreign goods in Japan. There can be a degree of social reluctance in Japan to accept a product, firm, service or custom that has proved successful and popular elsewhere, points out Sakae Sugai, professor of management studies at Tokyo International University and one of only two Japanese with a PhD from the University of Cambridge’s Judge Business School. Sugai is carrying out extensive research into the barriers facing foreign firms entering Japan.

“There can be an invisible wall between public expectations in Japan and Britain, meaning there are things that work well there but will never be popular here”, he said.

Sugai suggests that firms enter the Japanese market without a local partner, as the chances of misunderstandings becoming rifts are high.
Sugai invites UK firms and individuals to contact him about his academic research on issues facing gaishi-kei seeking access to the Japanese market. Please email:

Women on the board
Patricia Bader-Johnston, CEO of Silverbirch Associates KK, wants the government to mandate 40% female board membership in Japan by 2012.
“Norway successfully implemented this recently and has been able to jumpstart a new level of participation for women in senior decision-making. It would require a competency-based accreditation process for board members, to identify the talent pool that would make this shift possible”.
She says this could break the Old Boys’ network and make Japan a global leader in gender equality. It could also help solve the amakudari issue, whereby senior civil servants retire to join organisations linked with their departments and often collude to obtain favourable treatment for their new employers.
“Without proper regulation, it would take too long to change the way things are done”.