Employment law in Japan: the Civil Code, the Labor Standards Act and work rules collide (with a cameo by Northwest Airlines!)

Japan and the US supposedly operate on fundamentally different legal systems. Japan has a “civil law” system where all the rules ultimately have some source in a neatly-organized set of statutes, whereas the US follows the English “common law” system of letting ancient court cases govern large areas of law, such as contracts and real estate. Although this is what you’ll learn in a Law 101 class, the distinction is actually not so simple in practice. Both systems are fundamentally patchworks of overlapping statutes and judicial fiat.

Japanese employment law is a good example of this. The Civil Code (民法), which is the general basis of private legal relations in Japan (contracts, property and familial relationships), has some basic rules governing employment and labor contracts. The Labor Standards Act (労働基準法), enacted by the Diet after World War II, goes into more detail about workers’ particular rights. Since then, there have been even more statutes covering family care leave, temp staff dispatching and other more minute areas, and there have been a number of precedents which seemingly overwrite the statutes altogether. Lifetime employment, arguably one of the key principles of Japanese employment law, is not enshrined anywhere in the Japanese code books; it comes entirely from court cases playing fast and loose with the Civil Code.

In practice, people usually look to expert advice to figure out what’s going on. One of my favorite online resources is a law firm called Eiko, an outfit of eight horribly serious-looking Japanese lawyers and one not-so-Japanese lawyer based in Osaka. I have no clue how good they are in the courtroom, but they put out four short articles each month in Japanese through their “Business Law Front Line!” (ビジネス法務最前線!) newsletter. You can subscribe here.

This week, one of their topics is employer liability for economy-induced work stoppages. This is a phenomenon you’ve probably heard about in the news: many Japanese companies are shutting down entire lines and telling their employees to take some time off. The full article, by attorney Yukari Ikeno, is here. Here’s a translation of the meat of it:

Under the Labor Standards Act, when work stops “due to the fault of the employer [the company],” the company must pay wages (or salary) at no less than 60% of the ordinary rate.

On the other hand, under the Civil Code, when an employee is unable to provide labor “due to the fault of the creditor [the company],” the employee does not lose their right to receive the full amount of their salary.

Although it is hard to interpret which of these two standards applies to form a duty to pay, the Supreme Court held, in its decision of July 17, 1987 on the Northwest Case (ノースウエスト事件), that if the Civil Code standard is fulfilled, the worker may claim the full amount of their salary under the Civil Code provision.

As some additional color (and because I love to talk about the history of Japanese aviation), this was a case from the late 70s which arose during a Northwest Airlines employee strike in Tokyo. The strike forced the Tokyo station to close, halting Northwest’s continuing service to Osaka and Okinawa. Northwest told its employees in the latter cities (who were not striking) to stay at home and cut their salary for the duration. The Supreme Court used this opportunity to state that the Civil Code provision covered a wider range of issues than the Labor Standards Act provision—and then said that it didn’t really matter, because the strike was caused by the union and therefore the employees had no right to invoke either provision.

Continuing:

This interpretation gives rise to doubt as to why the Labor Standards Act, a law for the purpose of protecting workers, provides for a lower standard of payment than the Civil Code. It’s a bit confusing, but here is how we understand this point:

Under the Labor Standards Act, even language similar to that of the Civil Code would be rigidly construed against the employer from the general legal standpoint of protecting workers. Thus we understand that the company has an obligation to pay 60% or more in any case, except in cases of force majeure such as a factory being destroyed in an earthquake.

On the other hand, under the Civil Code, as the language states, when the employee has become unable to provide their labor, the employee must prove that there is some fault on the part of the company, thus limiting, moreso than the Labor Standards Act, the cases in which the liability of the company may be found.

So compensation under the Labor Standards Act, despite being lower in amount, also greatly relaxes the worker’s responsibility to provide evidence, and is therefore viewed as protecting the worker.

Views diverge as to whether losses from the current worldwide recession can give rise to the 100% payment under the Civil Code. One can believe that these would have to be determined judicially on a case-by-case basis.

Oh no! Litigation! But wait, there’s a solution:

To avoid this sort of dispute, a company should preventively provide in its rules of employment that “for days when a work-stoppage allowance is paid, the worker may not claim any salary in excess thereof.”

That’s why your company writes really long rules of employment; they don’t want to have to go through all that just to find out how much they owe you. That said, such a provision would likely be more of a deterrent than an actual bar to claiming full salary, since the law still applies regardless of what the work rules say.

One thought on “Employment law in Japan: the Civil Code, the Labor Standards Act and work rules collide (with a cameo by Northwest Airlines!)

  1. I dont know why no one commented on this, but I gotta say this is a great post and jives very closely with my experiences. The companies are CONSTANTLY revising and adding to internal regulations in reaction to whatever situation arises that had not been expected previously.

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