Assessing the Validity of Disciplinary Dismissal under Japanese Labor Law

In the realm of Japanese labor law, disciplinary dismissal is the most severe form of disciplinary action that an employer can take against an employee. It not only terminates the employment contract but also serves as a sanction for the employee’s violation of corporate order. Consequently, disciplinary dismissal can have serious adverse effects on an employee’s career, often resulting in the non-payment or reduction of severance pay and significant obstacles in their job search. In light of the gravity of disciplinary dismissal, Japanese courts judge its validity with extreme rigor. It is essential for business managers and legal professionals to understand the legal requirements accurately and to proceed with caution when considering disciplinary dismissal. A hasty decision can lead to the dismissal being declared invalid, potentially bringing unexpected legal and financial risks to the company.

This article will explain the core legal framework and criteria that courts in Japan use to determine the validity of disciplinary dismissals, anchored in the Japanese Labor Contract Law. It will particularly focus on the two requirements defined by the law: “objectively reasonable grounds” and “socially acceptable appropriateness,” analyzing how these concepts are applied in actual cases with numerous judicial precedents. The aim of this article is to assist companies operating in Japan in managing labor-related risks appropriately and practicing human resource management in compliance with legal regulations.

The Fundamental Differences Between Disciplinary Dismissal and Ordinary Dismissal Under Japanese Employment Practices

In Japan, there are primarily two types of dismissal: ordinary dismissal and disciplinary dismissal. While both serve the common purpose of terminating an employment contract, they fundamentally differ in their legal nature and requirements. Understanding these differences is crucial for grasping the strictness of the validity assessment for disciplinary dismissals.

Ordinary dismissal often occurs due to an employee’s inability to fulfill their contractual obligations sufficiently, such as lack of ability, poor work attitude, or inability to work due to injury or illness. This is a response to the difficulty of continuing the contract and does not carry the nature of a punitive sanction.

On the other hand, disciplinary dismissal is a type of disciplinary action imposed for serious violations of corporate order by an employee, such as embezzlement in the course of business, severe harassment, or unjustified long-term absenteeism without notice. Its essence lies in being a ‘punitive sanction’ to maintain corporate order. This punitive personality is the greatest distinction from ordinary dismissal. Courts conduct a more stringent review of the validity of disciplinary dismissals, which impose significant disadvantages on employees as punitive sanctions, compared to ordinary dismissals. In other words, for a disciplinary dismissal to be deemed valid, it is not enough that there is a reason for dismissal; the employer must prove that there was an extremely serious disciplinary breach that justifies the imposition of the punitive sanction.

The Two Legal Bases Governing the Validity of Disciplinary Dismissal Under Japanese Law

The validity of disciplinary dismissal in Japan is primarily determined by two provisions set forth in the Japanese Labor Contract Act. Disciplinary dismissal encompasses both aspects of ‘discipline’ and ‘dismissal,’ and therefore, it is subject to the regulations of both provisions. Without passing through this dual legal filter, a disciplinary dismissal cannot be recognized as valid.

The first basis is Article 15 of the Japanese Labor Contract Act. This provision governs disciplinary actions in general, stating, “In cases where an employer disciplines an employee, if such discipline lacks objectively reasonable grounds and is not deemed appropriate according to social norms in light of the nature and manner of the employee’s conduct and other circumstances, it is considered an abuse of rights and, as such, invalid.” This addresses whether the conduct in question merits disciplinary action and, if so, whether the chosen disciplinary action is proportionate (the principle of proportionality).

The second basis is Article 16 of the Japanese Labor Contract Act. This provision targets dismissals in general, stipulating, “A dismissal that lacks objectively reasonable grounds and is not deemed appropriate according to social norms is considered an abuse of rights and, as such, invalid.” This codifies the case law principle known as “abuse of right to dismiss,” setting the standard for determining whether the situation even permits the dismissal of an employee.

Disciplinary dismissal is judged by the overlapping application of the validity of ‘dismissal’ under Article 16 and the appropriateness of ‘disciplinary action’ under Article 15 of the Labor Contract Act. This stringent scrutiny makes the threshold for the validity of disciplinary dismissal extremely high.

Key Criteria for Assessing the Validity of Disciplinary Dismissals Under Japanese Employment Law

The phrases “objectively reasonable grounds” and “socially acceptable appropriateness,” which are commonly used in Articles 15 and 16 of the Japanese Labor Contract Act, are the core criteria for judging the validity of disciplinary dismissals. Understanding what these abstract criteria concretely mean is essential.

“Objectively reasonable grounds” primarily refer to the existence and legitimacy of the facts that form the basis for the dismissal. Firstly, an employer must be able to prove the employee’s problematic behavior with objective evidence. Subjective evaluations or conjectures by the management are insufficient. Secondly, the proven facts must clearly correspond to the disciplinary dismissal reasons stipulated in the work rules. It is not permissible to carry out a disciplinary dismissal based on actions not specified in the work rules.

On the other hand, “socially acceptable appropriateness” refers to the balance of the penalty, that is, the principle of proportionality. Even if there is an act that corresponds to a dismissal reason under the work rules, it must be recognized as reasonable from the perspective of general social common sense to impose the extremely severe penalty of disciplinary dismissal, considering the nature and manner of the act, and other circumstances. Courts comprehensively consider the motive and manner of the act, the extent of damage caused to the company, the employee’s past work attitude and disciplinary history, the presence or absence of remorse after the misconduct, and the fairness of past penalties in similar cases within the company to determine its appropriateness.

The relationship between these two criteria is summarized in the table below.

Key Disciplinary Reasons and Analysis of Japanese Court Precedents

In this section, we will discuss typical reasons for disciplinary dismissal and analyze how Japanese courts have determined their validity through specific case precedents.

Misrepresentation of Credentials Under Japanese Employment Practices

For disciplinary dismissal based on misrepresentation of credentials to be considered valid, the misrepresentation must pertain to a “significant credential.” A significant credential refers to qualifications that, had the employer known the truth, would have led them not to hire the worker, or at least not under the same employment conditions.

A leading case on this matter is the Tan Ken Seiko case (Supreme Court of Japan, September 19, 1981). In this case, a company that had advertised for workers with an educational background of “high school graduate or less” effectively dismissed an employee who had concealed his university dropout status and falsely claimed to be a high school graduate. The court ruled that the misrepresentation of educational background was not merely a false declaration but an act that disrupted the core of personnel management, such as the company’s employee composition and wage system, and thus a serious act that destroyed the trust between employer and employee. This precedent emphasizes the importance of the impact of credential misrepresentation on corporate order.

Conversely, if the misrepresented credential is not directly related to the job duties, or if the job advertisement explicitly stated “educational background irrelevant” or “inexperienced applicants welcome,” then the misrepresentation may not be considered significant, and the likelihood of a disciplinary dismissal being deemed invalid increases.

Violation of Work Orders

The validity of disciplinary dismissal based on the violation of work orders primarily depends on the legitimacy of the work orders themselves. Work orders must be necessary for business operations, not violate laws or labor agreements, and must not be based on unfair motives (such as harassment purposes).

A representative case that recognized the legitimacy of work orders is the Nippon Telegraph and Telephone Public Corporation Obihiro Office case (Supreme Court decision on March 13, 1986 (1986)). In this case, the disciplinary action against an employee who refused to undergo a detailed medical examination as ordered by the company’s health management regulations was deemed valid. The court ruled that complying with work orders with a rational purpose, such as ensuring the health of workers, is an obligation under the employment contract. In more recent examples, there have been decisions that upheld the dismissal of employees who repeatedly failed to follow work instructions and showed no improvement despite prior disciplinary actions (Tokyo High Court decision on October 2, 2019 (2019)).

On the other hand, if work orders lack business necessity or their content is socially unreasonable (for example, ordering weeding as a punishment), or if the employer issues orders despite the employee having a legitimate reason to refuse them (such as health issues), the disciplinary dismissal based on the violation of such orders will be invalid.

Embezzlement and Misappropriation in the Workplace Under Japanese Law

Embezzlement and misappropriation of funds by employees are considered extremely serious acts of betrayal that fundamentally destroy the trust relationship with the employer. Therefore, even if the amount of damage is small, there are many cases where disciplinary dismissal is deemed valid. For example, in the case of a bus driver embezzling fares (Nishi-Nippon Railroad Co., Ltd. case, Fukuoka District Court, April 30, 1985), disciplinary dismissal was upheld regardless of the amount because the nature of the job of collecting fares from passengers demands a high level of integrity.

However, Japanese courts do not simply adopt a zero-tolerance principle. An important case that demonstrates this is the Korin Motors case (Tokyo District Court, February 7, 2006). In this case, an employee had fraudulently received a total of approximately 350,000 yen in commuting allowances over about four and a half years, but the disciplinary dismissal was deemed invalid. The court concluded that the dismissal lacked the appropriateness commonly accepted in society because the motive for the fraudulent receipt was to compensate for the company’s wage cuts and was not highly malicious, the company’s management system for commuting allowances was sloppy, and the nature and amount of the fraud did not warrant the heavy penalty of disciplinary dismissal. This case clearly illustrates the court’s stance of comprehensively considering the circumstances behind even clear misconduct such as embezzlement and strictly judging the appropriateness of the punishment.

Misconduct in Personal Life

Disciplinary dismissal based on an employee’s personal misconduct (for example, criminal behavior) is generally permitted only in limited circumstances. This is because the disciplinary authority of a company is fundamentally aimed at maintaining corporate order and is not meant to extend unrestrictedly into the private lives of employees.

For a disciplinary dismissal to be valid, the personal misconduct in question must either have a direct relevance to the company’s business activities or pose a concrete risk of damaging the company’s social reputation. This criterion was established in the Yokohama Rubber Case (Supreme Court of Japan, July 28, 1970). In this case, a factory worker at a tire manufacturing company was disciplined and dismissed for drunkenly intruding into someone’s residence outside of work hours and being fined for the crime of trespassing. The court ruled that the dismissal was invalid, determining that the worker’s personal conduct did not directly affect the employer’s business activities nor concretely damage its social reputation.

However, there are circumstances where disciplinary dismissal may be considered valid, such as when an employee of a public transportation service commits a serious traffic violation, or when a corporate officer abuses their social position to commit a crime that is reported and significantly tarnishes the company’s reputation.

Practical Management Perspectives When Considering Disciplinary Dismissal Under Japanese Employment Practices

Based on the legal principles and case law we have examined, we present several practical management perspectives that companies should consider when contemplating disciplinary dismissal.

Firstly, the importance of work rules cannot be overstated. The grounds for disciplinary dismissal must be specifically and clearly stipulated in the work rules. If the work rules are not well-established or the provisions are vague, the disciplinary dismissal will lack a legal basis.

Secondly, thorough fact-finding and securing objective evidence are crucial. Decisions on disciplinary dismissal must be based on objective evidence, not speculation or rumors. A careful investigation process, including interviews with relevant parties and review of documents and electronic data, is essential.

Thirdly, providing an opportunity for explanation is extremely important from the perspective of fair procedure. Before deciding on disciplinary action, it is critical to give the employee in question the chance to explain the facts in question and to present a rebuttal or clarification. Neglecting this procedure can lead to the risk of the dismissal being deemed invalid due to procedural defects, even if there are grounds for dismissal.

Finally, consideration of the appropriateness of the punishment is necessary. Disciplinary dismissal is a last resort, and depending on the severity of the misconduct, lighter disciplinary actions such as reprimand, salary reduction, or suspension should always be considered. Maintaining consistency with past internal disciplinary examples is also required from the standpoint of fairness.

Conclusion

As detailed in this article, disciplinary dismissal under the Japanese legal system is subject to extremely strict legal constraints due to its punitive nature. The validity of a disciplinary dismissal is determined by two requirements: “objectively reasonable grounds” and “socially acceptable appropriateness.” Courts carefully review these requirements in light of the specific circumstances of each case. From a business management perspective, it is crucial to recognize that disciplinary dismissal is a legal option with very high risks and should be considered a last resort. Prior to making such a decision, it is essential to carefully follow various stages: establishing employment regulations, conducting fair investigations based on objective evidence, adhering to proper procedures, and scrutinizing the appropriateness of the disciplinary action.

Monolith Law Office has a wealth of experience in providing labor law services, including those related to disciplinary dismissal as explained in this article, to numerous clients within Japan. In particular, we have provided strategic advice from a business management perspective on the prevention and response to disputes related to personnel labor matters, including disciplinary dismissal. Our firm includes several attorneys who are native English speakers with foreign legal qualifications, enabling us to offer meticulous support without language barriers for companies engaged in international business facing unique challenges under Japanese labor law. From reviewing employment regulations to assessing the validity of disciplinary actions in individual cases, and responding to labor tribunals or litigation, we provide optimal legal services tailored to your company’s situation.