Special Topic

Vol.37-No.11 November 1,1998

     On September 25, 1998 the Diet of Japan passed a bill to amend the Labour Standards Law. The revised Law is scheduled to take effect on April 1, 1999, except for the provisions on the discretionary work scheme (April 1, 2000) and administrative assistance for dispute resolution (October 1, 1998). As this amendment covers many areas of regulation, this is the first overhaul of the Law since its enactment in 1947. This article describes the major contents of this amendment and analyzes its significance as well as remaining issues.

      The Labour Standards Law is one of the most basic and comprehensive statutes regulating individual labor relations. It covers such subjects as labor contract, payment of wages, working hours, rest days and annual paid leaves, protection of children and maternity, workers' compensation, work rules and so on. It also provides for special enforcement measures by establishing the system of administrative inspection as well as criminal sanctions.

      The Law has been amended several times. One of the most important amendments was carried out in the area of the regulation of working time. Originally, the maximum working time was 48 hours a week, eight hours a day. In 1987, it was reduced to 40 hours. Although this amendment had a grace period, it took full effect in 1997. Also, the 1987 amendment introduced flexible working time regulations such as the discretionary work scheme. Under this scheme, it is possible for an employer to regard the working time of certain professional workers as the time stipulated under the agreement with a majority union or, if no such union exists, a worker representing the majority of the workers in the workplace.

      These amendments were partial, however, as 50 years have passed since its enactment in 1947, the socio-economic circumstances of Japan have greatly changed as described in section II. While some provisions have lost their significance, new regulation has become necessary with respect to other subjects. Thus, it has become necessary to re-examine the Labour Standards Law in its entirety, along with other labor laws. The amendment this time is a response to such needs.

II. Background to the Amendment

     As stated before, the Labour Standards Law was enacted in 1947, two years after World War II ended. In those days, Japan's economy was destroyed, and pre-modern employment relations, such as sweatshops, existed in many workplaces. The Law was meant to eradicate such workers' plight. In addition, although Japan had experienced the process of industrialization before World War II, its industrial structure was still centered on manufacturing in a traditional sense. Thus, the regulations of the Law was mainly adapted to factory work performed by blue collar workers. Although white collar workers were covered by the Law, they were usually engaged in their work at a fixed time and place.

      However, circumstances surrounding Japanese workers have changed. First, their working conditions have been much improved along with economic development. Second, a considerable difference has arisen in terms of the way of working.[1] The industrial structure of Japan has shifted into the so-called service economy. Although there are many who still work at factories, more and more workers are employed in the service sector. Their working style is more flexible than that of factory workers in terms of time and place of work. This is especially the case with professionals as well as certain high level white collar workers.

      In addition to the flexibilization of working styles, the diversification of employment relations is now under way. Traditionally, Japanese labor law has focused on regular (usually male) workers who work under Japanese employment practices such as long-term employment and seniority-based wages. Since the contents of their employment relations are basically homogeneous, their contracts are uniformly regulated by work rules promulgated by their employers, and the role of the individual labor contract is quite small. However, Japanese workers are becoming less and less homogeneous, due to such factors as the aging population and the feminization of the workforce. Part-time workers and those who work under a fixed term employment contract are increasing, although it is not a new phenomenon. Also, quite a few workers do not expect a long term relationship with their employers. As a result, the contents of labor contracts are becoming diversified. Thus, it is necessary to establish new rules regarding individual labor contracts in such respects as the clarification of their contents.[2]

      In some respects, the present amendment of the Labour Standards Law was influenced by the "deregulation" policies declared by the Japanese government in recent years. After the "bubble" economy collapsed in early 1990's, the Japanese government began to make efforts to revitalize its economy. Since there has been complaints that there is too much regulation of business activities in Japan, the "deregulation" (more precisely, the relaxation of strict regulation) became one of the principal measures for economic restructuring. Although there was some debate about whether "social regulation" such as labor law should be included, in the subject, the "Deregulation Promotion Program" ratified by the Cabinet on March 31, 1995 listed up several items under labor law as a target of deregulation.[3] Among these items are the relaxation of regulations on working time such as the discretionary work scheme and on individual labor contracts under the Labour Standards Law.

      Thus, the amendment of the Labour Standards Law was carried out in the course of the deregulation drive by the government. As explained later, this is reflected in the expansion of the discretionary work scheme, the extension of the permissible period of labor contracts, and so on. However, the contents of the amendment are not necessarily "deregulation." In many respects, the amendment added new regulations such as the requirement of notice of reasons for dismissals. Also, the proposal for the reform of the Law was made well before the "deregulation" drive began regarding labor law. It was in 1993 when the Study Group on the Labour Standards Law published a report pointing out the necessity to reexamine the Law's provisions regarding labor contract (See Section III., A.). Therefore, it is the socio-economic changes in Japan rather than the "deregulation" drive that was the direct background to the amendment of the Labour Standards Law.

III. Brief Legislative History

      The Study Group on the Labour Standards Law provided background data and suggestion for the amendment of the Labour Standards Law. The Study Group was appointed by the Ministry of Labour as an advisory committee for the research and study of the Law in terms of its actual operation and related issues. After the 1987 amendment of the Law, the Subcommittee of the Study Group was appointed to conduct research on the issues relating to labor contract and work rules. In 1993, the subcommittee submitted its report and recommended that new regulatory schemes were necessary with respect to labor contract due to socio-economic changes in Japan. Also, in 1994, another subcommittee was appointed to focus on the provisions regarding working hours. It submitted a report in 1995 and recommended further reduction of working hours as well as a re-examination of regulation in order to promote flexible and autonomous working.

      The Minister of Labour then asked the Central Labour Standards Council headed by Professor Tadashi Hanami of Sophia University to re-examine the contents of the Labour Standards Law. The Council is a tripartite advisory panel to the Minister of Labour, and is in charge of making advice for legislation on labor standards. Although the agenda for the Council covered almost everyaspect of the Labour Standards Law, the discussion was mainly focused on the expansion of the discretionary work scheme and the extension of the maximum period of labor contract. Also, the Council discussed the regulation of overtime work, since the special protections of women in general regarding working hours are scheduled to be abolished after April 1, 1999, when the amendment of the Equal Employment Opportunity Law that strengthens its equality provisions takes effect.[4] Instead, labor unions called for strong regulation of overtime work.

      In December 1997, the Council submitted its final proposal to the Minister of Labour after extensive discussion. Although the Diet made some modifications, this proposal became the basic framework of the present amendment. Among other things, the Council recommended that the maximum period of labor contract should be extended to three years only with respect to certain types of jobs. Also, the Council proposed that the discretionary work scheme be expanded so that it would be available for more white collar workers. Furthermore, regarding the regulation of overtime work, the Council suggested that a new provision should be incorporated into the Labour Standards Law to provide a statutory basis of the guidelines for maximum overtime hours. As for female workers, the Council suggested that a special standard be set as a means of mitigation to protect them from drastic change after the abolishment of special protections.

      Based on the proposal of the Central Labour Standards Council, the Ministry of Labour made a draft of the bill to amend the Labour Standards Law. With the approval of the Council (with some opinions from the members representing labor), the Ministry finalized the bill, and the Cabinet submitted it to the Diet. The discussion on the bill began in April, 1998 in the Lower House. Meanwhile, labor unions initiated a movement to oppose the amendment. Their main contention was that the expansion of the discretionary work scheme would result in the perpetuation of overtime work of white collar workers without the payment of premium. Unions also contended that the proposed limitation on overtime work was too weak, and that stronger regulations should be incorporated in the Law.

      In the course of the discussion in the Diet, a move toward compromise emerged. The ruling Liberal Democratic Party and the opposing Democratic Party, which was backed up by the Japan Trade Union Congress, reached an agreement to modify the bill. The agreement included a proposal that the enforcement of the provision on the new discretionary work scheme would be postponed for one year and that measures to prevent the abuse of this system should be added such as the requirement of individual consent for its implementation. However, as the Social Democratic Party was opposed to this agreement, the move toward compromise failed. After that, the term of the Diet ended, and the bill was carried over to the next session.

      However, these efforts to reach an agreement resurfaced when the new special session of the Diet began after the Upper House election in July. The new agreement on the revision of the bill was essentially based on the earlier agreement between the Liberal Democratic Party and the Democratic Party, with some additional protective measures. The revised bill was passed by the Lower House on September 4, and by the Upper House on September 25, this time with the approval of the Social Democratic Party.

IV. Major Contents of Amendment

      Article 14 of the current Labour Standards Law provides, in essence, that labor contracts shall not be concluded for a period longer than one year. The amendment added an exception that the maximum period may be three years in the following cases: (1) labor contracts with workers who have a highly specialized knowledge, skill or experience that is necessary for the development of new products, services or technologies or for scientific researches, and fits the standards defined by the Minister of Labour as highly specialized, only when the workers are newly hired in enterprises that need such highly specialized knowledge; (2) labor contracts with workers who have a highly specialized knowledge, skill or experience that is necessary for the jobs to be completed after a specific period regarding the opening, change, extension, reduction or abolishment of businesses, and fits the standards defined by the Minister of Labour as highly specialized, only when they are newly employed in enterprises that need such highly specialized knowledge (except as provided in item (1) above); and (3) labor contracts with workers at the age of 60 or older (except as provided in items (1) and (2) above).

      As stated before, items (1) and (2) are meant to expand employment opportunities for professionals who have highly specialized knowledge and do not expect to work under long term employment relationship. Originally, the limitation on the period of employment contract to one year was intended to prevent employers from unduly restricting workers' resignation. However, given the socio-economic changes in Japan, such concern does not necessarily apply to certain types of professional workers. There may be employment opportunities that employers are willing to provide if the contractual period can be set for a few years. On the other hand, the maximum period should not be too long, since, even among professionals, not all of them are free from concern about unjust restriction.

      Thus, the amended provision sets the maximum period of three years and limits the jobs and enterprises to which the exception applies. On the other hand, there is no such limitation in the case of contracts with elder workers as provided under item (3). This is because item (3) was intended to provide for more employment opportunities for elder workers, especially after their retirement, which is quite often at the age of 60. When such workers are re-employed, their labor contracts usually fix the period for one year. In this sense, the extension of the maximum period to three years generally stabilizes their employment.

2. Clarification of Working Conditions

      Article 15, paragraph 1 of the Law states that in concluding a labor contract the employer shall clearly state the wages, working hours and other working conditions to the worker. It further provides that certain matters shall be stated in the manner prescribed by ordinance. The Enforcement Ordinance of the Labour Standards Law requires the employer to put these matters in writing. Formerly, it was only matters concerning wages that were required to be notified in this manner. Under the amendment, however, it is now necessary for the employer to notify in writing scheduled working time and other matters prescribed by ordinances.

      The background of this amendment is the diversification of individual labor contracts. If the contents of contracts are homogeneous or uniformly determined by work rules, there is little need for the clarification of working conditions of each worker. However, since the employment relations are now being diversified, as stated before, more disputes are likely to arise regarding the contents of labor contracts. Clarifying working conditions through documents is helpful in preventing such disputes.

3. Notice of Reasons for Termination of Contract
Article 22 of the Law, as amended, provides that when a worker on the occasion of leaving employment requests a certificate stating a reason for the termination of employment (including a reason for discharge, when the worker is discharged), the employer shall deliver it without delay. Before the Amendment, employers did not have a duty to provide the reasons for termination.

      In effect, this article obligates employers to provide reasons for discharge at the request of workers. When a worker is discharged, a dispute often takes place regarding the reason for the discharge, or even whether the worker was discharged or just voluntarily resigned. By obligating employers to provide the reason for discharge or other ways ofterminating the contract, this provision is intended to prevent such disputes. Furthermore, if a reason for discharge is clarified, it will be easy for courts to determine whether the discharge is based on a just cause. In Japan, case law has established that a discharge without just cause is null and void as an abusive exercise of the employerƒ†s right to discharge.[5] Thus, it is likely that this article will influence litigation regarding discharge of workers.

      The expansion of the coverage of the discretionary work scheme was one of the most debated issues regarding the present amendment. Currently, Article 38-2, paragraph 4 provides that when an employer assigns a worker to duties for which the means of accomplishment and allocation of time must be left largely to the discretion of workers, pursuant to a written agreement with the trade union organized by a majority of workers at the workplace concerned or with the person representing a majority of the workers if no such union exists, the working time of such a worker shall be the number of hours stipulated in the agreement. If this Article applies, it is not necessary for the employer to pay an overtime premium according to the actual working time, so long as the stipulated time does not exceed the standards under the Law. Based upon this Article, the Enforcement Ordinance provides that jobs available for this scheme are (1) research and development of new products and technology, (2) planning and analysis of information-management systems, (3) gathering information and editing in the mass media, (4) designing, (5) producers and directors in TV or movie production, and (6) jobs designated by the Minister of Labour. In 1997, the Minister designated seven jobs such as attorney-at-law and certified public accountant. However, business circles contended that the coverage of this scheme is still too restricted.[6] For example, the Japanese Foundation of Employers' Association contended that this scheme should cover jobs such as planning of business strategy, sales, finance and public relations. On the other hand, as stated before, labor unions countered that the expansion of this scheme would lead to the perpetuation of long working hours. Thus, while the Central Labour Standards Council proposed the expansion of the coverage of the scheme, it stressed the necessity to prevent its abuse.

      Although this proposal was incorporated into Article 38-4 of the amended Law, the Diet added a number of safeguards such as the requirement of the individual worker's consent. Also, this Article will take effect one year later than most of other provisions, i.e., April 1, 2000. Under this new Article, the discretionary work scheme is available for workers in a workplace where important business decisions are made, if their duty is planning, investigation, and analysis on matters regarding management of the enterprise and if they have knowledge and experience of performing such duties. It is also required that the means of accomplishment of such duties must be left mostly to the discretion of such workers and no concrete discretion will be given to them regarding the means of performance as well as the allocation of time.

      Unlike the existing discretionary work scheme, it is a worker-management committee rather than a worker-management agreement that determines the implementation of this scheme. Half of the members of this committee must be appointed with a specific period of appointment by the labor union organized by a majority of workers at the workplace concerned, or with the person representing a majority of the workers where no such union exists. These members must also be approved by a majority of workers in the workplace. In order to implement this scheme, the committee must unanimously determine the duties and scope of workers covered by the scheme as well as the number of hours that will be regarded as their working time. The committee must also decide that the employer shall take measures to promote the health and welfare of such workers, that the employer shall take measures to process grievances of such workers, and that the employer shall obtain the individual worker's consent regarding the implementation of this scheme and shall not discharge or otherwise treat unfavorably those who have not agreed. This resolution must be filed with the administrative office.

      The discretionary work scheme before the amendment was applied mostly to professional workers. The provision regarding such workers remains as it is (Article 38-3). On the other hand, the workers covered by Article 38-4 are not necessarily professionals but high-level white collar workers. To the extent that the overtime premium of such workers is separated from actual working time, it reflects the idea that their wages are to be based on the quality or performance of their work. In this sense, this provision fits a creative and autonomous working style. On the other hand, concern has been expressed regarding the abuse of the scheme as described above. As result of the negotiation in the Diet, the amendment now contains a number of safeguard measures, and the likelihood of abuse has become smaller. One of the remaining issues regarding its implementation is how effectively an evaluation system can work with respect to the performance of "discretionary workers." This is also true with respect to the operation of the grievance system to be created by worker-management committees. More fundamentally, establishing autonomy at work for such workers is a key to the success of this system.

2. Regulation of Overtime Work

      Under the current Labour Standards Law, overtime work that exceeds the standards of forty hours a week or eight hours a day is permissible through a worker-management agreement between an employer and a majority union or, if no such union exists, a worker representing a majority of workers at the workplace concerned. However, there is no statutory provision that generally sets a limit to the amount of overtime work. Although the Ministry of Labour has issued a guideline that stipulates "standard" upper limits such as 360 hours per year, it has no statutory basis, and employers are expected to abide by this standard only voluntarily.

      Now, Article 36, paragraph 2, as amended, provides that the Minister of Labour may set a standard with respect to the limit of overtime work as stipulated by the worker-management agreement. Article 36, paragraph 3 further states that employers and the trade unions or the representatives of the majority of workers shall endeavor to abide by such a limit in concluding the worker-management agreements. Although this paragraph obligates parties to the agreements only to make an effort in good faith, paragraph 4 provides that the administrative agency may give them advice and instruction in order for them to abide by such a limit. Thus, the amendment provides a statutory basis for the upper limit of overtime work, which is to be enforced through administrative guidance. Although this is surely an improvement when compared with the former scheme, how it will succeed in reducing overtime work will depend on the effort on the part of the parties to the worker-management agreements as well as the effective administrative guidance.

      In addition, the amendment provides for a "mitigation" measure regarding the overtime work of female workers after the abolishment of Article 64-2 that limits their overtime work. More specifically, Article 133 provides that the Labour Minister shall set more stringent standards of the upper limit on the amount of overtime work for female workers responsible for the care of children or senior citizens if they request shorter overtime work. This standard will be in force for a period which will be stipulated by administrative ordinance. (The Central Labour Standards Council proposed that this period be three years after April 1, 1999.) As a result of the discussions in the Diet, the upper limit was specified to be 150 hours, which was in fact the upper limit for female workers under Article 64-2 before abolishment.

      Moreover, Article 11, paragraph 2 of the supplemental provisions of the amendment provides that, during the period when this standard is in force, the Labour Minister shall consider the establishment of a scheme allowing the right to request the exemption of overtime work for workers who have responsibilities for the care of children and senior citizens, and shall take necessary steps. Since this scheme is not limited to female workers but covers male workers who have family responsibilities, it is one of the measures to harmonize family life and work.

3. Average Working Time System

      Currently, Article 32-4 of the Labour Standards Law provides that an employer may average a maximum working time of 40 hours over a period not longer than one year, if the employer stipulates certain matters under a worker-management agreement with a majority union or, if no such union exists, a worker representing a majority of workers in the workplace concerned. In this case, the limit of 40 hours a week as well as eight hours a day may be relaxed, so long as the working time averaged for a stipulated period does not exceed forty hour a week. The 1987 amendment of the Law introduced this scheme in order to make it possible for employers and workers to allocate working time efficiently according to seasonal business fluctuation, thereby reducing working time eventually.

      However, under the current regulation, there are a number of limitations on the utilization of this system. For example, the Enforcement Ordinance sets an upper limit of the working time: (1) 48 hours a week and nine hours a day if the period for averaging is more than three months or (2) 52 hours a week and 10 hours a day if this period is three months or shorter. Also, even though the employer may divide the period for averaging so that the schedule of working time will be fixed at the beginning of each divided period, each divided period must be longer than three months.

      While these limitations were incorporated so that workers would not suffer from excessive flexibilization of working time, it is pointed out that they made this scheme difficult to use. Thus, the amendment relaxed such limitations to a certain extent, on the condition that holidays are definitely given to workers. For example, the upper limit of working time will be 10 hours a day and 52 hours a week regardless of the averaging period. Also, the employer may divide the averaging period so long as each divided period is one month or longer. Although some concerns were expressed about the relaxation of this scheme, there was not much debate in the Diet.

C. Other Aspects

      he bill amended the Labour Standards Law in several other aspects such as annual paid leave and the dissemination of worker-management agreements. One of the notable aspects is related to the dispute resolution system. Article 105-3, added by the amendment, provides that the chief of the Prefectural Labour Standards Office may give advice or instruction regarding a dispute over working conditions if one or both of the parties to the dispute asks for assistance in its resolution. The current Law does not have a dispute resolution system that has general jurisdiction over disputes regarding working conditions. Although the Labour Standards Inspection Offices are in charge of the enforcement of the Law, they are essentially inspecting agencies rather than neutral dispute resolution bodies. Also, their jurisdiction is limited to matters specifically regulated under the Law. They may not exercise authority over disputes including such issues as whether a discharge is an abuse of the employer's right, since the Law does not have a provision generally regulating reasons for discharge.

      Because dispute resolution by judiciary is usually time-consuming and costly for employment disputes, it is often pointed out that a special system is necessary for resolving employment disputes efficiently without much cost.[7] The jurisdiction of this new system is still limited since, for example, it does not cover disputes with respect to equal employment opportunity, over which the Women's and Young Workers' Offices have jurisdiction. However, this system may be a starting point to develop a more sophisticated and comprehensive system of resolving labor and employment disputes.

V. Conclusion - Future Prospects

      As explained above, the amendment of the Labour Standards Law covered a very wide range of subjects. In this sense, it is an overhaul for the first time since the Law was enacted in 1947. This overhaul is an effort to adapt the Law to the socio-economic changes that Japan has experienced over these 50 years. On the one hand, the amendment relaxed the regulation in some important respects such as the discretionary work scheme and the limitation on the period of employment contract. Thus, the new Labour Standards Law provides for a new system of regulation of individual labor relations.

      Of course, it remains to be seen whether the objects of the amended provisions will be achieved effectively. For example, the supplemental resolution of the Labour and Social Policy Committee of the Upper House states that appropriate care should be taken to make sure that worker-management committees regarding the discretionary work scheme will work properly, especially in small- and medium-sized enterprises. For this purpose, it is important to make sure that the election of the workers' representative will be carried out in a fair and democratic manner. In fact, the Enforcement Ordinance will have a provision on this election process. The role of administrative guidance as well as inspection is essential not only for this issue but also for the success of other areas of the new regulation. On the other hand, regarding such matters as the reduction of overtime work, what is critical is the attitude of labor and management, especially that of trade unions.

B. Remaining Issues

      Also, there are several issues that the amendment did not address this time. For example, a number of issues remain with respect to the regulation of employment contract other than the clarification of working conditions and notice of reasons for discharge. Among them is the codification of the limitation on the employer's right to discharge. It is pointed out that the doctrine of the abusive dismissal as described above should have a statutory basis. On the other hand, since this doctrine has flexibility as case law, it does not necessarily fit the system of criminal sanction and administrative inspection under the Labour Standards Law. Thus, this issue may lead to the fundamental question as to whether Japan should have a separate legislation such as the "Employment Contract Law."

      Furthermore, there is much to discuss regarding the dispute resolution system. In the beginning, it is necessary to make sure the new system will function efficiently. However, since the jurisdiction of the new system is still limited, it is also necessary to consider developing a more comprehensive scheme that may cover a broader range of disputes such as employment discrimination.

      Finally, in considering this amendment, one must take into account other legislative efforts to amend labor and employment statutes. For example, the Equal Employment Opportunity Law was considerably strengthened in 1997, and will take effect together with the amended Labour Standards Law on April 1, 1999. Also, the amendment of the Child and Family Care Leave Law will become effective at the same time. This amendment includes a provision regarding leave for medical care of family members up to three months and the right to request exemption from night work for workers who have responsibility for child and medical care. It is necessary to consider the issue of the harmonization of family life with work from a broader viewpoint including that of social security.

      In the area of labor market law, a bill to amend the Worker's Dispatching Law was recently submitted to the Diet. The bill proposed a major change of policy under the Law in that it broadens the scope of worker dispatch in order to facilitate a supply system of a temporary workforce, whereas the current law is intended only to provide a supply system of skilled workers. Furthermore, the Ministry of Labour is now considering the amendment of the Employment Security Law. Although public employment agencies play a major role under the current Law in the adjustment of the supply and demand of workforce, the role of private employment agencies will be important as the mobility of workers increases. Thus, new rules in the field of labor market law appear to be necessary.

      Overall, Japan's labor law is now in the process of being overhauled in many respects[8] It is in the future that the result of this overhauling process will emerge in its entirety. In this sense, the precise contents of new Japanese labor law still remain to be seen, However, there is no doubt that the amendment of the Labour Standards Law is one of the important steps in the course of this process.

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