JAPAN Trends and Developments Contributed by: Hiroaki Matsui, Mari Ueki, Yui Omoteyama and Rei Yamaguchi, AI-EI Law Firm
years before their official retirement. In this case, it is common for compensation to be significantly reduced around the time of retirement and transition to a part- time or fixed-time arrangement. It is notable that employees who continue to work under part-time or fixed-term contracts after retirement are still protected by the Part-Time and Fixed-Term Employment Act. Recently, disputes have arisen over claims of unlawful salary reductions around retirement or discrimination based on a part-time or fixed-term arrangement, based on the fact that there is no significant difference in job description before and after retirement. For instance, in the Nagoya High Court judgment of 25 March 2022, Roudou Hanrei, No 1233, p 5, Employee v Nagoya Automobile School , the High Court indicated that sal - ary reductions below 60% of pre-retirement earnings would be considered an infringement of the Act, given the absence of differences in job description before and after retirement. However, in the recent Supreme Court judgment of 20 July 2023, Employee v Nagoya Automobile School , the Court remanded the case to the lower court. In so doing, it stated that the lower court had neither sufficiently considered the nature and purpose of the pre-retirement and post-retirement basic pay and bonuses, nor had it adequately consid - ered the circumstances of labour-management nego - tiations and the process. Consequently, a definitive conclusion is pending as the case will be retried in the lower court. On the other hand, when there is a difference in job description before and after retirement, there is a ten - dency to justify salary reductions around retirement. For instance, in the Tokyo High Court judgment of 28 August 2024, Roudou Hanrei, No 1329, p 52, Employ- ee v Japan Surfactant Industry Co, Ltd , the High Court indicated that the decision to reduce the salary of an employee who was demoted from a managerial posi - tion upon reaching retirement age to approximately 40% of pre-retirement earnings did not constitute an abuse of reasonable discretion. Transfer Orders In Japan, Work Rules often include provisions that allow employers to order employees to transfer for business reasons, which become part of the employ - ment conditions and terms of contract. Given that
dismissal is not so easy under Japanese law, it has been established that employers may order employ - ees to transfer workplaces at their discretion as long as it does not constitute an abuse of rights (Article 3, paragraph 5 of the Labour Contracts Act (Act No 128 of 2007); Supreme Court judgment of 14 July 1986, Employee v Toa Paint , Roudou Hanrei, Vol 477, p 6). However, if there is an agreement between the employer and employee that limits the employee’s duties, extent of the employment transfer, or job role to a specific type, such agreements tend to be respected. Recently, the Supreme Court made it clear that if there is an agreement on job limitations, transfer orders exceeding such limitations cannot be issued without the employee’s consent (Supreme Court judg - ment of 26 April 2024, Employee v Shiga Prefecture Social Welfare Council , Saibansho Jihō, No 1838, p 3), implying that there is no room to discuss the abuse of rights. Please note that this case was related to tor - tious claims for damages and was not about a claim to invalidate the transfer order. Worker Classification and the New Freelance Act The applicability of employment law protection shall be determined by the eligibility of the “employee”, and this is recognised as a worker classification matter. In general, regarding the definition of “employee” under the LSA, the following factors are considered: • freedom to accept or decline work; • presence or absence of specific instructions and supervision on how to carry out work; • degree of time and location restrictions; • substitutability of labour; • remuneration in relation to the work performed; • existence of the nature of business ownership; • exclusivity; and • treatment under tax and social insurance laws. These factors are considered for determining employ - ee status (Ministry of Labour, LSA Study Report, The Criteria for Determining “Employee” under the LSA , dated 19 December 1985). In any case, if employee status is denied, the employ - ee may not receive protection under labour laws. At the same time, regarding freelancers who are denied
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