Introduction

On 7 April 2020 the government declared a state of emergency due to the COVID-19 pandemic. In response, prefectural governors have requested certain industries to suspend their business operations. While the emergency status was lifted on 25 May 2020, the suspention is still requested for cetain industries. It has not been officially decided, but it has been announced that the suspension will be lifted on 25 May 2020.

This article provides information for employers on how to handle employment matters during the COVID-19 crisis.

Employment adjustment subsidies

The government implemented special measures relating to employment adjustment subsidies (paid from government-operated employment insurance) for the period from 1 April 2020 to 30 June 2020. During this period, eligibility has been expanded and subsidy amounts have been increased. The subsidies will cover up to 80% (for small and medium-sized entities) or 66% (for large entities) of paid salaries, but will be capped at Y8,330 per day (as of 18 May 2020).

The key points are as follows:

  • Employers covered by employment insurance and affected by COVID-19 (ie, with a 5% reduction in turnover or production index compared with the same month in 2019) can apply for subsidies when they implement certain employment adjustments (eg, temporary suspension, reduced working hours or training employees) and pay salary or suspension allowance.
  • Employers must conclude a labour-management agreement regarding the employment adjustment to be implemented.
  • If an employer dismisses no employees, the subsidy rate will be increased to 90% for small and medium-sized entities or 75% for large entities. Further, for small and medium-sized entities whose business operation is requested to be suspended by the prefectural governor, the subsidy rate may be increased to 100% if the suspension allowance is paid in full or more than Y8,330.

On 14 May 2020 the government announced that it is considering reforming the subsidy system, which would enable employees to directly apply for the subsidy and increase the upper limit of the subsidy (please note that this article was written based on the information as of 15 May 2020).

Salary reduction

Some companies affected by COVID-19 put employees on temporary leave or reduced their working hours. Under Japanese labour law, employers can temporary suspend their business and put employees on temporary leave or reduced working hours; however, in principle, employers must still pay at least 60% of affected employees' average wages as a suspension allowance (unless the suspension is deemed to be because of a force majeure event). Affected companies may apply for subsides as explained above.

Before implementing temporary suspension, employers should consult with their employees. If a labour union exists, such prior consultation process is normally required under a collective agreement.

In addition, in principle, companies can ask employees to agree to temporary salary reduction or salary reduction (without paying the suspension allowance) corresponding to reduced working hours. However, such salary reduction cannot be made without employee consent (ie, individual consent or collective agreement with a union, if applicable).

Dismissal (due to redundancy)

Employees with indefinite-term employment

In general, under Japanese law, it is difficult for employers to dismiss employees with indefinite-term employment, because employers' right to dismiss employees is strictly restricted. Article 16 of the Labour Contract Act requires objectively reasonable grounds and appropriateness in light of socially accepted convention for a dismissal (unilateral termination of employment).

Under Japanese case law, the involuntary termination (ie, dismissal) of employees as a means of workforce reduction can be justified only when all of the following conditions are met:

  • the employer must prove that its financial and operational conditions necessitate it to reduce its workforce;
  • the employer has made reasonable efforts to avoid involuntary termination (the courts consider whether there is a possibility of reassigning the jobs of the redundant employees or transferring them to another workplace within the employer's organisation, or whether less severe measures compared with involuntary termination (eg, solicitation of voluntary resignation or a temporary suspension) have been implemented);
  • the employer has conducted prior consultations with representatives of a union, if applicable, or employees in good faith to explain the situation and seek their cooperation in coping with the difficulties which the employer is facing; and
  • in case an involuntary termination is inevitable, the selection of the employees to be dismissed must be made based on objective and reasonable criteria.

In general, it is difficult to satisfy these conditions; thus, in practice, employers often solicit voluntary resignation by offering a severance package.

Employees with fixed-term employment

In principle, fixed-term employment is terminated on the expiration of the term; however, where a renewal is repeated many times or it is deemed that a fixed-term employee has reasonable expectation of renewal, the similar doctrine for dismissal (discussed above) will apply and non-renewal may be deemed to be invalid.

Comment

The Ministry of Health, Labour and Welfare requests that employers maintain employment by using the subsidies. Employers must have a discussion with employees before taking actions (eg, putting employees on temporary leave or implementing workforce or salary reductions).