Japan Update: Amendment of the Act on Stabilization of Employment of Elderly Persons

The amended “Act on Stabilization of Employment of Elderly Persons” (the “Act,” and the Act after amendment is referred to as the “Amended Act”) will become effective on April 1, 2021. The Amended Act requires employers to make best efforts to take Measure to Secure Working Opportunity for their employees up to the age of 70, in addition to the current obligation to secure employment of their employees up to the age of 65.

Purpose of the Amendment

Japan is experiencing rapid changes, including an aging society, declining birthrate, and decreasing population. Under these circumstances, and in order to maintain an active social economy, Japan must facilitate an environment in which elderly persons who desire to work can fully realize their potential. Accordingly, given the diverse characteristics and needs of individual employees, the Act was amended to provide various options for securing employment opportunities for individuals up to the age of 70.

Addition of Best Efforts Obligation to Implement Measures to Secure Working Opportunity for employees up to the age of 70

Under the Amended Act, a business operator (i.e., employer) will be required to make best efforts to implement “Measures to Secure Working Opportunity” for its employees up to the age of 70. We will first review the contents of the Act before amendment and then explain the Measures to Secure Working Opportunity for employees up to the age of 70.

• Overview of the Act before amendment

 The Act states that if a business operator stipulated a mandatory retirement age, that mandatory retirement age must be 60 or above (Article 8 of the Act). Further, prior to the amendment, as measures to secure employment of individuals up to the age of 65, the Act required a business operator to either: (i) raise the mandatory retirement age; (ii) introduce a continuous employment system (e.g., re-employment system, extended employment system, etc.); or (iii) abolish the mandatory retirement age (Article 9, Paragraph 1 of the Act). In practice, the majority of business operators adopted a continuous employment system ((ii) above) under which an employee who reached the mandatory retirement age would be re-employed pursuant to successive renewals of fixed-term employment contracts until the employee reached the age of 65.

• Overview of the Measure to Secure Working Opportunity for employees up to the age of 70 under the Amended Act

Under the Amended Act, business operators will be required to make best efforts to take at least one of the measures in the following table as a Measure to Secure Working Opportunity for employees from ages 65 to 70 (Article 10-2 of the Amended Act). The obligation to make best efforts applies to business operators that set a mandatory retirement age from 65 to below 70, or those that introduce a continuous employment system up to the age of 65 (excluding business operators that adopt a continuous employment system to an age above 70) (Article 10-2, Paragraph 1 of the Amended Act).

i)         Raise the mandatory retirement age to 70;

ii)        Abolish the retirement age;

iii)       Introduce a continuous employment system for employees up to the age of 70 (including employment at business operators other than specially-related business            operators*);

iv)       Introduce a system to execute outsourcing contracts for employees continuously up to the age of 70; or

v)        Introduce a system to allow former employees to be continuously involved in the following undertakings: (a) Social contribution activities carried out by the business operator itself; or (b) Social contribution activities undertaken by an organization commissioned or funded by the business operator. *Specially-related business operator means a subsidiary parent company, sibling company affiliated company, or an affiliated company of a parent company

Measures iv) and v) (i.e., non-employment measures) are referred to as “Measures to Support Business Startup.” The introduction of these measures requires consent from a labor union representing a majority of the employees, or if there is no such labor union, then an individual who represents a majority of the employees (These representatives are collectively referred to as “Majority Union, etc.”) (Article 10-2, Paragraph 1 of the Amended Act, and Article 4-5, Paragraph 1 of the Ordinance for Enforcement of the Amended Act).

Basic points in stipulating Measures to Secure Working Opportunity

The Act imposes a duty on business operators to make best efforts to implement Measures to Secure Working Opportunity for the elderly. Based on this, the “Guidelines on the Implementation and Operation of Measures to Secure Working Opportunity for Elderly” (Ministry of Health, Labor and Welfare Notice No. 351 of 2020) (the “Guidelines”) indicate that, when implementing those measures, business operators are able to stipulate standards to limit the scope of eligible individuals. In principle, the details of those standards would be subject to labor-management negotiations, and the Guidelines provide that it is desirable to hold sufficient consultations between the business operator and the Majority Union etc. and to obtain consent from the Majority Union, etc. Also, business operators are prohibited from implementing any standards that contradict the purposes of the Act, other employment laws and regulations, and social norms, such as standards that permit a business operator to arbitrarily exclude a certain type of employees (e.g., male or female, or union members, etc.).

The Guidelines provide that a business operator should conduct sufficient labor-management negotiations prior to implementing any of the Measures to Secure Working Opportunity, and that such measures should take into account the needs of elderly employees. However, a business operator is not legally obligated to implement any of these measures, but is instead expected to make best efforts. A business operator’s failure to take the measures would probably not immediately constitute a breach of the Act, assuming that the business operator is making best efforts, such as reviewing and negotiating with a view towards introducing some kind of appropriate measure. If a business operator is not making any steps toward introduction of an appropriate measure, then it may receive guidance or advice from the regulators (Article 10-3 of the Amended Act).

Continuous employment system up to the age of 70

Under the Act before amendment, continuous employment measures for employees up to the age of 65 at the same business operator or at a specially-related business operator was the only category of continuous employment measures permitted under the Act. (Article 9, Paragraph 2 of the Act).

However, the Amended Act also includes a continuous employment measure that permits continuous employment of an employee who is age 65 or older not only at the same business operator or a speciallyrelated business operator, but also at business operators other than specially-related business operators (Article 10-2, Paragraph 3 of the Amended Act). Thus, under the Amended Act, an employee who is age 65 or older may have qualifying continuous employment at business operators with which the original business operator has no capital relationship.

If employment will be continued at a business operator other than a specially-related business operator, that employment will not be subject to the exception in the indefinite employment contract conversion rule (Article 18, Paragraph 1 of the Labor Contracts Act) that is stipulated in Article 8, Paragraph 2 of the Act on Special Measures Concerning Fixed-term Employed Workers with Expert Knowledge, etc. Even if the exception (i.e., the exemption of the indefinite employment conversion rule mentioned above) would be available, it is necessary to comply with the prescribed legal procedures, such as formulating plans, obtaining approval from the competent authority, etc.). Thus, if a business operator repeatedly renews a fixed-term employment contract with an employee, and the period of employment exceeds five (5) years, the employee has the right to request to convert his/her fixed-term employment contract to a permanent employment contract.

Concerning Measures to Support Business Startup

A. Overview of the Measures to Support Business Startup

The “social contribution activities” in the Measures to Support Business Startup means any undertaking that helps to advance the interests of an unspecified and large number

of people (Article 10-2, Paragraph 2, item 2 of the Amended Act). The question of whether an undertaking constitutes a “social contribution activity” is determined on a case

by-case basis by taking into account the nature and contents of the undertaking. Thus, activities to support certain political parties or candidates will only advance the interests

of certain, or a small number of, people, and therefore, do not constitute social contribution activities in this definition. 

Also, in order to confirm that the social contribution activities are funded by the business operator, the business operator must provide necessary support to conduct the activities, such as making contributions, including donations to operate the undertaking, or providing office space to the organization. Further, the type of organization that satisfies the Measures to Support Business Startup with regard to social contribution activities is not limited to “Public Interest Incorporated Associations”, but includes all kinds of organizations.

B. Necessary procedures

(A) Draft a plan

A business operator that will take Measures to Support Business Startup must prepare a plan stating: (1) the reasons for choosing to take Measures to Support Business Startup from among the possible Measures to Secure Working Opportunity; (2) the contents of the undertaking; and (3) certain other matters (Article 4- 5, Paragraph 1 and Paragraph 2 of the Ordinance for Enforcement of the Amended Act).

(B) Obtain consent from the Majority Union, etc.

The business operator must obtain consent to the draft plan from the Majority Union, etc. (Article 4-5, Paragraph1 of the Ordinance for Enforcement of the Amended Act).

As a note, working under the Measures to Support Business Startup is not subject to application of the Labor Standards Act, the Industrial Accident Compensation Insurance Act, or other employment-related laws and regulations to protect workers. Thus, the Guidelines indicate that a business operator must provide sufficient explanation to the Majority Union, etc., at the time of obtaining consent on the following points; (a) the business operator is preparing a plan because a form of non-employment is not subject to application of labor-related laws and regulations; and (b) the reason why the business operator chooses the Measures to Support Business Startup.

(C) Publicize the plan to employees

The business operator must make the plan known to the employees by posting it at all times at a place easily viewable inside the workplace or by allowing the plan to be accessible through computers (Article 4- 5, Paragraph 3 of the Ordinance Enforcement of the Amended Act).

• Effective Date

The effective date of the Amended Act is April 1, 2021.

•  Practical Impact

As stated above, the Amended Act encourages business operators to implement Measures to Secure Working Opportunity for employees up to the age of 70, but only requires business operators to make best efforts to do so, and does not immediately obligate business operators to secure employment for employees up to the age of 70. However, if a business operator fails to make any efforts with a view towards introducing some kind of appropriate measure, then it may receive guidance and advice from the regulators.

After measures were initially introduced to secure employment up to the age of 65, an amendment to that law in 1990 obligated business operators to make best efforts to secure that employment, and that obligation was thereafter legally mandated by amendment in 2004, which was enforced in 2006. Therefore, the requirement to make best efforts to implement Measures to Secure Working Opportunity for employees up to the age of 70 is anticipated to become a legal obligation at some point. Accordingly, business operators would be advised to review the utilization of their elderly human resources.

By Kensuke Otsuki and Sho Ando, Anderson Mori Tomotsune, Japan, a Transatlantic Law International Affiliated Firm. 

For further information or for any assistance please contact japanlabor@transatlanticlaw.com

Disclaimer: Transatlantic Law International Limited is a UK registered limited liability company providing international business and legal solutions through its own resources and the expertise of over 105 affiliated independent law firms in over 95 countries worldwide. This article is for background information only and provided in the context of the applicable law when published and does not constitute legal advice and cannot be relied on as such for any matter. Legal advice may be provided subject to the retention of Transatlantic Law International Limited’s services and its governing terms and conditions of service. Transatlantic Law International Limited, based at 42 Brook Street, London W1K 5DB, United Kingdom, is registered with Companies House, Reg Nr. 361484, with its registered address at 83 Cambridge Street, London SW1V 4PS, United Kingdom.