September 2017

Do you know the rules of a conversion from a fixed-period worker to a non-fixed-period worker on labor contracts?

This is a newly stipulated rule in Article 18 of the 2012 revision of the Labor Contract Act.To briefly explain, this rule means that if a fixed-period labor contract is repeatedly renewed with the same employer for more than five years, the worker (for example, contract employee, part-timer worker, temporary employee etc.) has the right to a non-fixed labor contract. For example, if the contract period is one year, after the 5th renewal, the right to apply for the conversion applies. If he or she makes an application for a non-fixed labor contract, his or her employer cannot refuse the application. In other words, a non-fixed-term labor contract will be established.

Why was such a strange and complicated rule made?

In Japan, until about 30 years ago, with the background of high economic growth, the idea of viewing a company as a family was strong. So most people worked in the same company for their whole life. A seniority-based personnel system was mainstream. For that reason, most labor contracts had no fixed-period. The Japanese people and the Japanese court also eventually endorsed this system by almost never accepting the dismissal of non-fixed-period workers.

However, after that, the growth of the Japanese economy slowed down and Japanese companies no longer had the financial strength to hire many non-fixed-period workers who could not be dismissed in principle. For that reason, the number of fixed-period workers has gradually increased. Currently, 37.5% of all workers are fixed-period workers.

The problem is that for fixed-period workers, there is always the possibility of losing their jobs when their contract expires and is not renewed. Furthermore, in general, the salary of fixed-period workers is lower than non-fixed-period workers in spite of doing the same work. Fixed-period workers are sometimes subject to discrimination in the workplace by non-fixed-period workers (regular employees) calling them “irregular employees”.

Therefore, in order to upgrade fixed-period workers to non-fixed-period workers, such rules were revised 2012.


There was some opposition to this revised rule, as follows. Since the difficulty of firing non-fixed-period workers is one of the reasons for the increase of fixed-period workers, making such a rule without addressing this difficulty would make the rule ineffectual. For example, there is the risk that companies will terminate labor contracts before reaching five years ('stopping employment').


However, due to the effects of an aging society in Japan now-a-days, the number of workers has decreased. Companies are now suffering from a shortage of workers. So some companies have switched from offering fixed-period labor contracts to non-fixed ones in order to attract new employees. So the aforementioned 'stopping employment' has not became a social problem at this time.

The period of five years in this conversion rule will be calculated from April 1, 2013. So there are fixed-period workers who can apply for the conversion from as soon as April 1, 2018, next year. With this rule, companies that hire fixed-period workers should pay attention to the following points:


(1) Confirm whether or not there will be a fixed-period worker who acquires the conversion right after April 1, 2018.


(2) Before a fixed-period worker exercises the indefinite conversion right, consider what will be the contractual relationship between the company and this worker.


According to Article 18 of the Labor Contract Act, in principle, if a fixed-period worker exercises the conversion right, the terms of the previous labor contract should be carried over to the new contract, the only change being that the fixed-period becomes a non-fixed-period. In other words, if the worker goes to the office 3 days a week, this will not change. The salary also remains the same. However, if employer make a new employment rule that is applied to those who exercised the conversion right in advance, the terms of that new rule exceptionally become the conditions between employer and them. Therefore, if an employer wants different terms to be applied to them regarding working days, working time, overtime and relocation or so on, he or she needs to make a new employment rule.


Regarding this conversion rule, preparation is important. We recommend you prepare as soon as possible for those who have not yet applied for the conversion.

Our office is located in Ginza, which is known for being the most luxurious area of Japan. There are many popular department stores and brand outlets here. However, if you venture into the backstreets of Ginza, you will find some restaurants (mostly Chinese restaurants) that allow their guest to smoke, even during lunch time.

Also, not only in Ginza, but all over Japan, most Izakayas (Japanese-style bars) do not prohibit smoking. Actually, we often go to an Izakaya at night with our clients, colleagues or friends. As some Izakayas serve a lot of cheap food, some guests come there with their families (including their children) to have casual dinners. But most of the Izakayas allow guests to smoke. So when we go to an Izakaya, we need to be aware that we will be exposed to cigarette smoke.

Why is this terrible situation occurring in Japan?

This is because in Japan, there is no strict legal restriction regarding smoking in restaurants and bars.

It is true that Article 25 of the Health Promotion Law stipulates as follows.

Those who manage facilities such as schools, gymnasiums, hospitals, theaters, exhibition halls, meeting places, exhibition halls, department stores, offices, government agencies, eating and drinking places, and other facilities that are used by many people, must endeavor to take the necessary measures to prevent passive smoking (which means to be forced to smoke others' tobacco smoke in indoor or similar environments).

However, this article stipulates only an "obligation to endeavor to take the necessary measures" (not an "obligation to take the necessary measures"). Therefore, there is no penalty for those who do not take any measures to prevent passive smoking.

Now, the Japanese government is trying to ban smoking in facilities that a large number of people use in principle by revising this law, but even now since there are many people who want to smoke in restaurants and bars (especially men in their 40s and 50s; almost 40% of them are smokers). Since dissenting opinions are also strong, the ban cannot be easily established.

Yet, recent good news has emerged. On September 8, Governor Yuriko Koike of Tokyo announced that Tokyo is trying to establish a regulation that bans smoking in public facilities, including restaurants and bars in principle. This excepts only the restaurants and bars that meet all of following items:

(1) The area is less than 30 square meters.

(2) They do not use any employees, or all employees agree to work in smoky conditions.

(3) Children do not enter there.

(4) Posting that they allow smoking.

If this Tokyo Metropolitan Ordinance is enacted, I will no longer have to go to an Izakaya or restaurant where I will have cigarette smoke blown into my face. I hope that this ordinance is established at once.

In Japan, is it legal or illegal to use AirBNB to let rooms out to travelers?

In fact it is illegal.

In Japan, there is a law called the Hotel Business Law. It defines Hotel Business as the business of repeatedly providing a place to sleep to guests and receiving an accommodation fee in return. If you offer Hotel Business, you need to get permission from the governor of your prefecture first. If you offer Hotel Business without having permission, you will be penalized with imprisonment with labour for up to 6 months or a fine of up to 30,000 yen.

However, as you know, the number of foreign tourists coming to Japan is continuing to increase. The Tokyo Olympic Games will be held in 2020, and a serious hotel shortage is expected. Furthermore, although AirBNB has recently become popular in Japan, and many people use it, most of them do not seem to have the correct permission to offer Hotel Business.

Therefore, the Japanese Government is implementing the following three deregulations.

1. Deregulation of Hotel Business law

According to the Hotel Business Law, a normal house is classified as a “Simple Lodge”, but to get permission to use the Simple Lodge, it needs to have a certain minimum floor area and an entrance hall. Because of this restriction, in the past it was difficult to obtain the permission, so now these restrictions have been relaxed.

2. Enforcement of the National Strategy Special Area Act

Within National Strategy Special Areas, if the National Strategy Special Conference permits the use of private houses for Hotel Business, then in those areas it is possible to offer Hotel business without permission. The only requirement is to receive certification from prefectural governors. However, so far, there are only three such special areas. Those areas are Ohta Ward in Tokyo, Osaka City in Osaka prefecture and Kita-Kyushu in Fukuoka prefecture. Because this law previously demanded that travelers had to stay for at least 7 days, it was not used much. Currently, the minimum number of days has been reduced from seven to three, but there are few foreign travelers who stay in one place for three days, so this law is still not used much.

3. Establishment of Housing Staying Business Act

This year, a new law was introduced in February, although it has not yet been enforced. By notifying the prefectural governor, we will be able to use our private houses to offer Hotel Business. However, there is a maximum limit of 180 days over the period of a year that we can use our houses to offer Hotel Business.

Anyway, I hope that the new law will be actively used and that travelers will be able to legally stay in a normal house, even in Japan.

In a case where the owner of a certain company (major shareholder who owns at least a majority of the company’s stocks) invited a CEO (representative director) from the outside, but afterwards does not like them and tries to dismiss them, what should the owner consider?

You might think that in this case, since the owner holds a majority of the shares, is it only a matter of holding a general shareholders meeting and dismissing the CEO. Certainly the owner could hold a general shareholders meeting and dismiss the CEO, but in fact, there is some serious work after a dismissal.

Paragraph 1 of article 339 of the Companies Act stipulates that “Officers [Note: Directors are also officers. See Article 329 paragraph 1 of the Companies Act] and financial auditors may be dismissed at any time by resolution of a shareholders meeting.” But on the other hand, paragraph 2 of that article stipulates that “A person dismissed pursuant to the preceding paragraph shall be entitled to demand damages arising from the dismissal from the Stock Company, except in case where there are justifiable demands for such dismissal."

In other words, the dismissed director can claim damages against the company, arguing that there was no justifiable reason for dismissal. This article can be further explained in these terms: "While securing the freedom of dismissal to shareholders, it prescribes a kind of statutory liability with the aim of protecting expectations for the term of office of directors and harmonizing the interests of both parties." With this purpose in mind, the conclusion is often that "the extent of damage to be compensated is the amount of profits obtained during the term of office that the dismissed director served within."

In short, the owner may have concluded that it is possible to dismiss the CEO, but if it is found that there is no justifiable reason for dismissal, he has to pay compensation for the remaining terms as damages.

Moreover, judgement regarding justifiable dismissal also is strict on the owner side. There is no doubt that violation of laws and the Articles of Incorporation, failure of mind and body, and significant inappropriateness to the duties are included in the justification, but it is not clear whether or not failure of management judgment is also included in justifiable.

Moreover, judgment regarding justifiable dismissal also falls on the owner's side. Certainly, whether there was a violation of laws and the Articles of Incorporation, a failure of mind and body, and significant inappropriate behavior when executing duties are considered when examining justifiable dismissal. But, there is also examination as to whether or not failure of management lead to a situation where dismissal occurred.

Therefore, because disliking someone is not a justifiable reason, and a failure of management such as poor business performance is not necessarily a justifiable reason, we have to say that there is a certain legal risk in dismissal. After all, I think that it is appropriate that before hiring a CEO the owner should make a contract that stipulates in which situations the owner can dismiss the CEO and how much the owner will compensate for damages in that case.

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