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Issues of Employment 3: leave allowances

Does an employer need to pay leave allowances to its employees whom the employer let stand by at homes due to its suspension of business, even if such suspension of business is obliged to such a policy of the landlord of the building as closing the entire building to prevent the spread of COVID-19 infection?

In the case of force majeure, such as the circumstances that the employer's suspension of business is caused by (1) outside of its business that the employer could not manage and control, and (2) the employer could not avoid the causes for suspension of business even if the employer would give its utmost attention as an ordinary manager, it would be considered as the employer having no fault. Therefore, it is not considered as a refusal of the employee's work by "due to grounds attributable to the employer;" it is considered as suspension of business neither due to difficulties in managements or operations occurred in the employer's side, nor "in the event of the employee's absence from work due to grounds attributable to the employer" (Article 26 of the Labor Standards Act). Consequently, the employer will not have an obligation to pay leave allowances to its employees.

However, the provision of the leave allowance under Article 26 of the Labor Standards Act requires the employer to bear the allowance by ordering penalties and payment of surcharges for violators in order to ensure the livelihood of workers. Therefore, it should be considered limited when the circumstances are considered as force majeure that exempts the employer from payment for the leave allowances. For example, even if the suppliers and customers thus far suspended their businesses and would make the employer's keeping its business difficult, the employer should explore the possibility of keeping its business by starting transactions with new business contacts; if the employer faced closure of a shopping mall where it had a store, the employer should explore the alternative way of opening a new store at a different place or keeping its business through different marketing channels.

Thus, it will be totally considered what efforts specifically the employer made to avoid suspension of its business, and in the event that even after such efforts, the employer was still hard to keep its business running and obliged to suspend its business, then the suspension of business was considered by force majeure and exempts the employer from its payment for the leave allowances.

Meanwhile, if the employer does not pay any leave allowances to its employees because of having no legal obligation, the employees who became hard to maintain their livelihoods may leave work which may hinder the employer's resuming business operations after the end of the suspension of its business. Therefore, from the viewpoint of maintaining and securing human resources, it may be desirable for the employer to pay at least the leave allowances required by the Labor Standards Act to the employees, while it applies for an employment adjustment subsidy.

On the other hand, if there is no prospect of business resumption in the future and the employer chooses to completely close the business or close certain individual stores, it is desirable for the employer to cut payroll because of the employer and encourage the discharged employees to receive unemployment insurance.

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