Restructuring in Japan is subject to stringent requirements

Redundancy termination is often a key component of global restructures, however, unilaterally terminating employees in Japan is subject to extremely stringent requirements.

Employers must satisfy four conditions, known as the ‘four requirements for redundancy termination’ before the termination can take place: A high degree of necessity for workforce reductions, reasonable and fair selection of employees to be terminated, sincere efforts by the employer to avoid termination such as reassignment or offering voluntary resignation programs, and adequate consultation and procedure, including proper communication with employees.

Proving the necessity for redundancies, however, is normally only recognised when a company is suffering a financial crisis.

Unlike other countries, Japan does not have a system where redundancy payments can justify termination. If an employer proceeds with unilateral termination, employees may file wrongful termination lawsuits. Courts often rule in favor of employees and order reinstatement and backpay.

As a result, most companies in Japan opt for voluntary retirement programs or negotiate individual severance packages to achieve workforce reductions.

Global restructurings often require adjustments to employees’ roles or work locations. In Japan, changes to employment terms that negatively impact employees, such as salary reductions, usually require the employee’s consent.

However, employers have broader discretion to change job duties or work locations. Often employment contracts and internal work rules include provisions allowing employers to change work duties and responsibilities, or transfer employees to other locations if necessary for business operations. These provisions are typically enforceable, provided the changes are reasonable and justified by business needs.

If employees are members of a labour union, employers must carefully review any collective agreements that are in place. These agreements often require employers to consult with the union in advance of any large-scale changes such as restructurings. In practice, this means that before significant organisational changes affecting employees occur, the employer must notify the union and engage in good-faith negotiations. Failing to do so can lead to disputes, delays, or legal challenges. Building a collaborative relationship with labour unions during the restructuring process is essential to ensure smooth implementation.

Global restructurings may also involve corporate actions such as mergers, demergers, or business transfers. Each of these transactions have distinct implications for employee rights under Japanese labour law.

In a merger, an employee of an extinct entity is transferred to the successor entity. In a demerger, employees engaged in the relevant business are generally automatically transferred, but specific procedures, such as advance notice and consultation with employee representatives, are legally required.

In contrast, employees transferred as part of a business transfer require individual consent. Without consent, employees cannot be forcefully moved to a new employer.

Co-written by Yuka Kamio of Anderson Mori and Tomotsune.

Read more about global restructuring in the APAC region:

• Significant changes to Singaporean laws will impact global restructures
• Navigating Philippine labour laws during a global restructure
• Navigating a global restructure in China
• Navigating Thai labour laws during a global restructure
• Global restructuring presents both challenges and opportunities for Australian employers