Four Requirements for Dismissal in Line With Corporate Restructuring; and Need for Discussion in Good Faith

With individual disputes becoming the commonest form of labor dispute, persons in charge of personnel affairs and labor management in private firms are being required to study the handling of such disputes more and more carefully. Since private firms have commonly adopted a lifetime employment system, joining a company after working elsewhere has generally been perceived as disadvantageous to workers, and dismissal therefore has been considered the most serious issue and, in fact, the largest proportion of labor disputes have concerned dismissals. This situation - the proportion of cases concerning dismissals - remains the same in recent years, with individual disputes increasing in number.

In particular, "seiri kaiko" (dismissal in line with corporate restructuring measures) -the dismissal of a certain number of employees because of business and other circumstances on the employer's side - is subject to the judicial principle of abuse of the dismissal right (which has been stipulated in the Labour Standards Law since it was revised in 2003). If dismissal made in line with corporate restructuring measures is deemed to be an abuse of the right, the said dismissal is declared void. A large number of judicial precedents have produced the following four requirements as criteria in judging whether dismissal for the purpose of corporate reorganization infringes the principle:
1. There is a need for labor shedding;
2. The firm has shown that it has fulfilled its obligation to make efforts to avoid dismissal;
3. Employees subjected to dismissal must be selected by reasonable criteria; and
4. The dismissal itself follows a fair procedure.

It is quite natural that dismissal in line with corporate restructuring measures without sufficient prior discussion is against the collective labor agreement if the latter includes a provision stipulating such discussion between labor and management. But even without such agreement, any is obligated, on the basis of the principle of mutual trust, to give the labor union or worker a persuasive account of the necessity for dismissal for the purpose of corporate restructuring (timing, scale and method) and discuss the matter with them in good faith.

A recent survey by the Tokyo Labour Bureau on the outlook by persons in charge of personnel affairs and labor management in private firms revealed that 82 percent of those surveyed (approximately 940 persons) knew of the existence of the above-mentioned four requirements, but only 55 percent knew all four of them, the remaining 45 percent simply being aware of their existence.

With the number of labor disputes concerning dismissal increasing, it is also important for administrative agencies to provide related information and other services to encourage the parties involved in labor disputes to settle them on a voluntary basis.

It has always been difficult for labor and management to reach satisfactory settlements through discussion. In the meantime, firms are tending to form groups and working patterns are becoming increasingly diversified. All this accelerates change in the working environment, and will undoubtedly make it more important for both the labor and management sides to become more amenable towards discussion in good faith.