The use of labor hire workers in Japan is strictly controlled under the "Act for Securing the Proper Operation of Worker Dispatching Undertakings and Improved Working Conditions for Dispatched Workers" (the Act).
Recent amendments to the Act seek to tighten regulation of both labour hire agencies and host employers that use labour hire workers. The amendments were enacted by the Diet on 28 March 2012 and will come into force by 6 October 2012.
Until 1985, the use of short-term third party employees (labour hire employees) was illegal in Japan. After the Act was passed, labour hire arrangements were permitted, but labour hire agencies were required to be licensed, and the use of labour hire employees was restricted to certain types of specialised work, such as software development, clerical and filing, telemarketing, etc.
Further reforms in 2000 and 2004 loosened some of these restrictions and the number of labour hire workers increased sharply, but these reforms were controversial in a society where stable employment has always been highly valued.
The recent amendments represent a retreat from the current position and signal a renewed emphasis on restricting the use of labour hire workers to situations where their labour is required on a temporary basis, and not as a substitute for permanent employees.
We set out below the key changes to the Act that will commence on 6 October 2012.
1. Name Change
The title of the Act has been changed in order to emphasize its purpose of protecting labour hire employees. It will now be known as the "Act for Securing the Proper Operation of Worker Dispatching Undertakings and the Protection of Dispatched Workers".
2. Deemed offer of an Employment Contract:
The change which will most impact host employers is the provision of a sanction against host employers that breach the Act.
When a host employer accepts a labour hire worker knowing that the arrangement is in breach of the Act, the employer may be deemed to have offered the labour hire worker a direct employment contract. The offer will be deemed to have been made immediately following a finding by the Labor Bureau that the labour hire arrangement is in breach of the Act (for example, if the host employer has used a labour hire worker to perform work in a prohibited category such as construction work, security, or medical services, etc.). If the labour hire worker indicates their intention to accept the offer (presumably this will occur after the Labour Bureau has informed them of the deemed offer), an employment contract will be formed with the host employer.
If the host employer is not aware that the labour hire arrangement is unlawful, and this lack of knowledge is not due to any negligence on the host employer's part, no employment contract will be deemed to exist. However, it appears that this exemption will be interpreted narrowly. Diet deliberations on the amendment indicate that in order to use this exemption, the host employer will need to have first enquired with the relevant authority to determine whether the labour hire arrangement is legal. Further details on the interpretation of this provision may be clarified in the implementing cabinet orders and ministerial orders, which are yet to be issued.
3. Restriction on engaging in ex-employees as labor hire workers:
Host employers will be prevented from engaging any ex-employee as a labour hire worker for a period of one year after termination of employment with the host employer.
4. Restriction on sending labour hire workers solely to group companies
Large company groups have been able to use labour hire arrangements to minimize employment risks by setting up their own internal labour hire agencies that supply workers solely to group companies. This practice will no longer be possible under the amended Act, which requires that a maximum of 80% of labour hire employee working hours "sold" by any one labour hire agency can be worked for companies belonging to the same group as the labour hire agency.
5. Agencies prohibited from hiring labour hire workers on short term contracts
In principle, labour hire agencies will not be permitted to hire workers for the purpose of labour hire on short term contracts of less than 31 days. There is a limited exception for certain specialised work, to be stipulated by Ministerial ordinance.
6. Other Obligations for Labour Hire Agencies
Under the amended Act, a labour hire agency must also:
endeavour to implement measures that support the permanent employment of fixed-term labour hire workers (such as by providing opportunities or training)
consider the salary level of other employees at the host company when determining the salary to be paid to a labour hire worker;
inform labour hire workers of the fees being paid by the host company for the assignment;
include in the business report it files with the Ministry of Health, Labor and Welfare the breakdown of labour hire worker salaries and the fees paid by the host company to the labour hire agency (i.e. the agency's margin); and
take measures to ensure employment opportunities are found for individual labour hire workers when their assignment is terminated.
Timeline for Implementation
All of the amendments, except for the deemed employment offer in 2. above, will come into effect by October 6, 2012 (the exact date is yet to be specified).
The deemed employment offer referred to above will come into effect 3 years after the other amendments, that is, by October 2015.
Action Items for Companies Using Labour Hire Workers
Before the amendments come into effect later this year, companies using labour hire workers in Japan should:
review existing contracts with labor hire agencies, and ensure that they include appropriate representations and warranties regarding the agency's compliance with the Act;
ensure that labour hire agencies are aware of the restriction on hiring ex-employees, and have an appropriate screening process in place to prevent breaches of the Act; and
review the categories of work that labour hire workers engage in, and confirm that it is lawful for labour hire employees to perform those kinds of work.
Please do not hesitate to contact us with any questions in relation to this Alert.