How to Terminate Employees in Japan: A Practical HR Guide
Table of Contents
Key Takeaways:
- Legal reasons for termination in Japan
- Notice periods and severance requirements
- Avoiding wrongful dismissal claims
Introduction
Terminating employees in Japan is highly regulated. This guide outlines the steps for lawful termination under Japanese labor laws.
Types of Termination Scenarios in Japan
Terminating employees in Japan can occur for several reasons, with each scenario demanding specific procedures to ensure compliance with the law. The most common scenarios include redundancy, misconduct, and performance issues.
1. Redundancy
Redundancy happens when a company no longer needs an employee’s position due to organizational restructuring, economic conditions, or technological advancements. Redundancies must be genuine and follow a fair process, including offering alternative employment within the company if available. Employers must also demonstrate that they’ve exhausted all measures to avoid layoffs, such as reducing work hours or wages.
2. Misconduct
Terminating an employee for misconduct—such as theft, harassment, or violation of company policies—requires a thorough and transparent investigation. Employers must collect evidence and allow the employee to defend themselves before taking action. Immediate termination without fair procedures can lead to wrongful dismissal claims.
3. Poor Performance
If an employee consistently underperforms, termination may be justified, but only after the company has provided clear feedback, opportunities for improvement, and training. Documentation of these efforts is crucial. Without a clear improvement plan, terminating an employee for poor performance could be considered unfair.
Each of these termination scenarios requires adherence to legal standards and proper documentation to ensure compliance with Japanese labor laws.
Grounds for Lawful Termination
In Japan, dismissing an employee requires valid legal grounds as defined by the Labor Standards Act. Common lawful reasons for termination include:
- Redundancy: When a role is no longer required due to economic changes or restructuring.
- Incapacity: If an employee can no longer fulfill their duties due to health issues or prolonged absence.
- Misconduct: In cases where the employee breaches the company’s rules or engages in illegal activities.
- Poor Performance: After reasonable steps have been taken to help the employee improve and these efforts have been well-documented.
Dismissals that do not adhere to these legal grounds can result in claims of wrongful dismissal, leading to possible legal and financial consequences for the employer.
We’re here to help you on your journey to hire, manage and pay.
Wrongful Dismissal Avoidance
Avoiding wrongful dismissal claims in Japan requires employers to follow proper legal procedures and maintain transparency throughout the termination process. Wrongful dismissal occurs when an employee is terminated without a valid reason or in violation of labor laws.
How to Avoid Wrongful Dismissal:
1. Document the Termination Process:
Ensure that all reasons for termination are thoroughly documented. For performance-based dismissals, maintain detailed records of feedback, improvement plans, and any disciplinary actions taken.
2. Follow Legal Procedures:
For dismissals related to misconduct, employers must conduct a fair and impartial investigation and provide the employee with an opportunity to explain their side. Skipping this step can result in a wrongful dismissal claim.
3. Consult with Legal Experts:
When in doubt, seek legal advice to ensure that the dismissal process is compliant with local laws. Employers who don’t follow proper procedures risk significant penalties.
Notice Periods and Pay in Lieu
The Labor Standards Act in Japan mandates that employers provide a 30-day notice before terminating an employee. This notice period applies in most termination cases, including redundancy and poor performance.
Pay in Lieu of Notice:
If immediate termination is necessary, employers may offer pay in lieu of notice, compensating the employee for the 30-day notice period. This pay is equivalent to the wages the employee would have earned during the notice period.
Employers must ensure that they provide the required notice or pay in lieu to avoid claims of unlawful dismissal.
Severance Pay and Long Service Payment
Unlike some countries, severance pay is not legally mandated in Japan unless specified in the employment contract. However, many companies voluntarily provide severance pay, especially in cases of redundancy or when employees have served the company for a long period.
Severance Pay Calculation:
In companies that offer severance, the amount is typically based on the employee’s years of service and their salary. While there is no legal requirement to provide severance, many businesses include it as part of their corporate policy to ensure fair treatment and maintain a positive employer reputation.
In addition to severance, long service payments may be offered as a form of compensation to employees who have dedicated many years to the company.
Steps in the Termination Process
Employers in Japan must follow a structured termination process to ensure compliance with labor laws and minimize the risk of disputes. The key steps in this process are outlined below:
1. Document the Reason for Termination
Before initiating termination, ensure that you have clear documentation supporting the reason for dismissal. Whether it’s redundancy, misconduct, or poor performance, this documentation is crucial for defending the termination if challenged.
2. Issue Formal Notice
Provide the employee with formal written notice of termination. The notice should clearly state the reason for dismissal and the effective date. Employers must adhere to the 30-day notice period or provide pay in lieu.
3. Conduct an Exit Interview
Although not required by law, conducting an exit interview can help address any concerns the employee may have and clarify the reasons for termination. This also helps ensure a smoother transition and minimizes the risk of future disputes.
4. Calculate Final Compensation
Ensure that the employee receives all outstanding wages, unused leave, and any severance payments (if applicable). Employers must provide final payments in a timely manner to avoid legal complications.
5. Follow Legal Compliance
Throughout the termination process, employers must adhere to Japanese labor laws, including providing proper notice, maintaining documentation, and calculating compensation accurately. Failure to follow these steps can result in legal action and financial penalties.
