Transfers of business in Japan

Introduction

This notes sets out the provisions that apply to the transfer of a business from one person to another person through a purchase (or gift) agreement, and not through merger, company split or share transfer.

Effect of transfer on contracts of employment

Employment contracts between a transferor and its employees do not automatically terminate or transfer on the transfer of a business. There are two ways to transfer an employment contract:

• transfer the employment with the transferor to the transferee, or
• terminate the employment with the transferor and enter into a new employment contract with the transferee.

In both cases, the transferor and the transferee must determine who will be transferred and obtain each employee’s consent to the transfer of his/her employment individually.

The transferee and the employee can freely agree on the terms and conditions and liabilities to be transferred. In many cases, it is agreed that length of service with the transferor is counted as length of service with the transferee and that the entitlement to annual paid holidays at the transferor is transferred to the transferee but that liabilities for unpaid wages incurred before the transfer are not transferred to the transferee.

Right of objection

An employee can freely decide whether or not to agree to be transferred to the transferee when he/she is asked to. If an employee does not agree, he/she continues to be employed by the transferor as before.

Occupational pension schemes

The transferor’s occupational pension scheme cannot be transferred on the transfer of a business, and the transferee must provide its own occupational pension scheme to the transferred employees.

Recognition and collective agreements

Collective agreements of the transferor are not transferred on the transfer of a business, and if the transferee has any collective agreements, these will apply to the transferred employees after transfer.

Employee representatives

Employee representatives elected whilst employed by the transferor do not represent employees after they have become employed by the transferee even if the employee representatives are themselves transferred on the business transfer. The transferee must elect its own employee representative if it needs one.

Changing terms and conditions following a transfer

Transferred employees and the transferee can agree to change terms and conditions of employment for any reason.

Most transferees obtain the consent of employees being transferred to any changes to their terms and conditions at the same time that they obtain their consent to transfer.

Dismissal because of transfer

The transfer of a business does not constitute grounds for dismissal either by the transferor or the transferee. There must be another reason which can be grounds of dismissal such as poor performance, health problems, or redundancy.

Transferor’s obligations to inform transferee

There is no specific procedure in relation to employment that must be followed by the transferee or the transferor in relation to transfer of businesses.

If the transferor is to provide any personal information of its employees, it must obtain their prior consent.

Informing and consulting the workforce

There is no specific procedure in relation to employment that must be followed by the transferee or the transferor in relation to transfer of businesses. However, practically speaking, it is better to inform or consult with the workforce of the business being transferred in order to ensure that they understand the transfer and to obtain their cooperation for future development. Most transferors and most transferees at least inform the workforce of the transfer by issuing an explanatory letter.

Notifying employees about change of employer

There is no specific procedure in relation to employment that must be followed by the transferee or the transferor in relation to transfer of businesses. However, as noted above, the transferor and the transferee must obtain the transferred employees’ consent to transfer, so they must notify the employees that the transferee will be their employer if the employees agree to transfer, when they obtain their consent.

Contracting out

There is no act which specifically covers employment issue in transfer of businesses. However, since the provisions of the labour law are compulsory, those cannot be excluded or limited by an agreement between an employer and an employee.

Registration

There is no specific procedure in relation to employment that must be followed by the transferee or the transferor in relation to transfer of businesses. The transferee does not need to inform administrative bodies with regard to employment.

However, the transferee must follow all the procedures which an employer is obliged to follow when it newly employs an employee, such as filing of social insurances and informing of the working conditions to the employees. Also, the transferor must follow all the procedures which an employer is obliged to follow when an employee leaves, such as filing of social insurances.

Further detail on business transfers in Japan is available here.