[April 2023] Is "Mandatory Retirement at 65" Really a Thing? Explaining the Key Points of the Revised Act on Stabilization of Employment of Elderly Persons

The employment landscape is rapidly changing, and one area that is garnering significant attention is the employment of older individuals. The current transitional measures of the “Act on Stability of Employment of Elderly Persons” in Japan allow for the continuation of employment for older individuals beyond the age at which the wage-related portion of the old-age welfare pension begins to be paid (age 61). However, starting from Reiwa 7 (2025), the obligation to continue employing individuals up to the age of 65 will be fully enforced, and penalty provisions will apply. While this may seem akin to a “mandatory retirement system at age 65,” it is crucial to note that it is not exactly the same, and careful attention is required.

Furthermore, in line with the amendments to this law, companies in Japan will need to review and revise a multitude of systems, including employment contracts and work regulations.

This article will explain the key points of the amendments to the “Act on Stability of Employment of Elderly Persons” and the measures that employers should take in response.

Overview and Amendments of the Japanese Act on Stability of Employment of Older Persons

The Japanese Act on Stability of Employment of Older Persons (Act on Stabilization of Employment of Elderly Persons) is a law enacted to ensure employment opportunities for older adults and to promote their employment by improving the working environment. The background of this law is the social issue of a declining working-age population (ages 15 to 64) due to the advancing aging society and low birthrate, aiming to secure the labor force by stably employing older adults who are willing to work.

The law was originally established as the “Special Measures Act on Employment Promotion of Middle-aged and Older Persons” in 1971 (Showa 46) and was renamed to its current title in 1986 (Showa 61).

With the gradual increase in the starting age for receiving old-age welfare pension benefits to 65 years old, an amendment was enacted in April 2013 (Heisei 25) to obligate the “employment security until the age of 65,” allowing older adults to work until the start of pension receipt.

This amendment allowed employers, as a transitional measure, to set criteria to limit the scope of employees eligible for the continued employment system.

Furthermore, in April 2021 (Reiwa 3), an amendment was enforced that made “employment security measures until the age of 70” an obligation of effort.

The transitional measures for companies will end in March 2025 (Reiwa 7), and from April of the same year, the continued employment until the age of 65 will be fully mandated. At first glance, this may seem like a “raising of the retirement age to 65,” but it is important to note that this is not exactly the case.

It means that companies that had limited the scope of employees eligible for the post-retirement continued employment system must now include all those who wish to continue working. In other words, for companies that did not limit the scope of continued employment, nothing changes.

It is also important to note that the employment security measures for older adults are “measures for those who wish to continue working,” and there is no obligation to employ staff who do not wish to continue working. In essence, “all employees who wish to continue working beyond the age of 60 must be offered continued employment.”

On the employer’s side, as employment security measures for older adults, one of the following measures must be taken (Article 9 of the Japanese Act on Stability of Employment of Older Persons):

1. Abolition of the mandatory retirement system
2. Raising the mandatory retirement age to 65
3. A continued employment system for all applicants until the age of 65 (re-employment system, extension of service system)

Of these, the majority of companies have adopted the re-employment system as part of the continued employment system, which is number 3 on the list.

Penalties Under the Japanese Act on Stabilization of Employment of Elderly Persons

With the end of transitional measures, current penalty provisions will now be applied to employers who violate the law.

• If an employer fails to comply with guidance, advice, or recommendations, their non-compliance will be made public (Article 10 of the Act on Stabilization of Employment of Elderly Persons).
• For employers who fail to report, or make false reports regarding the subsidy for measures to secure employment for elderly persons, a fine of up to 500,000 yen will be imposed, with both individuals and corporations being subject to penalties (Articles 55 and 56 of the same Act).
• Any person (or representative of a corporation) who fails to notify the head of the Public Employment Security Office of a mass departure of elderly persons (five or more within one month), or who submits a false notification, will be subject to a surcharge of up to 100,000 yen (Article 57 of the same Act).

Next, we will provide a detailed explanation of the measures that companies should take and points to note in accordance with the amendments to the Act on Stabilization of Employment of Elderly Persons in Japan.

Measures and Considerations for Companies Under Japanese Employment Practices

Employers in Japan must follow specific procedures when implementing measures to ensure the employment of older workers (ages 61-65) and measures to secure employment for senior workers (ages 66-70).

• Preparation of reports on the employment status of older workers
• Selection of measures and determination of target individuals
• Consideration of the use of subsidies

We will provide a detailed explanation of the points to consider when introducing a continued employment system, which is among the measures that employers must take to ensure the employment and continued work of older individuals.

Employment Security Measures for Individuals Over 66 Under Japanese Law

With legal revisions, in addition to the obligation to secure employment for the elderly up to the age of 65, an effort obligation has been imposed to ensure employment from 66 to 70 years old by implementing any of the following measures (Article 10-2):

1. Raising the retirement age to 70
2. Abolition of the mandatory retirement system
3. Introduction of a continued employment system up to the age of 70
4. Introduction of a system for continuously contracting work until the age of 70
5. Introduction of a system that allows continuous engagement in social contribution activities until the age of 70
   • Social contribution activities conducted by the employer themselves
   • Social contribution activities carried out by organizations entrusted or funded by the employer

From the perspective of worker protection, continued employment systems such as 1 to 3 are preferable. For measures 4 and 5, such as startup support, it is necessary to create a “Plan for the Implementation of Startup Support Measures” and obtain the consent of labor unions or similar entities when introducing them.

For older workers aged 61 to 65, there are no particular restrictions on these measures, so their introduction is considered to be acceptable.

In addition to these, it is necessary to implement measures to prevent occupational accidents among the elderly. Specific initiatives will refer to the “Guidelines for Ensuring the Safety and Health of Older Workers (commonly known as the Age-Friendly Guidelines).” The term “age-friendly” means “considering the personalityistics of the elderly” and is used by the WHO and occupational safety and health agencies in Europe and America.

For example,

• Establishing a safety and health management system for older workers
• Improving the workplace environment to make it more comfortable for older workers (both hardware and software aspects)
• Understanding the physical strength and health status of older workers

Implementing proactive measures such as these, which allow older workers to work with confidence and leverage their experience, is considered desirable.

Scope of Re-employment Opportunities Under Japanese Employment Practices

Under the Japanese re-employment system, the range of companies eligible to re-hire individuals extends beyond the original employer to include group companies—subsidiaries holding a majority of voting rights or affiliated companies with at least 20% of voting rights.

When a group company undertakes the re-employment of an employee, a prior contract is required.

Key Points Regarding Employment Terms and Work Rules Under Japanese Law

Even when implementing measures to ensure the employment of older workers, it is advisable to take actions that meet the needs of these individuals after sufficient consultation between labor and management.

While it is possible to implement multiple measures, it is crucial to consider each older worker individually, respect their wishes, and provide reskilling support (training, education, and practice) as necessary, especially when they are assigned to different tasks than before.

Regarding the employment conditions for continued employment, the Fukuoka High Court decision on September 7, 2017 (Heisei 29) (status confirmation and other appeal cases) can be informative. In this case, X, who had been working for Y (a prepared food sales company) as a permanent employee, requested re-employment after reaching the mandatory retirement age under the continued employment system. Y presented the conditions for re-employment. However, X resigned, unable to accept these conditions, and later sought damages.

While the obligation to implement “measures to ensure the employment of older workers” under Article 9 of the Act on Stabilization of Employment of Elderly Persons does not have the private law effect of compelling employers to offer employment conditions that match the wishes of retirees, considering its purpose and content, it constitutes part of the public order related to labor contract law. Therefore, an employer’s actions that are extremely unreasonable, significantly contradict the expectations of the older workers, and are difficult to accept, such as presenting unacceptable employment conditions for re-employment, have the illegality of violating the purpose of introducing the continued employment system. (omitted) Such actions can constitute a tort that infringes on the interest worthy of legal protection that the older worker has, namely, the right to enjoy stable employment until the age of 65 through the rational operation of the above measures. (omitted)

Regarding the continued employment system among the employment security measures, it is appropriate to understand that a certain degree of continuity and consistency in employment conditions before and after retirement is assumed or is the principle. Exceptionally, to allow the presentation of employment conditions that lack continuity and consistency with those before retirement under the continued employment system, there must be a rational reason to justify such presentation.

Fukuoka High Court decision on September 7, 2017 (Heisei 29)

The judgment states that if there is no legitimate rational reason, the action is illegal as it goes against the purpose of the continued employment system and constitutes an abuse or misuse of discretion.

On the other hand, regarding the criteria for the subjects of “measures to ensure the employment of older workers” (ages 66 to 70), since these measures are an obligation of effort, it is permissible to set standards by limiting the target group.

Conclusion: Consult an Attorney for Labor Issues Related to the Japanese Act on Stability of Employment of Elderly Persons

We have explained the key points of the amendments to the Japanese Act on Stability of Employment of Elderly Persons and the measures that employers should take. Although the term “mandatory retirement at age 65” is often mentioned in relation to the legal revisions, the actual implications are different. If not properly addressed, these legal changes could lead to penalties, so caution is necessary.

In response, companies are required to manage the risks associated with the continued employment of older workers. There is also a need to revise many aspects such as employment contracts, work regulations, and wage systems.

If you have any uncertainties regarding the Japanese Act on Stability of Employment of Elderly Persons or labor issues involving older workers, we recommend consulting an attorney.

Guidance on Measures by Our Firm

Monolith Law Office is a legal practice with high expertise in both IT, particularly the internet, and law. In response to the amendments to the Japanese Act on Stability of Employment of Elderly Persons, there may be a need to create contracts. Our firm provides contract creation and review services for a wide range of cases, from Tokyo Stock Exchange Prime-listed companies to venture businesses. If you are having trouble with contracts, please refer to the article below.

Areas of practice at Monolith Law Office: Contract Creation & Review, etc.