SPECIAL TOPIC

Vol.35-No.09 September 1,1996

The Road Becoming More Traveled: the International Dimension of Japanese Labor Law Ryuichi Yamakawa Associate Professor of Law University of Tsukuba

II. Various Aspects of International Employment Relations
1. International Employment Relations Within Japan
International employment relations in Japan can be classified into two categories: foreign workers and foreign-affiliated companies. One of the most fundamental issues involving both categories is whether Japanese or foreign law should be applied to their employment contracts. For example, should Japanese courts apply Japanese law or the law of an American state when a Japanese company discharges one of its American workers? This issue is significant when it is considered that Japanese employment law prohibits employers from discharging its employees without just cause, while many American states' laws allow employers to terminate their employment contracts at will.¹
Likewise, a number of issues arise from employment disputes involving foreign-affiliated companies in Japan. A threshold procedural question is the jurisdiction of Japanese courts and administrative agencies over such companies. Although jurisdiction is acknowledged so long as they are operating in Japan, the answer is not as clear when they close their facilities and return to their home countries. Another issue is the possibility of extraterritorial application of foreign laws to foreign-affiliated companies in Japan, which may arise when a plaintiff brings an action in a country which has a statute with an extraterritorial reach. For example, the 1991 amendment to Title VII of the Civil Rights Act of 1964 of the United States is applicable to American employees in foreign branches and certain subsidiaries of American companies.²

2. International Employment Relations Outside Japan
For Japanese employees working for Japanese companies within Japan, their employment takes an international dimension when they are transferred to foreign branches and subsidiaries,³ or when they are on a business trip abroad. In such situations, the issue of choice of law arises regarding their employment conditions.
This is also the case with the issue of the extraterritorial application of Japanese labor and employment laws. For example, should the Japanese Labor Standards Law apply to employees of a Japanese company who work more than 8 hours a day on their business trips abroad? Under the Japanese Labor Standards Law, a worker is entitled to an overtime premium when he/she works more than 8 hours a day, while in some other countries there may be no such limitation on daily working hours.
As with foreign-affiliated companies in Japan, Japanese companies doing business abroad are sometimes involved in disputes with local workers. A recent example is the issue of employment discrimination by Japanese companies in the United States.⁴ Although the criticism aroused by the Lantos Committee in 1991 has subsided, another problem has been raised regarding charges of sexual harassment involving Mitsubishi Motor Manufacturing of America. When a Japanese company abroad is a subsidiary of a parent company in Japan, the question arises whether a foreign court can exercise its jurisdiction over the parent company in connection with the challenged practices of the subsidiary.

3. Transnational Movement of the Workforce
Another important issue remains with respect to the internationalization of the labor market. Workers of one country now often move to other countries. Thus, at present, the role of labor laws is not only limited to the regulation of each country's domestic labor market, but should also include regulation of the transnational movement of the workforce.
One vehicle for such regulation is a bilateral treaty or agreement on immigration control. However, regulation through domestic labor laws is necessary in order to prevent and remedy unfair practices in the processes of job search and recruiting. When such practices occur outside Japan, the issue arises as to whether Japanese labor law can be applied extraterritorially.

III. Approaches in Application of National and Foreign Laws
in International Employment Relations
1. Process of Applying Law in International Civil Litigation
As the previous section indicates, international employment relations pose two types of questions: (1) issues of substantive law including procedural law such as jurisdiction of domestic courts, and (2) issues usually classified as conflict of laws. Although the resolution of these issues is quite important, Japanese labor law scholars have not given them much attention until recently. This section examines the contents of the rules regarding the conflict of laws in Japan.
It is convenient at the outset to clarify the process of applying law in international litigation. This process is divided into three steps. First, the court with which a plaintiff filed a suit must decide whether it has jurisdiction over the case. Second, if the first question is answered affirmatively, the court must determine which law to apply. Third, after the determination of the applicable law, the court proceeds to interpret and apply substantive law in the pending case.
Among these three steps, it is at the second step that the court must rely on rules regarding conflict of laws. There are two approaches or methodologies in this respect: (1) an approach based on choice of law rules and (2) an approach to determine the geographical reach of statutes. Traditionally, the former approach has been discussed in the area of international "private" law, while the latter approach has been used in the "public" law arena. However, since labor law is a mixture of both private and public law, such a distinction is problematic. In addition, although the dichotomy between private and public law has been criticized for decades, it is still uncertain as to how these two approaches are related to each other.
At present, the author proposes the following explanation. The choice-of-law approach presupposes the possibility of the application of foreign (private) laws, while the approach to determine the geographical reach of (public) statutes focuses only on domestic law. This indicates that underlying the former approach is the idea that a nation recognizes the applicability of foreign "private" law in the same manner as domestic law. Such a concept allows for the possibility of the conflict of applicable laws as well as the necessity for rules to resolve such conflicts.
On the other hand, a nation does not usually recognize the applicability of foreign "public" law in domestic courts. Thus, domestic courts are required only to determine the coverage of the domestic law, not make a choice between domestic or foreign law. Although the dichotomy between private and public law is no longer sustainable, the nature of a statute is still relevant in examining whether a nation recognizes a foreign statute in question. The system of enforcement may be important in determining the nature of the statute. Also, as long as there exist foreign statutes that cannot be applied by domestic courts, it is still useful to rely on the two approaches described above. The following is an examination of their respective contents.

2. Choice of Law in International Employment Relations
(1) Framework under the Horei
In Japan, the Horei (the Law Concerning the Application of Laws in General) is the most fundamental and comprehensive statute providing for the choice of law rules. From a theoretical point of view, Japanese international private law academics have followed the traditional German theory on the choice of law process. Under this traditional theory, the choice of law approach can be further divided into two steps: (1) the characterization of the nature of the issue and (2) the determination of the connecting factor, i.e., determination of the applicable law (lex causae) according to the choice of law rule on the issue characterized in the first step.
When a dispute arises between an employer and an employee regarding employment relations, the dispute may usually be characterized to be contractual. Article 7 of the Horei provides:
[(1)] As regards the formation and effect of a juristic act, the question as to the law of which country is to govern shall be determined by the intent of the parties.
(2) In case the intent of the parties is uncertain, the law of the place where the act is performed shall govern.
Since a contract, including an employment contract, is a "juristic act," the governing law may be determined by the parties to the contract under paragraph 1 of Article 7 (party autonomy). According to paragraph 2, if the intention of the parties is uncertain, the law of the place where the contract was concluded shall govern.
With respect to employment contracts, there is criticism that the place of conclusion is not as relevant as the place where service is performed. Thus, several lower court decisions have managed to find the parties' implied intent to designate the law of the place of performance as the governing law.⁵ However, in a case where an employee often goes on business trips to various foreign countries, the place of his/her ordinary performance of service should be more relevant.

(2) Limitation on Party Autonomy
Some scholars contend that party autonomy should not apply to employment contracts, where there is a considerable difference in bargaining power between the employer and the employee. However, most courts and scholars have acknowledged the general applicability of party autonomy, reasoning that an employment contract is a private contract in which the will of the parties should be respected. Although they recognize the necessity to limit party autonomy to protect employees' interests, they rely on other theories for this purpose.
One such theory is called the "public order theory".⁶ It has statutory grounds in Article 33 of the Horei, which provides that "the law of a foreign country shall not govern if the application of a provision is contrary to public order and good morals." The public order theory contends that labor laws of Japan constitute public order under this Article and that the parties to the employment contract cannot avoid the application of Japanese law by designating foreign law as the governing law. However, it is pointed out that "public order" under the Horei has been interpreted narrowly from the viewpoint of international comity and, therefore, is not sufficient for the protection of workers.
Another theory relies on the territorial application of public law to limit party autonomy. According to this theory, labor law, which is classified as public law, applies to the employment contract regardless of choice of law rules. Although the notion of "public law" has been questioned due to its vagueness, at least one lower court decision supported this theory.⁷
A third theory is called the "special connection of mandatory law (Sonderanknpfugstheorie)." While the theory of the "territorial application of public law" calls for the application of public law independently from the choice of law, mandatory labor law under this theory is applied within the framework of the choice of law. This theory contends that mandatory law should be applied based on a different connecting factor than that which is used for the ordinary law of contract. More specifically, the place of performance of service, which is more relevant for the employment contract than the place of contract conclusion, should be the connecting factor. There is criticism that there is no statutory provision supporting this theory.
Theories to limit the party autonomy in the employment contract are discussed by scholars on international private law. Their discussion sometimes tends to treat "labor law" as if it were a single codified body of law with a uniform nature. However, labor law is more complex and consists of a number of statutes and case law. For example, while issues regarding the employment contract such as transfers and dismissals are mainly covered by the Civil Code and case law, the Labor Standards Law regulates working hours, the payment of wages, child labor and so forth.
Since the Labor Standards Law is highly regulatory in nature and enforced through administrative supervision as well as criminal sanctions, it should be applied directly to employment relations within Japan regardless of the parties' choice of law or the nationalities of the parties to the employment contract. In other words, the application of the Labor Standards Law is based on an approach that focuses on the geographical reach of statutes, rather than the choice of law approach. On the other hand, party autonomy essentially applies to the law of employment contract, subject to some limitations in terms of public order.
Regarding several other statutes, it is unclear whether they are subject to party autonomy or whether they should be applied directly, regardless of the parties' choice of law. One example is the Equal Employment Opportunity Law. This law does not impose criminal sanctions if it is violated. In addition, its administrative supervision is weak: the Labor Minister or his/her delegates can only give advice and issue guidelines, instructions and recommendations. Moreover, the employer's duty to provide equal treatment to women regarding recruiting, hiring, assignment and promotion is merely a duty to endeavor to do so and in good faith. Women workers do not have a cause of action based on the employer's violation of this duty. Overall, the regulatory nature of the Equal Employment Opportunity Law is considerably weak. Thus, some scholars contend that it has the nature of private law and that party autonomy applies in principle.

3. The Geographical Reach of Japanese Labor Law
(1) Approach Focusing on the Geographical Reach of Statutes
Another approach or methodology for determining which law to apply in international employment relations focuses on the geographical reach of statutes. Under this approach, the question turns on the interpretation of domestic statutes, not the choice between domestic or foreign law. For example, when a worker who usually works in Japan is transferred to a foreign workplace and works more than eight hours a day, the question is, as stated above, whether the Labor Standards Law of Japan applies to that employee's employment relations abroad. In other words, the issue is the extraterritorial applicability of the Labor Standards Law.
The extraterritorial application of domestic law is subject to the principles of legislative jurisdiction in international law. Among the most traditional is the territorial principle that a nation can exercise its legislative jurisdiction within its territory. In some countries such as the United States, this leads to a presumption against extraterritoriality. To overcome this presumption, the court must find clear legislative intent of the statute's extraterritorial applicability.⁸ In Japan, the presumption against extraterritoriality has not been firmly established. Also, there are other principles such as the nationality principle that can be a basis for extraterritorial application of the Labor Standards Law. Nevertheless, the possibility of extraterritorial application is determined through the interpretation of each statute. In this process of statutory interpretation, courts must find at least some legislative intent for extraterritorial application.

(2) The Geographical Reach of the Japanese Labor Standards Law
The Labor Standards Law is enforced by means of powerful administrative supervision as well as criminal sanctions. Also, the Law provides workers with causes of actions under civil law such as overtime premiums. As to criminal sanctions, Article 1 (1) of the Criminal Code provides for the principle of territoriality, stating, "this Code shall apply to anyone who commits a crime within the territory of Japan regardless of his/her nationality." This applies to the criminal aspect of the Labor Standards Law. Since administrative inspection has the nature of the exercise of the public authority of the state, the administrative aspect of the Labor Standards Law also applies only territorially.
On the other hand, it is not clear whether the civil aspect of the Labor Standards Law is also subject to the territorial principle. Some scholars argue that as far as the civil aspects of the Law are concerned, courts should take the choice of law approach. According to this view, party autonomy under Article 7 of the Horei applies and parties to employment contracts can avoid the application of the Labor Standards Law. However, the civil aspects of the Labor Standards Law should not be separated from the criminal and administrative aspects. Enforcement through strong governmental intervention was its legislative intent. Thus, along with the criminal and administrative aspects, the civil aspects of the Labor Standards Law should apply only territorially.
However, it is necessary to examine the precise meaning of the territorial application of the Labor Standards Law. Article 7 of the Labor Standards Law provides that it applies to the "enterprise [jigyo] or place of business." The term "enterprise" has been interpreted to be "a body of business operation which is carried out continuously as an interrelated organization at a specific place."⁹ Thus, from the viewpoint of the territorial principle, the Labor Standards Law applies to the enterprises in this sense within the territory of Japan.
Also, Article 9 of the Labor Standards Law defines the "worker" which it protects to be a person "employed" at an enterprise as defined under Article 7. Thus, as long as a worker is employed at an enterprise within the territory of Japan, he/she is entitled to the protection of the Law even while working for that enterprise abroad. This pivots on the meaning of "employed" under Article 9. It is generally agreed that a worker is "employed" at an enterprise if he/she has an employment contract with the enterprise and is working under the direction and supervision of the enterprise.
In a case where a worker is on a business trip abroad, he/she continues to work under the direction and supervision of the enterprise with which he/she has an employment contract. Therefore, if such a worker ordinarily works at an enterprise in Japan, he/she continues to be employed at this enterprise even while working abroad for that enterprise on a business trip. In such a case, the Labor Standards Law applies to a business traveler whose ordinary place of work is in Japan. This may be called the work place doctrine.10 On the other hand, if a worker is transferred to an enterprise in a foreign country and begins to work under the direction and supervision of the foreign enterprise, the Labor Standards Law does not apply.
Several other labor protective statutes have a provision regarding their applicability similar to that of the Labor Standards Law. For example, the Industrial Safety and Health Law and the Workers' Accident Compensation Insurance Law apply to an "enterprise," and the "worker" under these statutes is defined or interpreted to be the same as that in the Labor Standards Law. Thus, they apply to an enterprise within the territory of Japan. At the same time, the work place doctrine as described above will apply to these statutes as well.

IV. Conclusion
Despite the development of the international dimension of employment relations in recent years, scholarly research as well as judicial decisions have not yet thoroughly examined this phenomenon. There are a number of issues regarding the content of the two approaches to determine the applicable law. More fundamentally, the relationship between these two approaches has not been sufficiently analyzed. This article attempted to illustrate these issues and make a few proposals.

[REFERENCE NOTES]

1. Ryuichi Yamakawa, The Applicability of Japanese Labor and Employment Laws to Americans Working in Japan, 29 Sand.L.Rev. 175 (1992).
2. Ryuichi Yamakawa, Territoriality and Extraterritoriality: Coverage of Fair Employment Laws After EEOC v. ARAMCO, 17 N.C.J.Int'L.L.Com.Reg. 71 (1992).
3. On Japanese workers transferred abroad, Ryuichi Yamakawa, The Reality of Rotating Japanese Staff, Japan Labor Bulletin vol.32, no.12, at 5 (1993).
4. Eileen M. Mullen, Rotating Japanese Managers in American Subsidiaries of Japanese Firms: A Challenge for American Employment Discrimination Law, 45 Stan.L.Rev.725 (1993).
5. Abakkuru V. Sassoon (United Kingdom) Ltd., 39 Rominshu 658 (Tokyo Dist. Ct. 1988).
6. Singer Sewing Machine Co. v. Volonakis, 568 Hanji 87 (Tokyo Dist. Ct. 1969)(Dismissal of an American employee of an American Company in Japan was held not to violate the public order of Japan).
7. George v. International Air Service Co., 16 Rominshu 308 (Tokyo Dist. Ct. 1965).
8. EEOC v. Arabian American Oil Co., 111 S.Ct. 1227 (1991).
9. Circular [Kihatsu] No.17, Sept. 13, 1947.
10. For a similar discussion in the United States: Pfeiffer v. WM.Wigley Jr. Co., 755 F.2d 554 (7th Cir. 1985)(Posner, J.).

^*The author would like to thank Ms. Miwako Ogawa for her helpful suggestions on the manuscript of this article.

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