dismissal doctrine

Governing Law

Japanese law will govern terminations of employment contracts, even in the case of a foreign company, provided that the worker has manifested their intention, pursuant to Article 12 of Act on General Rules for Application of Laws.

Strict Restrictions on Dismissal

Japanese labor law imposes stringent restrictions on the termination of employment by companies, in contrast to Anglo-American legal systems.  Article 16 of Labor Contracts Act stipulates that a dismissal is invalid if it lacks objectively reasonable grounds and is not considered to be appropriate in general societal terms.  In Japan, a number of court cases have concluded that dismissals are invalid, for example, the following cases.

	Judgement Date	Title	Base Salary	Category
Barclays	R031213d	MD	JPY 42M	RIF
Credit Suisse	H240123d	D	JPY 22M	low performance(PIP)
Merrill Lynch	H150917d	D	JPY 18M	disciplinary dismissal

Categories of Dismissal

Dismissals, in practice, are broadly categorized based on the nature of the reason for dismissal — whether they are due to business-related reasons (company's decision) or performance/behavior-related reasons (employee's conduct).

Adjustment Dismissal, 整理解雇 (seiri-kaiko),  is company-initiated termination for business reasons, such as Reduction In Force (RIF) or redundancy, considered necessary for personnel reductions.

Ordinary Dismissal, 普通解雇 (futsu-kaiko), is company-initiated termination whose grounds arise from the employee, such as low performance and misconduct.  Dismissal carried out as a disciplinary action due to breach of company policy is disciplinary dismissal or disciplinary discharge, 懲戒解雇 (chokai-kaiko),

Considerations

In the case of Adjustment Dismissal, 整理解雇 (seiri-kaiko),  the court consider the following four factors in a comprehensive manner for deciding the validity of dismissals;

1.  Necessity of Personnel Reduction
2.  Correspondng Efforts to Avoid Dismissal
3.  Reasonableness of Criteria and Selection
4.  Adequacy of Procedure

In the case of Ordinary Dismissal, 普通解雇 (futsu-kaiko), regarding to low performance the court consider the following factors and others in a comprehensive manner for deciding the validity of dismissals;

• Nature of the Position
• Reasons for Hiring
• Degree of Poor Work Attitude
• Potential for Improvement

In the case of Ordinary Dismissal, 普通解雇 (futsu-kaiko), regarding to misconduct the court consider the following factors and others in a comprehensive manner for deciding the validity of dismissals;

• Nature and Severity of Misconduct
• Number and Frequency of Misconduct
• Potential for Improvement
• Balance with other employees
• For disciplinary dismissal, 懲戒解雇(chokai-kaiko), often accompanied by forfeiture of retirement pay, in addition such degrees of violation that it warrants termination, as a prerequisite for informed provisions of the work rules and the employer's awareness of the misconduct at the time.

Evidence and Witness

In litigation, documentary evidence carries significant weight and it is said that approximately 80% of a judge's impression is formed by witness examination scheduled just before the judgement.  In labor litigation, particularly,  where evidence is predominantly held by the company,  it is important to preserve evidence in advance, as employees are immediately locked out of the company and lose access to resources when they are identified for reduction in force.  

documentary evidence > witness

Judgement Award

In the event of a successful litigation, typically, the dismissal is held to be invalid and the worker is entitled to backpay, in accordance with the following judgements which the court shall render;

• a declaratory judgement affirming that the worker holds a status entitled to labor contract rights against the company - on the premise that the dismissal is invalid.
• a judgement for performance ordering the payment of monthly salary from dismissal until the judgement - accompanied by annual 3% delinquent charge on the outstanding amount

Notwithstanding the judgment, the parties may reach a settlement agreement allowing the employee to separate from employment without a return to work.