Employment contracts in Japan

Formal requirements

There is no legal requirement for an employment contract to be executed in writing in order to become effective.

The law does, however, require that an employer give an employee written notification of some of the terms of the employment contract (the mandatory information set out below).

Fixed-term contracts

There are no restrictions on the circumstances in which fixed-term contracts can be entered into.

The maximum length of a fixed-term contract is three years (five years in the case of professional employees or employees aged 60 or over). If a fixed-term contract has been renewed one or more times and the employee has more than five years service, the individual can make a request for the contract to be converted into an indefinite term contact. The request must be made before the fixed-term contract ends.

In addition to the other employment conditions stated below, an employer of a fixed-term contract must state in writing whether or not the contract can be renewed when it expires and, if it can be renewed, the factors that will be taken into account in deciding whether or not to renew.

Part time contracts

It is possible to enter into part time contracts. In addition to the other employment conditions below, a part time contract must provide in writing whether or not the employee is entitled to a pay raise, retirement allowance and bonuses.

Implied terms

Any terms can be implied into a contract of employment, but it is safer to clearly state important conditions to avoid any ambiguity.

Mandatory information

An employee entering into an employment contract must be given the following information in writing: term of employment, place of work and job description, starting hours and finishing hours, overtime work, rest period, holidays, leave and a change in shifts (if an employees work in two or more shifts), determination, calculation and payment of wages (except retirement allowance and extraordinary wages), the dates for wage calculation and payment of wages, and termination of employment (including resignation, retirement, dismissal or any other cause for termination).

Trial periods

It is possible and common to include trial periods in contracts of employment.

Most trial periods are between one and six month(s), with three months being the most common. An employer can extend a trial period if this has been clearly set out in the employment contract or the work rules or if it is separately agreed with an employee.

An employer has wider discretion to terminate a contract during a trial period than after the trial period. Within 14 days from employment and during a trial period, no notice or payment in lieu is required in a case of dismissal.

Confidentiality clause

Current employees are subject to an implied duty of confidentiality even if there is no clear contractual clause. The scope of the duty is not, however, clear and the duty does not apply to former employees. Therefore, employers usually include contractual confidentiality clauses in an employment contract or the work rules.

Post-termination restrictions

An employment contract may include non-competition, non-solicitation and/or non-dealing provisions. The courts generally determine whether these post-termination clauses are reasonable and not against public policy by considering the following factors: the length of employment, the employee’s previous position, the scope of acts to be restricted by the clause, the length of the employee’s obligation, the geographical area of the clause, the existence and amount of any compensation paid to the employee for the restriction, and other relevant facts.

Other express terms to consider

It is not normally possible to derogate from statutory rights by using express terms, as statutory rights are compulsory.

If an employer wants to include any of the following, this must be made clear to employees. They do not need to be in writing in the employment contract (but must be set out in the work rules for employers that are obliged to provide work rules):

• scope of workers covered under the retirement allowance policy, determination of retirement allowance, calculation and payment of retirement allowance and the dates for payment of retirement allowance
• wage increase
• extraordinary wages (excluding retirement allowance), bonuses and minimum wages
• meal expenses, work supplies and the like which must be paid for by employees
• health and safety
• vocational training
• workers’ compensation as well as assistance for injury or illness suffered off duty
• awards for good conduct or long service etc
• disciplinary sanctions, and
• leave of absence.

General contractual terms

It is advisable to include the terms which are common to every type of contract (eg jurisdiction, government law, language) in contracts of employment.