Vol.39-No.8 August 1, 2000
With the economic downturn continuing, many firms are realigning their operations. Strategies include corporate breakups in the form of management transfers, mergers and acquisitions. A problem involved with such restructuring is how to protect workers' rights and interests. A new system has now been established to deal with this issue.
Corporate breakups were formerly carried out via mergers and acquisitions or through management transfers, but these approaches had their shortcomings. With mergers, all the rights and duties were comprehensively taken over by the new firm, whereas management transfers required individual agreements from creditors which was a cumbersome procedure. To improve the situation, the Commercial Code was revised to facilitate corporate spinoffs. At the same time, many were worried that corporate spinoffs might lead to a deterioration in the working conditions of the employees involved. The enactment of a law to protect workers in such situations came to be seen as being necessary along with the revision of the Commercial Code. Accordingly, with the revision of the Code, legislation to protect workers was enacted. Vital points in a corporate breakup include the timing and the transfer of the labor contract of the employee to the spun-off company while protecting their rights. In this connection, companies are required to draw up the breakup plans and the breakup contracts in writing. This is seen as playing an important part in the working of the system.
Let us first outline the system of corporate spinoffs provided for under the Law Concerning Succession of Labor Contracts after Spinoffs. The revised Commercial Code specifies two types of corporate breakups: the spinning off of a division to form a new company and the takeover of a division by an existing company. This makes it possible for a firm to take over from another company which is spinning off its divisions, not the rights and duties of the company as a whole but only those rights and duties which relate to the affected part. It introduces as a new concept partial comprehensive succession to enable a company to spin off its divisions without the approval of individual creditors. The divisions affected by the breakup are restricted to those specified in the breakup plan (for the spinning off of a division into a new company) or in the breakup contract (in the case of takeovers) which must be drawn up beforehand. This means that the creditors' rights and duties in respect to the division to be separated, as specified in writing, are transferred as they stand to the new company or the existing company which is taking it over. To protect creditors and shareholders, stakeholders opposed to the breakup are given the right to request, within six months of the restructuring coming into effect, that the breakup be declared invalid.
Prior to the enactment of the revised Commercial Code, the Lower House added an amendment saying that before spinning off a division, a firm should consult with its employees, and that employment contracts should be clearly mentioned in the breakup plans and contracts as rights and duties to be transferred. Moreover, the Upper House adopted several collateral resolutions calling for (1) general recognition of the principle that workers' opinions which emerged in prior discussions should be respected; (2) appreciation of case law which rules that employees should not be dismissed simply because of corporate restructuring; and (3) consideration of measures and legislation to protect workers regarding the transfer of labor contracts involved in mergers, acquisitions and takeovers.
The Law Concerning Succession of Labor Contracts after Spinoffs, in conformity with the revised Commercial Code, specifies the measures which firms must take to protect workers.
At least two weeks before the general shareholders' meeting at which the breakup plan is to be approved, the firm is obliged to give notice to employees that they are to be transferred to the other firm, and that employment contracts related to them will be protected in the spinoff or takeover agreement. Firms that have labor agreements must inform their labor union(s) that the terms of the agreement will be transferred to the other firm.
Employees engaged mainly in tasks assigned to the divested division will be transferred to the other firm. At the same time, employees who work mainly in the divested division but are not mentioned in the spinoff plan or takeover contract (and is thus in theory to be excluded from the transfer) may object in writing up to one day before the shareholders' meeting and be transferred to the other firm. On the other hand, employees who work mainly in other divisions but at the same time have tasks in the division to be divested and find themselves mentioned in the plan as an employee to be transferred may object in writing up to one day before the shareholders' meeting, and may refuse to be transferred. Incidentally, workers who are not engaged in any task in the division to be divested are not within the scope of the transfer. If they are to be involved, their consent is required.
The Law Concerning Succession of Labor Contracts after Spinoffs also provides for a succession of collective agreements. The agreements will be transferred to the spun-off company by stating the parts of the agreement to be transferred in the spinoff plan or takeover contract. As for parts of the agreement concerning regulations unrelated to labor conditions (such as those relating to union offices, the use of facilities such as message boards, etc.), the transfer of the whole or a part will be effected by a mutual agreement as stipulated in the plan or contract. In addition, if a worker to be transferred belongs to a labor union, it will be assumed that a labor agreement exactly similar to that affecting him at his former company has been concluded between the union and his new company.
In the Law Concerning Succession of Labor Contracts after Spinoffs, the Diet included a rider saying that firms should endeavor to gain the understanding and cooperation of workers involved in corporate breakups. Also, collateral resolutions more or less the same as with the revised Commercial Code were incorporated into the law. At the same time, additional conditions were cited. It should be clearly mentioned in the guidelines for spinoffs and takeovers that labor conditions will not be changed in any way that is unfavorable to workers. It also provides for Ministry of Labour ordinances and guidelines to be established as objectively as possible to define employees who are considered to be mainly engaged in the tasks of divested divisions.
According to a survey by the Ministry of Education, Science, Sports and Culture (MESSC), the employment rate of high school graduates this spring was 88.2 percent, a decline of 1.7 points from the previous year. It was the lowest rate since the survey commenced in 1976. The number of graduates who did not have a job increased over the same period by some 2,000 to 32,000 (consisting of approximately 14,000 males and 18,000 females). At the same time, the employment rate for university graduates seeking work decreased by 0.9 point to 91.1 percent, the lowest figure since the MESSC and the Ministry of Labour jointly began surveying this matter in 1996. Thus, the estimated total number of recent graduates without jobs this year was 30,000, an increase of some 1,000 over the previous year's figure.
In response to the record high joblessness among new graduates, the Ministry of Labour has initiated countermeasures which include (1) the extension of eligibility for short-term, free employment vocational training programs for high school students, as well as allowing private firms (in addition to vocational colleges and private job training institutes) to conduct such training programs, and (2) subsidizing the vocational training provided by firms that have hired recent university graduates without jobs.
Where the scheme for allowing private firms to conduct job training is concerned, the government provides subsidies of about ¥60,000 per month per person as training costs, and job-seekers can in principle receive the training free. The training period to be covered by this scheme is three to six months, and the expected number of trainees will be 6,000, six times as many as in the previous year. The program is now available not only for university and two-year college graduates but also to high school and technical college graduates. It is aimed at those who have registered at a Public Employment Security Office but have not found a job. The graduates can choose where to receive training from among the firms seeking new employees.
The subsidy to defray the training costs of firms which have recently taken on jobless graduates will be financed by expanding the scope of the Grants for Life Time Development of Vocational Abilities which used to be granted to firms obliged to transfer their middle-aged or elderly employees to different sections or to conduct training to help their employees keep up with technological innovation. Firms that begin a training program of up to six months by the end of September are eligible for subsidies to cover two-thirds of the training costs (three-quarters for small and medium-sized firms) up to a maximum benefit of ¥300,000.
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