6 Jun 2018

Under Japan’s employment laws, employees who have been continuously employed by the same employer under a fixed-term employment contract for five years, are able to convert their fixed-term employment agreements to permanent employment agreements using what is known as the “Conversion Rule”.

By Saki Kamiya and Junichi Ueda, AMT Law

If the term of a fixed-term employee’s employment contract exceeds five years in total as a result of renewal, then prior to the termination date of the current term, the employee may request a permanent employment contract commencing on the day following expiry of their fixed-term employment contract. The employer is deemed to automatically accept such a request and a permanent employment contract will come into effect on the relevant date (Article 18 of the Labor Contract Act).

The Conversion Rule applies to fixed-term employment contracts executed or renewed on or after 1 April 2013. Accordingly, we expect to see an increase in the number of fixed-term employees seeking to make their employment contracts permanent from 1 April 2018.

How to prepare

To prepare for this expected increase in the use of the Conversion Rule, employers are advised to take the following measures:

  1. confirm the details of all employees, specifically, the number of fixed-term employees currently employed, the number of contract renewals agreed with each employee, each employee’s total period of employment, their role and responsibilities, and other relevant circumstances concerning each employee;
  2. review and consider the type of work assigned to each category of fixed-term employees;
  3. with respect to those employees who will have the right to convert their contracts, consider the terms and conditions of their employment contract that will be applicable following the conversion to a permanent employment contract. Employers may need to either establish new terms of employment following conversion or amend the existing terms of employment if those which will apply after conversion differ from those applicable before conversion or if they differ from those that apply to other permanent employees;
  4. include in fixed-term contracts a provision regarding the procedure for an employee to request conversion to a permanent employment contract; and
  5. inform fixed-term employees of the Conversion Rule by, for example, holding an explanatory meeting and/or distributing documents concerning the same.

Exceptions to the Conversion Rule

Japan’s employment laws provide the following exceptions to the Conversion Rule:

  1. fixed-term employees with expert knowledge and skills engaged in a specific project for a defined term of more than five years and for an annual salary of no less than 10.75 million yen (around £71,000) may not utilise the Conversion Rule while they are engaged on such project (for up to ten years from the commencement of their employment); and
  2. fixed-term employees who have reached retirement age.

To rely on these exceptions, the employer is required to prepare a plan addressing its employment management measures and to obtain certification from the director of the applicable labor bureau.

© 2018 AMT LAW

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