[April 2023] Strengthening the Prohibition of "Employment Celebration Money": Legal Issues and Recommended Actions for Businesses

In the talent services industry, there was a practice of offering “congratulatory money” paid by operators of job sites and similar platforms when individuals secured employment or changed jobs. However, this “congratulatory money” system has long been seen as problematic, and it was prohibited by the amendment to the Employment Security Act in Reiwa 3 (2021). Starting from April of Reiwa 7 (2025), the enforcement of this “congratulatory money prohibition” will be fully implemented.

So, what are the issues with the congratulatory money system, and why has it been banned?

This article will explain the regulatory details concerning congratulatory money in talent introduction services and the measures that businesses should take in response. Please use this information to determine whether your company’s services are in compliance with the regulations.

Overview and Prohibition of Employment/Career Change Congratulatory Money in Japan

What are the issues with the system of congratulatory money for employment or career changes? Here, we will explain the points of discussion along with the background of why regulations were created.

What is Employment/Career Change Congratulatory Money?

Employment or career change “congratulatory money” refers to monetary or other rewards provided by operators, such as human resource services, to individuals who have secured a job through their service.

Advertisements like “Register with our service and receive a congratulatory bonus upon being hired” were used to promote the use of their services and encourage employment or career changes, leading to the establishment of the congratulatory money system.

The types of rewards that fall under congratulatory money include:

• Cash
• Gift certificates
• Points (from cards or apps)
• Cashback for expenses related to qualification acquisition or training attendance

In the past, offers of congratulatory money were frequently seen when job openings were announced in industries suffering from labor shortages.

Reasons for Adopting the Congratulatory Money System

The reason why the congratulatory money system is used in human resource services is to increase the track record of successful employment or career changes through their service.

Operators of such services often receive a referral fee when they introduce job seekers to companies and employment is secured. The more employment contracts established, the more they can anticipate revenue from fees, so they set up the incentive of congratulatory money to encourage job seekers to use their service.

Furthermore, as their track record increases, so does the credibility of the service itself.

Attracting more users to their service allows the business to expand and increase revenue, making congratulatory money an effective means of earning achievements.

Issues with the Congratulatory Money System

The problem with the congratulatory money system is that it has the potential to hinder job seekers’ appropriate decision-making. It is conceivable that job seekers, dazzled by the congratulatory money, may end up choosing poor-quality services during their job search.

Human resource services should attract job seekers by improving and promoting the quality of their service, not by offering money. If job seekers are led by financial incentives, it can prevent them from making rational choices.

Additionally, there have been complaints from hiring companies troubled by the high turnover of employees who repeatedly change jobs for the sake of congratulatory money. The congratulatory money system has the aspect of distorting the supply and demand adjustment function in the labor market and hindering the stability of employment for workers.

Introduction of Regulations Prohibiting Congratulatory Money

In light of the issues caused by the congratulatory money system, the provision of congratulatory money in employment placement businesses was principally prohibited by guidelines based on the revised Employment Security Act enacted in April of Reiwa 3 (2021).

Furthermore, these guidelines prohibit encouraging job changes for workers who have found employment through their introduction for two years from the date of employment.

Reference: Ministry of Health, Labour and Welfare｜Prohibition of Encouraging Job Applications by Providing Money to Job Seekers Under the Name of ‘Employment Congratulatory Money’

However, the situation did not improve with the guidelines alone, and violations continued to occur after 2021. Therefore, additional measures to strengthen the regulations will be implemented starting from 2025.

Strengthening the Prohibition of Congratulatory Payments to Employment Placement Agencies in Japan

This article explains the content and effects of the amendments concerning the prohibition of congratulatory payments to employment placement agencies in Japan.

Adding the Prohibition of Congratulatory Payments as a Licensing Requirement for Employment Placement Agencies

Since 2021, it has been prohibited for employment placement agencies in Japan to provide congratulatory payments. However, to further strengthen the regulations, from January 2025 (Reiwa 7), the prohibition of congratulatory payments will be added as a licensing requirement for conducting employment placement business.

“Employment placement” refers to the business of receiving applications for job openings and job searches, and facilitating the establishment of employment relationships between job offerors and job seekers. Examples include recruitment agencies (Japanese Employment Security Act, Article 4, Paragraph 1).

When conducting an employment placement business, if the service is paid, it is mandatory to obtain permission from the Minister of Health, Labour and Welfare, and even if the service is free, permission is required with some exceptions (Japanese Employment Security Act, Article 30, Paragraph 1, and Article 33, Paragraph 1).

With the 2025 amendment, agencies that do not comply with the prohibition of congratulatory payments will no longer be able to obtain permission to operate an employment placement business.

Licensing Requirements for Employment Placement Business

The content of the newly added licensing requirements is as follows:

Reference: Ministry of Health, Labour and Welfare | Additional Licensing Requirements for Employment Placement Business

For new permissions and renewals of permission effective periods after January 1, 2025, these licensing requirements will be added. If a violation of these guidelines occurs before the renewal period, corrective guidance will be issued by the Ministry of Health, Labour and Welfare, and the licensing requirements will be applied.

Effects of the Amendment

The addition of the prohibition of congratulatory payments as a licensing requirement for employment placement business in Japan has given the prohibition regulatory legal force. Agencies that have a congratulatory payment system will not be granted permission to operate an employment placement business. Violations could lead to the revocation of their business license.

Compared to the 2021 guidelines, which had weaker enforcement, the 2025 amendment has significantly strengthened the effectiveness of the regulations.

Introduction of Regulations Prohibiting Celebration Money for Recruitment Information Providers in Japan

We will explain the reasons and details behind the introduction of regulations prohibiting celebration money for recruitment information providers in Japan.

Prohibition of Congratulatory Money for Recruitment Information Providers in Japan

The guidelines prohibiting the use of congratulatory money, established in 2021, initially targeted employment placement agencies. However, starting from April 2025, recruitment information providers will also be subject to the prohibition regulations.

“Recruitment information provision business” in Japan refers to the following types of businesses as defined by Article 4, Paragraph 6 of the Japanese Employment Security Act:

1. Providing information related to the recruitment of workers, upon request from employment placement agencies or others, to individuals seeking employment or other employment placement agencies.
2. In addition to the above, collecting information related to the recruitment of workers with the purpose of facilitating the career choices of job seekers and providing it to individuals seeking employment or employment placement agencies.
3. Upon request from job seekers or employment placement agencies, providing information about individuals seeking employment to those recruiting workers, recruitment contractors, or other employment placement agencies.
4. Beyond the services mentioned in 1 to 3, collecting information about individuals seeking employment with the aim of facilitating the securing of the necessary workforce for those recruiting workers and providing it to job seekers or employment placement agencies.

Job posting sites that publish recruitment information are typical examples of recruitment information provision businesses.

The reasons for applying the prohibition of congratulatory money to recruitment information providers include the following:

• Similar issues to those faced by employment placement agencies, such as hindering the appropriate selection of workers or increasing the number of resignations.
• Problems arising when workers, desiring congratulatory money, report their hiring decisions to multiple recruitment information providers, leading to companies being charged success fees by several providers.

The situation where job seekers cannot confidently use employment intermediation services is a serious issue for the labor market. Therefore, from April 2025, the provision of congratulatory money by recruitment information providers will be fundamentally prohibited.

New Compliance Obligations Due to Legal Amendments

Recruitment information providers in Japan must now comply with the following:

• Do not offer money or other benefits to prospective employees beyond what is considered reasonable by social norms.
• Clearly specify in writing or via email, or by other appropriate means, the contract details including the usage fees for recruitment services, penalties, conditions for their occurrence, and methods of cancellation, to prevent any misunderstanding on the part of the recruiter.

Simply posting the terms of the contract on a website is not sufficient.

To avoid future disputes, it is essential to use methods such as written documents or emails to ensure that the recruiter can re-read the same content.

Reference: Ministry of Health, Labour and Welfare | Providing Money or Gift Certificates to Workers Is Generally Prohibited

Criteria for Determining “Socially Acceptable Standards” Under Japanese Law

Whether the provision of congratulatory money falls within “socially acceptable standards” is determined by assessing the potential for issues or troubles such as:

• Job changes induced by monetary incentives and the associated financial burden of payment on the recruiter
• The recruiter receiving multiple fee claims from various businesses

Specifically, the following factors are considered while evaluating the overall impact on the labor market:

• The purpose of the monetary or other benefits provided
• The amount and economic value
• The method of provision
• The effectiveness of the incentives in inducing job changes
• Whether the form is prone to, or has historically led to, troubles associated with claims from multiple businesses

Items Not Considered as “Provision of Money or Other Benefits” Under Japanese Law

There are instances where the provision of money or other benefits does not violate the prohibition on congratulatory money. The following examples are not subject to regulation:

• Electronic gift vouchers worth about 500 yen provided to a limited number of respondents through a lottery, as an incentive for service users to improve the quality of the provided service by responding to surveys and questionnaires.
• Electronic gift vouchers worth about 500 yen given to attendees of a job fair and booth visitors to ensure event attendance, excluding those provided as compensation for registering on a job site.

Risks Associated with Offering Celebration Money Under Japanese Employment Practices

This article explains the potential penalties for offering celebration money in violation of guidelines.

Receiving an Improvement Order from the Minister of Health, Labour and Welfare

When job placement agencies or providers of recruitment information offer celebration money in violation of the guidelines, they may receive an improvement order from the Minister of Health, Labour and Welfare.

The Minister of Health, Labour and Welfare can order businesses that have violated the guidelines to take measures to improve their operations (Employment Security Act, Article 48-3, Paragraph 1).

If an improvement order is not followed, the fact may be made public, so caution is necessary (the same article, Paragraph 3).

Receiving a Business Suspension Order

Paid job placement agencies or specific recruitment information providers that violate the orders of the Minister of Health, Labour and Welfare may be ordered to suspend all or part of their business for a set period (Employment Security Act, Article 32-9, Paragraph 2, and Article 43-4).

A paid job placement agency refers to a business that receives fees or compensation for providing job placement services. A specific recruitment information provider refers to a business that collects information about individuals seeking employment and provides recruitment information.

Revocation of License for Paid Job Placement Agencies

If a paid job placement agency violates the conditions of its license, the Minister of Health, Labour and Welfare may revoke its license (Employment Security Act, Article 32-9, Paragraph 1, Item 3). Once the license is revoked, the agency can no longer operate its job placement business.

How Businesses Should Respond to the Strengthened Prohibition of Celebration Money in Japan

Employment placement agencies should have ceased offering celebration money as of 2021, but it is important to note that regulations will become more stringent starting January 2025. If deemed in violation, there is a risk that business licenses could be revoked, so avoid any questionable practices.

If you are a job information provider currently offering celebration money, you must discontinue the system by the end of March 2025.

Furthermore, companies wishing to post job vacancies through staffing services should ensure that the media outlets they use are not offering celebration money.

Conclusion: Consult a Lawyer for Compliance with the Celebration Money Prohibition in Japan

Since Reiwa 3 (2021), the use of celebration money by employment placement agencies has been prohibited in Japan. However, with the amendment in January of Reiwa 7 (2025), the prohibition of celebration money has been added to the conditions for obtaining a license for employment placement businesses, further strengthening the regulations.

Furthermore, from April 2025, providers of job vacancy information services will also be newly subject to these regulations, contributing to the stabilization of the labor market.

If there is suspicion of offering celebration money, your business could face suspension orders or revocation of its license. It is advisable to request a legal check from a lawyer to ensure that your company’s services are operated lawfully.

Guidance on Measures by Our Firm

Monolith Law Office is a law firm with high expertise in both IT, particularly the internet, and legal matters. We provide a wide range of legal support, including the drafting and reviewing of contracts, for clients ranging from Tokyo Stock Exchange-listed companies to venture businesses. For more details, please refer to the article below.

Areas of Practice at Monolith Law Office: Corporate Legal Affairs for IT & Startups