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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.

In general, labor contracts in Japan have no contract period.
Employees who are hired based on the labor contract with no period are called "regular employees", and it is difficult to dismiss those regular employees.
Labor Contract Act Article 16 says, "A dismissal shall, as long as it lacks objectively reasonable grounds and is considered to be inappropriate in general societal terms, be treated as an abuse of the right and be invalid."
In Japan, it is said that even if an employee has shown a poor result, it is very difficult to dismiss him/her due to this article. We need more serious infringement of the labor contract by him/her.
As for a dismissal due to the reduction in the functions of a company, it shall be determined in light of (1) the necessity of the personnel reduction, (2) the necessity of choosing the dismissal for the purposes of reorganization, (3) the necessity of choosing the employee who has to be dismissed and (4) the validity of the dismissal procedure in a comprehensive manner. Moreover, a dismissal shall be approved only under a severely disadvantaged management status.
Therefore, in Japan, as it is difficult for a company to dismiss regular employees only by the company order, it is common for a company to make agreement on retirements with employees.

Labor Contract Act Article 20 says, "In the event where an employer wishes to dismiss a worker, the employer shall provide at least 30 days advance notice. An employer who does not give 30 days advance notice shall pay the average wage for the period of no less than 30 days."
However, as I explained above, even if a company provides at least 30 days advance notice or pays the average wage for the period of no less than 30 days, there is a possibility that the dismissal is invalid, so it is common for a company to pay three to six months worth salaries to recommend retirements to and make agreement on retirements with employees.

In contrast, non-regular employees such as "part-time workers", "arubaito (side-job) workers" or "dispatched workers through temporary staffing agencies" should obey the employment contract, and the contract termination may be described in the contract.
Therefore, a company can let those employees go upon the contract expiry without renewing it.

However, as for a dismissal in the middle of the contract period, there are regulations similar to those applied for regular employees as I explained above.
Furthermore, there is a new rule specifying that, if the fixed-term labor contract is repeatedly renewed more than five years, a company should change the contract from a fixed-term labor contract to a labor contract without a definite period by the requests from employees.

The rigid legal system pertaining to labor in Japan is criticized for interfering economic growth by reducing mobility in employment.
However, as the political power of the regular employees are strong, there is no prospect that the Japanese labor system will improve.
Recently, many of the Japanese companies do not employ regular employees but employ non-regular employees such as "part-time workers," "arubaito (side-job) workers," or "dispatched workers”.

Therefore, I recommend you to employ staffs with fixed-term labor contracts if you are not sure to continue to employ them and pay salaries.




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