On 1 April 2020 the Act on Partial Amendment of the Labour Standards Act entered into force, extending the wage claim limitation period.
Prior to an amendment to the Civil Code, which also entered into force on 1 April 2020, the limitation period in respect of wage claims under the Civil Code was, in principle, 10 years from the time when the relevant right became exercisable. However, in order to limit future disputes by encouraging early resolution, the Civil Code also stipulated a short limitation period of one year in relation to claims by employees pertaining to monthly wages.
On the one hand, since the right to claim wages forms the basis of employees' livelihoods, the one-year limitation period in respect of such claims represented a deficiency in the protection of employees under the law. On the other hand, a limitation period of 10 years amounts to an excessive burden on employers and would have a great effect on their ability to conduct business without fear of future claims. Therefore, the Labour Standards Act stipulated, as a special provision on top of the one-year limitation period under the Civil Code, a two-year limitation period with respect to the right to claim any kind of wages.
The Civil Code was amended with the intention of unifying and simplifying the limitation period by abolishing the one-year limitation period and, while retaining the conventional period of 10 years from the time when the right becomes exercisable, establishing a new limitation period of five years from the time when the obligee becomes aware that they may pursue the claim. The amendments to the Civil Code further stipulated that the limitation period would lapse on the passage of whichever is earlier.
In light of these amendments to the Civil Code, the limitation period under the Labour Standards Act was further examined and the following revisions were made by the amendment act.
Extension of limitation period in respect of wage claims
The limitation period for wage claims was in principle extended from two years to five years; however, since it is necessary to carefully examine the effect of the change, for the time being, a three-year interim limitation period was introduced to mitigate the drastic change.
Extension of period of retention of records
Previously, employers had to retain important records pertaining to labour matters (eg, wage ledgers) for three years. This obligation has been extended in principle to five years so that employers retain records that could be relevant to a future wage claim. Notwithstanding the foregoing, the period of the duty to retain important records pertaining to labour matters has, for the time being, remained unchanged to reflect the interim limitation period currently in force.
Extension of claim period for additional monies
If an employer fails to pay extra wages or similar in violation of certain obligations under the Labour Standards Act, the court has the authority to order the employer, at the request of the employee, to make an additional payment to the employee as a penalty. The period during which the court may order the employer to make such additional payments (the request period) was previously set at two years in conjunction with the limitation period for wage claims. In line with the changes to the limitation period for wage claims, the request period has also been extended in principle to five years, provided that an interim mitigation measure is in effect prescribing a three-year period to match the abovementioned interim limitation period.
The new limitation period for wage claims applies to wages that became due on or after 1 April 2020. In addition, employers' obligation to retain important records pertaining to labour matters is such that necessary records must be kept until the lapse of the corresponding limitation period in respect of an employee's right to claim wages. Moreover, the new request period applies to violations of the relevant obligations under the Labour Standards Act occurring on or after 1 April 2020.
Despite the in-principle amendments to the limitation period in relation to bringing a wage claim against employers, employees will have to wait until after April 2022 to pursue wage claims occurring more than two years prior. Only after April 2023 will it be possible for employees to pursue a claim in relation to unpaid wages occurring up to three years prior. In this sense, there is no immediate adverse effect on employers. However, employers currently incurring a future liability of unpaid wage claims should take steps to improve their operations in order to prevent the possibility of an increase in the amount of unpaid wage claims after April 2022 (ie, when employers' liability in this regard could extend from two years to three years of unpaid wages). In addition, in transactions involving the acquisition of Japanese companies, obligations in respect of unpaid wages could affect the acquisition price as a potential liability, and it should be noted that from April 2023, the unpaid wages liability could be 1.5 times that of unpaid wages prior to March 2022.
