How to Terminate Employees in Japan: A Practical HR Guide

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.