Employment status in Japan

Independent contractor

It is generally the case that the greater the degree of personal responsibility an individual undertakes and the wider discretion on work he/she has, the more likely it is that they will be considered an independent contractor rather than an employee.

The distinction between an employee and an independent contractor is important, because:

• Labour laws and regulations which are very employee friendly apply to employees and do not apply to independent contractors. For example, only employees are entitled to have the right not to be dismissed without justifiable cause.

• There are certain rights, duties and obligations which are implied into every contract of employment but they do not extend to the relationship between an independent contractor and the person for whom he is working.

• Different rules of taxation apply to employees and independent contractors.

Categories of employee

Indefinite term

Employees employed for an indefinite term have contracts which do not have a fixed expiry date. Employment contracts are often concluded for an indefinite term and run until notice is given or until it ends in some other way such as retirement.

Fixed term

It is possible and also common to enter into fixed term contracts.

An upper limit of a fixed term is three years (five years in a case of a certain professional or an individual at an age of 60 or older). However, there are no limits on the number of fixed term contracts that can be renewed.

An employee who is employed under a fixed term contract can request conversion into a contract of indefinite duration, when his/her contract is renewed for once or more, and thus he/she has been employed for more than five years. However, this shall not apply to (i) the employees who are reemployed after the mandatory retirement age, and (ii) the highly specialised employees who engage in a fixed term project, if employers make necessary filings to the authority.

Employees on fixed term contracts and their employers do not always have the same rights and obligations as those on indefinite term contracts. For example, in a case of fixed term employment, both employees and employers cannot terminate employment during the term unless there is compelling reason.

Part time

It is possible to enter into part time work arrangements.

The definition of a part time worker is employees whose working hours per week are shorter than those of the regular employees of the workplace where they work.

Part time employees do not always have the same rights and obligations as those who work full time. For example, the number of days of their annual paid vacation is prorated based on their working hours or working days.

However, an employer is prohibited from treating part time workers less favourably when their duties are same as regular employees of the workplace where they work, and if their duties, positions or workplace can be changed in the same way as those of the regular employees.

Directors and senior managers

Statutory directors are not an employee and protection under labour laws and regulations do not apply to them, unless they have dual position of statutory directors and employees. Statutory directors can be dismissed with or without any cause anytime by a shareholder’s meeting resolution. However, if a statutory director is dismissed without a justifiable cause, he/she can request compensation for damage incurred due to such dismissal, which is usually remuneration for the remaining period.

On the other hand, senior managers are employees and protection under labour laws and regulations apply to them except for overtime and holiday payments and restrictions. Therefore, a justifiable cause as well as 30 days’ notice or payment in lieu is required to dismiss a senior manager, in principle.

Agency workers (Dispatched workers)

Agency workers, which are usually called dispatched workers, are commonly used.

Dispatched workers are employed by an agency which has license of worker dispatch, and dispatched to a client and shall work under the client’s instruction and supervision.

A dispatched worker can request direct employment by a client if he/she is dispatched:

• to work to which worker dispatch is legally prohibited
• by an agency which does not have a legal worker dispatch license
• for a period exceeding the statutory upper limit, or
• under an agreement other than a worker dispatch agreement for the purpose of avoiding application of the Worker Dispatch Act.

Other categories of worker

There are no rules applicable to employees working from home, sales representatives and students. On the other hand, some rules exist with regard to domestic workers, for example, remuneration to a domestic worker must be paid within one month from completion of work, in principle.