Is it Possible to Cancel Job Offers Due to Poor Performance or Business Downsizing Amid the COVID-19 Crisis?

According to statistics from the Japanese Ministry of Health, Labour and Welfare, the projected number of worker dismissals and employment suspensions since May 2020 has increased to 117,899 as of October 1, 2021.

Many companies have been forced to downsize their operations due to the poor performance caused by the COVID-19 pandemic, and have been unable to employ the number of staff they initially planned. As a result, there are not a few companies that choose to dismiss employees, suspend hiring, or rescind job offers to new graduates and others.

Some hiring managers may think that they are free to rescind job offers to “job offer recipients” because they are not yet employees. However, once an employment contract has been established, this could be judged as an abuse of the right to dismiss, so caution is required.

Therefore, in this article, we will clearly explain the points to be aware of when rescinding job offers in companies that have suffered poor performance and downsizing due to the COVID-19 pandemic.

Establishment of Employment Contract upon Job Offer Confirmation

The term “job offer confirmation” is not a legal term, but generally refers to the state where an employment contract is established when a company sends a “job offer notice” detailing the expected start date and reasons for cancellation of the job offer to applicants such as students or mid-career hires, and the student submits a “pledge” or “acceptance of employment” to the company.

Formally, it is referred to as an “employment contract with a reserved right of termination at the beginning”, which includes the start date (commencement of work) and a right of termination. The cancellation (withdrawal of job offer) will be invalid unless certain requirements are met.

There are cases where a “preliminary job offer” is given before the “job offer”. However, this is not a formal document, but a means for the company to convey its intention to offer a job to the student through verbal communication or email. Since an employment contract is not established like in the case of a “job offer”, cancellation is generally free.

Two Types of Job Offer Cancellations and Their Legality

After a labor contract has been established, there are two types of “job offer cancellations”. In addition to “termination” due to reasons arising from the job offer recipient, there is also “dismissal” due to company circumstances such as poor performance, which is the main theme of this article.

Exercise of Termination Rights in ‘Fixed-Term Employment Contract with Reserved Termination Rights’

The exercise of termination rights during the post-employment offer period after the establishment of a ‘Fixed-Term Employment Contract with Reserved Termination Rights’ is interpreted in the same way as the ‘Reserved Termination Rights during the Probationary Period’ until the full-time employee is officially hired.

Therefore, in order to cancel the job offer, you must provide concrete evidence of the lack of eligibility as an employee.

Generally, students who have received job offers expect to join the company and give up opportunities and possibilities to join other companies. Therefore, the status of students who have received job offers is not fundamentally different from that of workers during the probationary period, despite the difference in employment status. Therefore, it is reasonable to interpret the exercise of termination rights during the job offer period in the same way as the exercise of reserved termination rights during the probationary period. In other words, the reasons for cancelling the job offer are limited to ‘facts that could not be known at the time of the job offer and could not be expected to be known, and that can be objectively and reasonably recognized as cancelling the job offer for these reasons in light of the purpose and intent of reserving termination rights, and can be approved as appropriate in social common sense.’

Independent Administrative Institution Labor Policy Research and Training Organization ‘Model Case Law Dainippon Printing Case (2) Content of Judgment’

In the event of a lawsuit, the validity of the cancellation of the job offer will be objectively determined. However, dismissal during the probationary period is considered to have a wider range of freedom of dismissal than in the case of regular dismissal, and the following cases are likely to be recognized as valid cancellations of job offers.

• If there are false statements in the submitted documents and it is clear that this makes the person ineligible as an employee
• If the job offer recipient was unable to graduate from school (※ If the job offer is based on the premise of graduation)
• If the job offer recipient becomes unable to work due to health reasons
• If the job offer recipient has committed a crime

Type 2. Termination due to the company’s circumstances

In cases where job offers are rescinded from candidates who have submitted a pledge due to the deterioration of business conditions caused by the spread of the new coronavirus, this falls under “termination” due to the company’s circumstances after the conclusion of the employment contract, and Article 16 of the Japanese Labor Contract Law (労働契約法) applies.

Article 16 (Termination)
Termination is invalid if it lacks an objectively reasonable reason and is not considered socially acceptable.

For “termination” to be considered objectively reasonable and socially acceptable, it must meet the same requirements as “redundancy dismissal”.

“Redundancy dismissal” is a dismissal due to business reasons for which the worker bears no responsibility and the company should bear responsibility. When a company carries out a “termination”, it must thoroughly consider whether it constitutes an abuse of the right to dismiss.

Currently, the abuse of the right to dismiss is judged by whether the following four criteria, which were almost certainly established in the 1970s (Showa 50s), are met.

The “business necessity” to reduce staff

Due to the unforeseen spread of the new coronavirus, if the business situation deteriorates and the company is forced to downsize, or if the possibility of bankruptcy increases significantly, it can be said that the necessity and rationality of “dismissal” is likely to be recognized even compared to normal business difficulties.

The employer’s sufficient “obligation to avoid dismissal”

From the perspective that staff reduction should be the last resort, it is important whether efforts have been made to avoid dismissal by improving management through measures such as delaying the start date of employment, or reducing officer and employee remuneration and expenses.

However, the global spread of the new coronavirus has progressed at a faster pace than expected, and it was virtually difficult to execute the obligation to avoid dismissal in the short period between the confirmation of the job offer and the start of employment, in the midst of unprecedented situations such as the declaration of a state of emergency. This should be considered as a factor.

The “rationality of selection” of the dismissed person

Existing employees and job offer recipients differ in terms of their ability to perform their duties and the possibility of re-employment. It is considered rational for a company to prioritize the continued employment of existing employees and choose to rescind the job offer of less experienced job offer recipients.

Also, if the job offer is rescinded not for all job offer recipients but for specific ones, there must be objective rationality for the reason why the specific job offer recipients were chosen, just like the above.

The “obligation to explain and consult” on the appropriateness of procedures between non-dismissed persons

When rescinding a job offer, it is necessary to provide prior explanation and consultation to the job offer recipient, as unilateral action by the company would constitute an abuse of the right to dismiss.

No matter how sudden the deterioration of business conditions, it is important whether the company has sincerely explained the current business conditions and future prospects to the job offer recipient, solicited voluntary retirees, offered financial compensation, etc., and proceeded in a way that does not disadvantage the job offer recipient.

Court precedents on redundancy dismissal

Here are some past court precedents where dismissal related to redundancy dismissal was judged to be invalid.

• Case where dismissal due to business downsizing was judged to be invalid due to lack of necessity for staff reduction: Furuizawa Gakuen case (Hiroshima High Court ruling, April 24, Heisei 14 (2002), Labor Judgement No. 849, p. 140)
• Case where dismissal of nursery teachers due to decrease in number of children was judged to be invalid because procedures such as solicitation of voluntary retirement were not followed: Asahi Nursery School case (Supreme Court ruling, October 27, Showa 58 (1983), Labor Judgement No. 427, p. 63)
• Case where redundancy dismissal under business crisis was judged to be invalid because there was no rationality in the redundancy criteria and it was hard to say that sufficient consultation with the labor union was conducted: Takamatsu Heavy Machinery case (Takamatsu District Court ruling, June 2, Heisei 10 (1998), Labor Judgement No. 751, p. 63)
• Case where dismissal due to abolition of deficit department was judged to be invalid because, although the necessity to abolish the deficit department was recognized, the procedure lacked appropriateness: International Credit Sales case (Tokyo District Court ruling, July 9, Heisei 14 (2002), Labor Judgement No. 836, p. 104)

Summary

In this article, we discussed the topic of “Can job offers be rescinded due to poor performance or business contraction in the COVID-19 pandemic?” We explained 1) the establishment of job offers and employment contracts, and 2) the two types of job offer rescissions and how to determine their legality.

Particularly, it is important to note that even if poor performance due to the COVID-19 pandemic is the reason, if all four requirements are not met for a “dismissal” after the establishment of an employment contract, there is a possibility that it could be considered an abuse of the right to dismiss. Therefore, caution is required.

When implementing a job offer rescission, it is necessary to check not only the Japanese Labor Contract Law and the Japanese Labor Standards Act, but also past precedents. Therefore, rather than making a judgment on your own, we recommend consulting with a lawyer who has extensive knowledge and experience in advance.

Introduction to Our Firm’s Measures

Monolith Law Office is a legal office with high expertise in both IT, particularly the Internet, and law. Recently, there is concern over the deterioration of corporate performance due to the COVID-19 crisis. In such circumstances, staff reductions and withdrawal of job offers can potentially lead to significant disputes. We have detailed this in the article below.