Legal Services on Japanese Laws

COVID-19 Related Information

Issues of Employment 1: dismissal

May an employer dismiss its employees, because it ran into financial difficulty by drop in sales caused by its compliance with a request from a prefectural governor for suspension of business based on the declaration of a state of emergency issued to prevent the spread of COVID-19 infection?

When an employer dismisses a full-time employee, there is a need to exist an objective and logical reason based upon social convention and the dismissal without such due reasons is invalid (Article 16 of the Labor Contracts Act). Only the payment of no less than 30 days’ average wages of the employee according to Paragraph 1, Article 20 of the Labor Standards Act cannot legitimate the dismissal.

The employees have no responsibilities for the employer’s financial difficulty caused by the spread of COVID-19 infection. Therefore, the dismissal due to financial difficulty is the so-called dismissal for the purposes of reorganization and the existence of the following four elements will be reviewed rigorously to judge whether or not the dismissal has due reasons: (1) the necessity of labor reduction; (2) used efforts to avoid dismissal; (3) the selection criteria and selection of discharged persons are reasonable; and (4) the employer explained to and discussed well with the discharged persons in advance.

If the target employee is a contract employee with a fixed-term employment contract, dismissal during the employment period is not permitted unless there are unavoidable circumstances (paragraph 1, Article 17 of the Labor Contracts Act). Therefore, the dismissal due to financial difficulty will be much more difficult.

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