In Japan, reforms over the years of its labor laws, which have been largely premised on a system of lifetime employment and time based wages, have remained minor and labor related issues such as low productivity, depressed wages, karoshi (death by overwork) from long working hours and power harassment, employers that coerce its employees to perform, but do not pay them properly for, overtime work, and increased prevalence of using contingent  employees (employees paid on an hourly basis, contract employees and dispatched workers) as adjustable and disposable work forces, became entrenched.

To address some of the above issues, on June 29, 2018, Japan passed the legislation commonly referred to as the “Work Style Reform Law” (hatarakikata kaikaku hou) (the “Law”), which had been marked by Prime Minister Shinzo Abe as one of this year’s keystone legislations. The Law principally addresses issues related to work hours and to the disparity in treatment between regular and nonregular employees. Below we outline the main points of change under the Law. While the Law provides specific guidance in some areas, in other areas it is vague, with certain clarifications remaining pending, and so employers keeping abreast of the Law should be mindful of further developments including future clarifications by the authorities in the Law’s implementation, and consult with counsel in relation to compliance and best practices.

1. Upper limit to permitted overtime hours (applicable to large companies starting April, 2019, and to small and mid-sized companies starting April, 2020).

• Under the current law, up to an aggregate amount of 6 months per year, there is no limit to the number of hours of overtime work that employers can have employees work pursuant to special agreement with employees; in practice, such special agreements are commonly entered into.
• Under the Law, permitted overtime work is generally limited to 45 hours in a month and 360 hours in a year, and, even if pursuant to special agreement, it is limited to less than 100 hours in a month and up to 720 hours in a year, with an average across multiple months not to exceed 80 hours. The Law provides for penalties for employers in violation of the foregoing.

2. Fair treatment of employees, regardless of employment status (applicable to large companies starting April, 2020, and to small and mid-sized companies starting April, 2021).

• The Law made into a provision a prohibition of unreasonable disparity in treatment between regular and nonregular employees, where reasonableness of disparity in treatment must be considered against the nature and purpose of such disparity.
• Under the Law, employers are obligated to afford equal treatment between regular employees and fixed-term employees performing the same work or the same potential range of work. The standards applicable here will be further specified in forthcoming administrative guidelines. Here, it is expected that employers would be subject to certain disclosure requirements regarding disparity in treatment between such workers. Employers should review the compensation and benefits of their various workers in preparation for the implementation of the foregoing.
• The Law also includes provisions related to improvement in treatment of dispatched workers.

3. Introduction of “highly skilled professionals” exemption (applicable starting April, 2019).

• Under the Law, “highly skilled professionals” (“HSPs”) are exempt from regulations related to work hours. HSP is defined as one (i) whose work requires highly specialized knowledge, and the nature of such work is such that the amount of time worked and the work product are typically not highly correlated and (ii) earns annual compensation of JPY 10.75 million or more.
• The types of job duties eligible to constitute HSPs will be specified further going forward; it is contemplated that HSPs would include professionals such as developers of financial products, dealers, analysts, consultants and research and development professionals. Here, the types of job duties that would constitute HSPs may potentially be fairly narrow in scope; whether a job duty falls under HSP would need to be duly confirmed.

4. Other changes/provisions.

 (1)      Mandatory PTO usage by employees (applicable starting April, 2019).

• Under the current law, while employers are under an obligation to provide a certain number of PTO days to employees, employers do not have an obligation to make sure that the employees consume such PTO.
• Under the Law, with respect to employees who are provided 10 or more annual days of PTO, employers are obligated to procure that such employees consume 5 or more such PTO days during designated periods (unless otherwise consumed). Employers in violation of such obligation are subject to fines of up to JPY 300,000 per employee.

(2)       Mandatory minimum interval between working hours (applicable starting April, 2019).

• Under the Law, employers have a duty to endeavor such that there is a certain minimum period between an employee’s end of work time and the next start time.

(3)       Reinforcement in the protective role of industrial (company) doctors.

• Under the Law, employers are obligated to (i) provide industrial doctors* with information necessary for proper health management of employees and (ii) report advice rendered by industrial doctors to the employer’s internal health committee.

* Under the Industrial Health and Safety Law, an employer must have in place an industrial doctor for a place of employment with 50 or more employees employed from time to time. Such industrial doctors may render advice to the employer on matters regarding the health management of employees.

(4)      Obligation of awareness of employee work hours.

• Under the Law, employers are obligated to be aware of employees’ work hours by statutorily provided means (e.g., by employer’s direct observation or by objective means).