Author

GOLD

Yasuchika Fukuda

GOLD

Terminating Employment in Japan: What Multinational Employers Must Know

By Yasuchika Fukuda

– posted 3 hours ago

Multinational employers entering the Japanese market are often surprised to discover that terminating employment under Japanese law is among the most restricted processes in any developed economy. Do Japanese companies fire employees? They can, but dismissals that would be routine in other jurisdictions are frequently struck down by Japanese courts as unlawful. At Miyake & Partners, I regularly advise foreign-headquartered clients on this issue, and the single most important message I give is this: understanding why and how terminating employment Japanese law explained through statutes, case law and workplace practice works is the prerequisite for every staffing decision you make in Japan.

This guide sets out the legal foundations, the step-by-step process, the risk factors and the practical playbook that in-house counsel and HR teams need to get it right.

Can employers terminate employees in Japan? (short answer)

Yes, but only within narrow limits. A dismissal is lawful only when the employer can demonstrate objectively reasonable grounds that are socially appropriate. Without both elements, termination is void, the employee remains legally employed, and the employer faces back-pay liability and potential reinstatement orders.

Three core rules every multinational employer must know:

The “abuse of right” doctrine. Article 16 of the Labour Contract Act Japan provides that a dismissal lacking objectively reasonable grounds and social appropriateness constitutes an abuse of the employer’s right and is invalid.
Mandatory notice or payment in lieu. Under Article 20 of the Labour Standards Act, an employer must give at least 30 days’ advance notice or pay 30 days’ average wages in lieu before dismissal takes effect.
Strict scrutiny by courts. Japanese courts consistently apply a heavy burden of proof to the employer, reviewing the substance and the process of every contested dismissal.

Legal foundations for terminating employment in Japan: statutes and the judicial standard

Japan’s dismissal framework rests on two statutes and a body of Supreme Court case law that together create one of the most employee-protective regimes in the world. Understanding these foundations is essential before attempting any termination.

Key statutory provisions

The two principal statutes are:

Labour Contract Act (労働契約法), Article 16. A dismissal that “lacks objectively reasonable grounds and is not considered to be appropriate in general societal terms” is treated as an abuse of right and is invalid. This single provision is the backbone of Japanese dismissal law.
Labour Standards Act (労働基準法), Articles 20–21. Article 20 requires 30 days’ advance notice or 30 days’ average wages in lieu. Article 19 prohibits dismissal during periods of absence for work-related injury or illness and for 30 days thereafter, and prohibits dismissal during and for 30 days after maternity leave.

For fixed-term contracts, Article 17 of the Labour Contract Act stipulates that an employer may not dismiss a fixed-term employee before the contract expires unless there are “unavoidable reasons” (yamu wo enai jiyū), a standard even stricter than the one applied to indefinite employees.

The Supreme Court dismissal doctrine

The modern doctrine traces back to the Supreme Court’s landmark decisions, which established that a dismissal must satisfy both an objective reasonableness test and a social appropriateness test. The Supreme Court has held that even where the employer has contractual or regulatory grounds, the dismissal may still be void if it is disproportionate or procedurally deficient. Lower courts have consistently followed this framework, requiring employers to show not only that the stated ground existed, but that the employer exhausted reasonable alternatives before resorting to termination.

In my experience advising multinational clients, the judicial standard effectively means that dismissal is a last resort, not a routine management tool. Courts evaluate the totality of circumstances, including the employee’s length of service, personal circumstances, prior warnings, and the employer’s own conduct.

Lawful grounds for dismissal: what counts as objective and reasonable

The phrase “objectively reasonable grounds” encompasses three broad categories, but employers must understand that meeting the legal standard requires far more than simply fitting into one of these boxes. Documentation, proportionality and procedural fairness are decisive.

Misconduct

Serious misconduct, such as theft, fraud, violence or gross insubordination, is the ground most likely to survive judicial scrutiny, but only if the employer conducted a proper investigation and imposed progressive discipline before the final termination. A single instance of misconduct rarely justifies immediate dismissal unless it is extremely grave.

Incapacity and poor performance

This is the area where multinational employers most often misstep. Japanese courts expect employers to demonstrate sustained, documented poor performance and to show that the employer provided training, mentoring, reassignment opportunities and a clear performance improvement plan (PIP) before concluding that dismissal was the only option. An employee who has been with the company for years will generally receive more protection than a recently hired worker.

Business necessity and restructuring

Economic or restructuring dismissals (known as seiri kaiko) are subject to a four-factor test developed by the courts: (1) genuine business necessity, (2) efforts to avoid dismissal (reassignment, voluntary retirement solicitation, reduced hiring), (3) reasonable and non-discriminatory selection criteria, and (4) adequate consultation with workers and/or their union.

Fixed-term versus indefinite contracts

Fixed-term employees enjoy even stronger protection during the contract term, “unavoidable reasons” is a higher bar than “objectively reasonable grounds.” However, upon expiry the employer may choose not to renew. Even non-renewal can be challenged if the employee had a reasonable expectation of renewal (Article 19 of the Labour Contract Act), in which case the objective-reasonableness standard applies by analogy.

Ground for termination	Evidence / required documentation	Employer risk if insufficient
Misconduct (serious)	Investigation report, witness statements, disciplinary records, prior warnings	Low–Medium if well-documented; High if procedural flaws
Incapacity / poor performance	Performance reviews, improvement plan, objective metrics, rehabilitation efforts	Medium, courts expect sustained remediation attempts
Business necessity / redundancy	Business justification, selection criteria, alternatives considered, consultation minutes	Medium–High, must demonstrate necessity and fairness of selection

Notice, payment in lieu and summary dismissal

Under Japanese law, an employer generally cannot terminate an employee without giving at least 30 calendar days’ advance notice or paying 30 days’ average wages in lieu, as required by Article 20 of the Labour Standards Act. The two can be combined, for example, 15 days’ notice plus 15 days’ payment, as long as the total equals 30 days.

Can an employer dismiss immediately?

Summary dismissal (sokujitsu kaiko) without notice is permitted only in exceptional circumstances and requires prior approval from the Labour Standards Inspection Office (LSIO). The LSIO will grant approval only where the employee’s conduct is so egregious, for example, criminal activity or serious harm to the business, that waiting 30 days would be unreasonable. In practice, summary dismissals are rare, and attempting one without LSIO approval exposes the employer to significant legal risk. For more on the concept, see the broader discussion of summary dismissal, when it applies.

Japan labor law resignation notice period for employees

Employees on indefinite contracts may resign by giving two weeks’ notice under Article 627 of the Civil Code, a much shorter period than the 30 days required of employers. This asymmetry sometimes creates friction; culturally, many Japanese employees feel unable to resign quickly despite the statutory right. Employers should be aware that pressuring an employee to withdraw a resignation or making it practically impossible to leave can itself create legal liability.

Practical steps employers must follow: compliance checklist and communications

In my practice, the employers who succeed in defending termination decisions are invariably those who followed a rigorous, documented process. Below is the step-by-step approach I recommend to multinational clients when terminating employment under Japanese law.

Step-by-step employer compliance checklist

Step 1, Investigate thoroughly. Gather evidence, interview witnesses and record findings in a written investigation report before making any decision.
Step 2, Issue progressive warnings. Unless the misconduct is extremely serious, issue verbal and written warnings with clear descriptions of the expected improvement and a deadline.
Step 3, Offer remediation or reassignment. For performance-related matters, implement a documented PIP. For restructuring, consider transfers, reduced hours or voluntary retirement programs.
Step 4, Consult internally and externally. Brief senior management and local counsel. If a union exists, engage in collective bargaining in good faith before finalising any decision.
Step 5, Deliver written notice. Provide 30 days’ advance written notice (or pay in lieu) stating the specific grounds for dismissal. Vague or generic statements weaken the employer’s position in any subsequent dispute.
Step 6, Conduct the termination meeting. Hold a face-to-face meeting with the employee. Explain the reasons, hand over the termination letter and allow the employee to respond. Record the date and key discussion points in writing.
Step 7, Process final payments. Pay all outstanding wages, accrued leave and any contractual or customary severance within the statutory timeframe.
Step 8, Complete administrative filings. Notify the relevant social insurance offices and issue the employee’s Rishoku-hyō (離職票, separation certificate) so they can apply for unemployment insurance benefits.

Sample termination timeline

Phase	Typical timeframe	Key action
Investigation and evidence gathering	1–4 weeks	Complete written investigation report
Warnings and PIP (if applicable)	1–6 months	Issue warnings; monitor and document progress
Internal/legal review and union consultation	1–2 weeks	Obtain management and counsel sign-off
Delivery of 30-day notice or payment in lieu	Day 0	Hand-deliver termination letter; confirm receipt
Post-termination administration	Within 10–14 days	Final pay, insurance filings, separation certificate

What to say, and what not to say, at the termination meeting

The termination meeting is a critical risk point. My advice to clients:

Do state the specific factual grounds for the dismissal clearly and calmly.
Do reference the documented warnings and improvement opportunities provided.
Do offer a written summary of the decision for the employee’s records.
Do not make off-the-cuff remarks about age, nationality, gender, disability or union activity, any such comment can convert a defensible dismissal into a discrimination claim.
Do not pressure the employee into signing a release on the spot; allow reasonable time to review.
Do not frame the meeting as a negotiation over whether the dismissal will happen if the decision is final, ambiguity weakens the employer’s legal position.

Understanding whether and when contracts can be terminated from the employee’s perspective is also useful preparation for these conversations.

Redundancy in Japan: mass dismissals and collective processes

When terminating employment for economic reasons, restructuring, downsizing, or closing a facility, the employer faces heightened scrutiny under the four-factor seiri kaiko test described above. Japanese courts treat redundancy dismissals with particular caution because the employee is not at fault.

Employers must demonstrate:

Genuine business necessity. Financial data, market analysis and board minutes should support the claim that workforce reduction was unavoidable.
Effort to avoid dismissal. Courts expect evidence that the employer explored alternatives: hiring freezes, reduced overtime, voluntary early retirement programs, internal transfers and salary reductions.
Reasonable selection criteria. Selection must be objective and non-discriminatory, typically based on performance data, role criticality and length of service, not personal characteristics.
Adequate consultation. The employer must consult with affected employees, their representative or the union well in advance of finalising decisions.

Severance pay in Japan: customary versus statutory

Japan has no universal statutory requirement for severance pay. However, most medium-to-large employers provide severance (taishokukin) under company rules, collective agreements or established custom. The Japan severance pay calculation typically depends on the employee’s base salary, years of service and a company-specific multiplier. In a redundancy scenario, employers commonly offer enhanced severance, often in the range of three to six months’ additional pay, to encourage voluntary departures and reduce litigation risk. Where a company’s work rules explicitly provide for severance, those terms become contractually enforceable, and failure to pay can give rise to a separate claim.

Employers considering dismissal of employees on long-term disability should be especially careful to verify both their severance obligations and the additional protections that may apply.

Employee remedies, unfair dismissal in Japan and dispute routes

If an employee believes the dismissal was unlawful, several dispute resolution mechanisms are available, and in my experience the employee is more often than not in a strong position.

Labour tribunal (rōdō shinpan)

The labour tribunal system, introduced in 2006, is the most common initial avenue. It involves up to three sessions before a panel of one judge and two lay members, and is designed to resolve cases within roughly three months. If settlement is not reached, the tribunal issues a non-binding decision (shinpan); either party can object and escalate to formal litigation.

Civil court proceedings

Full civil lawsuits for unfair dismissal in Japan typically take 12 to 18 months or longer at the district court level. The employee may seek both reinstatement and back pay for the entire period between dismissal and judgment, which can represent a very substantial financial exposure for the employer.

Typical compensation outcomes and risk factors

Settlements, whether in tribunal mediation or litigation, commonly fall in the range of three to twelve months’ wages, depending on the strength of the employer’s documentation, the employee’s tenure, and the specific circumstances. Key risk factors that increase the employer’s exposure include:

Insufficient documentation of warnings or performance improvement efforts.
Procedural shortcuts, skipping investigation, failing to consult the union, or providing vague termination reasons.
Evidence of discriminatory motive (age, gender, nationality, union activity).
Dismissal during a protected period (work-related injury leave, maternity leave).

From what I am seeing in practice, courts continue to apply the objectiveness and reasonableness standard rigorously, and employers who cut corners rarely succeed in defending their decisions.

International employer checklist: a 6-month risk playbook

For multinational employers operating in Japan or entering the market, I recommend the following board-level risk playbook:

Month 1–2: Audit existing employment contracts and work rules. Ensure all documents comply with Japanese law and clearly set out disciplinary procedures, performance standards and severance terms.
Month 2–3: Train managers on Japanese dismissal standards. Brief every manager who supervises Japan-based staff on the “objective and reasonable” standard and the documentation requirements.
Month 3–4: Establish a documented warning and PIP process. Create templates for written warnings, performance improvement plans and investigation reports, reviewed by local counsel.
Month 4–5: Review union and collective bargaining obligations. Confirm whether a union represents any employees and establish a consultation protocol.
Month 5–6: Engage local employment counsel. Identify and retain a Japan-qualified employment lawyer before any termination decision, not after. At Miyake & Partners, we see the best outcomes when counsel is involved from the earliest stages of planning.

Conclusion: terminating employment under Japanese law requires planning, patience and expert guidance

Terminating employment under Japanese law is not impossible, but it demands a level of process, documentation and patience that many multinational employers underestimate. The legal framework, anchored in the Labour Contract Act, the Labour Standards Act and decades of exacting Supreme Court precedent, treats dismissal as a measure of last resort. Every step, from investigation to final payment, must be handled with care. In my view, the single highest-value investment a foreign employer can make is engaging qualified local counsel at the planning stage, well before any dismissal decision is finalised. Getting the process right protects the business, respects the employee’s legal rights and avoids the costly, reputation-damaging disputes that flow from procedural shortcuts.