Establishment of Employment Relations in Japanese Labor Law: Hiring, Employment Conditions, and Legal Considerations of Job Offers

In securing talent and fostering business growth, the establishment of employment relationships, namely the hiring process, is a core activity in management. Under the Japanese legal system, this process is not merely an agreement between parties but is intricately regulated by constitutional principles, the freedom of contract under the Civil Code, and numerous individual labor laws designed to protect workers. Accurately understanding and complying with the legal regulations related to the establishment of employment relationships is an essential prerequisite for preventing future labor disputes and building stable labor-management relations. For many companies, the ‘freedom to hire’—deciding whom to employ and under what conditions—is recognized as a fundamental right that underpins business activities. However, this freedom is not unlimited; it is subject to many important restrictions by law, in consideration of ensuring equality under the law and the dignity of individuals. Furthermore, when an employment contract is established, companies have a strict obligation to clearly present the working conditions to the workers. This obligation to clarify is a crucial procedure for eliminating misunderstandings between labor and management and preventing disputes. In Japanese employment practices, the personalityistic ‘job offer acceptance’ is not merely a promise legally but is interpreted as an employment contract itself, with the right to rescind reserved under certain conditions. Therefore, its cancellation is only permitted under very stringent legal requirements, as it is equivalent to a dismissal. This article will detail the series of processes leading up to the establishment of an employment relationship, divided into three main stages: ‘The Freedom to Hire and Its Legal Limits,’ ‘The Obligation to Clarify Employment Conditions,’ and ‘The Legal Nature of Job Offer Acceptance and the Requirements for Cancellation,’ based on relevant Japanese laws and important case law, from a professional and practical perspective.

The Freedom of Hiring and Its Legal Boundaries Under Japanese Law

The Legal Basis for the Freedom of Hiring in Japan

In the Japanese legal system, companies fundamentally possess the “freedom of hiring.” This principle allows businesses to freely determine whom to employ and under what conditions for their operations as part of their economic activities. The basis for this freedom can be found in multiple legal sources. Firstly, the freedom of economic activity derived from the “freedom of choice in occupation” guaranteed by Article 22 of the Japanese Constitution is cited. The right of a company to freely select its workers, who are members of its business, is positioned as an important aspect of this freedom of economic activity.

Secondly, the “principle of freedom of contract” in the Japanese Civil Code is mentioned. Labor relations are based on the employment contract between the employer and the worker. Article 521, Paragraph 1 of the Japanese Civil Code states that “any person is free to decide whether or not to enter into a contract, except in cases where there are special provisions in laws and regulations,” thereby codifying the freedom to conclude contracts. Therefore, companies are free to decide whether or not to enter into an employment contract with a specific individual.

The principle of freedom of hiring was established as a judicial decision by the Supreme Court ruling on December 12, 1973 (Showa 48), in the so-called Mitsubishi Rayon case. In this case, the Supreme Court ruled that even if a company refuses to hire an applicant on the grounds of their particular ideology or beliefs, it does not necessarily become illegal. The judgment stated that, in the absence of special restrictions by law or otherwise, companies are fundamentally free to decide whom to hire and under what conditions, broadly recognizing the freedom of hiring for businesses. This precedent holds significant importance today as the starting point for discussions on the freedom of hiring.

Strict Legislative Restrictions on the Freedom of Hiring

The freedom of hiring, as demonstrated in the Mitsubishi Rayon Co. case, is merely a “principle.” In response to changes in social conditions and heightened awareness of human rights, the Japanese legislature has imposed numerous strict restrictions on this principle. As a result, in modern recruitment activities, it has become far more important to comply with the various constraints imposed by law rather than adhering to the principle itself.

Firstly, the prohibition of discrimination based on gender is noteworthy. Article 5 of Japan’s “Act on Securing, Etc. of Equal Opportunity and Treatment between Men and Women in Employment” (Equal Employment Opportunity Law) explicitly obligates employers to provide equal opportunities regardless of gender in the recruitment and hiring of workers. Consequently, practices such as advertising for a specific job only for men or women, setting different hiring criteria based on gender, or establishing separate hiring quotas for men and women are all illegal. Past court cases have also deemed it illegal to apply different wage systems based on gender or to operate discriminatory practices in promotions and advancements, indicating a strict interpretation of the principle prohibiting gender discrimination at the hiring stage.

Next is the principle of prohibiting discrimination based on age. Article 9 of Japan’s “Act on Comprehensive Promotion of Labor Policies, and Support for the Development of the Work-Life and Stability of Employment of Workers” (Comprehensive Promotion of Labor Policies Act) mandates that employers provide equal opportunities in the recruitment and hiring of workers, regardless of age. With few exceptions, setting age limits in job advertisements or rejecting applicants based on age is generally not permitted.

Regarding the employment of persons with disabilities, there are not only prohibitions against discrimination but also positive obligations. Article 34 of Japan’s “Act on Employment Promotion etc. of Persons with Disabilities” (Act on Employment Promotion of Persons with Disabilities) obligates the provision of equal opportunities in recruitment and hiring for persons with disabilities. Furthermore, Article 43 of the same act legally requires companies of a certain size to employ a number of persons with disabilities that meets or exceeds a statutory employment rate based on the total number of employees. This imposes a direct restriction on the freedom of hiring by companies, promoting the employment of individuals with specific attributes as a social mandate.

There are also other legal regulations that restrict the freedom of hiring by companies. For example, Article 40-6 of Japan’s “Act for Securing the Proper Operation of Worker Dispatching Undertakings and Improved Working Conditions for Dispatched Workers” (Worker Dispatching Act) establishes a “deemed offer of employment system,” which considers that a direct employment contract has been offered to dispatched workers when a company accepts illegal dispatching (such as engaging in prohibited activities or violating duration limits). This represents a very strong restriction on the freedom of hiring, as it forces an offer of employment regardless of the company’s intentions. Similarly, the “rule of conversion to indefinite-term contracts” set forth in Article 18 of Japan’s Labor Contract Act is also relevant. This rule states that if a fixed-term employment contract is renewed beyond a total of five years, and the worker applies for it, the company is deemed to have accepted the application, resulting in the establishment of an indefinite-term employment contract, which the company cannot refuse.

An overview of these legal regulations reveals that the principle of “freedom of hiring,” once widely recognized, is now significantly constrained by numerous laws and has become more of an exception. Therefore, from the perspective of legal risk management, it is essential for modern corporate management not to assert the freedom of hiring but to always be prepared to explain that all hiring decisions are based on objective and rational reasons that do not violate these anti-discrimination provisions and worker protection regulations.

The Obligation to Clearly State Employment Conditions When Entering into a Labor Contract Under Japanese Law

The Basis and Purpose of the Obligation to Clarify Employment Terms

When entering into an employment contract, companies must clearly indicate terms such as wages and working hours to the worker. This obligation primarily stems from Article 15, Paragraph 1 of the Japanese Labor Standards Act, which states, “An employer must, when concluding a labor contract, specify to the worker the wages, working hours, and other working conditions.” This obligation applies to all workers, regardless of their employment status, including full-time employees, contract employees, part-timers, and temporary staff.

The purpose of this legally mandated obligation to clarify is to prevent future disputes over the content of the employment contract. If specific working conditions are not clarified at the time of contract conclusion, there is a potential for disputes over the interpretation of working conditions once labor has commenced, leading to arguments about who said what. To avoid such situations, the law obligates companies to clearly document the important terms at the initial stage of the contract, aiming to align the understanding of both employer and employee.

If a company fails to fulfill this obligation to clarify, it may be subject to penalties under the Japanese Labor Standards Act. Furthermore, from the perspective of worker protection, more direct consequences are also stipulated. According to Article 15, Paragraph 2 of the same act, if the clarified working conditions differ from the facts, the worker may immediately terminate the employment contract. Additionally, Paragraph 3 states that if the worker has changed their residence for the job, the employer must bear the necessary travel expenses if the worker returns home within 14 days of contract termination. This is based on the principle that companies should compensate for the disadvantages workers incur due to the presentation of inaccurate working conditions.

Mandatory Disclosure of Employment Conditions Under Japanese Law

Article 5 of the Enforcement Regulations of the Japanese Labor Standards Act specifies the employment conditions that must be explicitly stated, which are broadly categorized into “absolute disclosure items” and “relative disclosure items.”

“Absolute disclosure items” are the matters that companies must explicitly state when entering into an employment contract. Except for matters related to salary increases, these items are generally required to be provided in writing. They specifically include the following:

• Terms regarding the duration of the employment contract
• Criteria for renewing fixed-term employment contracts
• Workplace location and the nature of the work to be performed
• Start and end times of work, the existence of overtime work beyond prescribed working hours, break times, holidays, and leave
• Methods for determining, calculating, and paying wages, deadlines for wage payments, payment periods, and matters related to salary increases
• Retirement-related matters (including reasons for dismissal)

On the other hand, “relative disclosure items” are matters that must be explicitly stated only if the company has established regulations concerning them. Although not mandated to be provided in writing, it is common practice to notify these in writing along with other matters. These specifically include the following:

• Matters related to retirement allowances
• Matters related to bonuses and other wages paid on an ad-hoc basis
• Matters related to food expenses, work supplies, and other costs to be borne by the worker
• Matters related to safety and health
• Matters related to vocational training
• Matters related to compensation for disasters and assistance for injuries or illnesses outside of work
• Matters related to commendations and sanctions
• Matters related to leave of absence

Furthermore, for part-time and fixed-term employees in Japan, the “Act on Improvement of Employment Management for Part-Time and Fixed-Term Workers” (Part-Time and Fixed-Term Employment Act) mandates additional explicit disclosures in writing or otherwise, including the presence or absence of salary increases, retirement allowances, bonuses, and consultation services for employment management.

New Disclosure Obligations Following the April 2024 (Reiwa 6) Amendments to Japanese Labor Standards Law Enforcement Regulations

With the enforcement of the amendments to the Japanese Labor Standards Law Enforcement Regulations on April 1, 2024 (Reiwa 6), the obligation for companies to disclose employment conditions has been further expanded. The purpose of these amendments is to enhance the transparency of labor contracts and to provide workers with a clearer outlook on their career paths and employment stability.

The main new disclosure items added are as follows:

Firstly, the disclosure of the “scope of changes to the workplace and job duties.” This requires all workers to be informed not only of their initial workplace and job content but also of the scope of potential changes to their workplace and duties due to future reassignments.

Secondly, the disclosure of the “existence and details of renewal limits” in fixed-term labor contracts. When concluding or renewing a fixed-term labor contract, if there is a limit on the total contract period or the number of renewals, these specific details must be disclosed.

Thirdly, the disclosure of the “opportunity to apply for conversion to indefinite-term employment” for fixed-term employees. It has become mandatory to inform fixed-term employees, who are eligible for the indefinite-term conversion rule (Article 18 of the Labor Contract Law), of their right to apply for conversion at each contract renewal opportunity.

Fourthly, the disclosure of “employment conditions after conversion to indefinite-term.” Along with the disclosure of the opportunity to apply for indefinite-term conversion, it is also necessary to disclose the employment conditions (such as wages and job duties) after the conversion to indefinite-term employment.

These amendments have brought significant changes to the way companies present employment conditions. While previously it was sufficient to disclose static conditions at the start of the contract, now there is a demand for providing information on more dynamic and long-term prospects, such as future career possibilities and contract stability. This means that companies are required to have more detailed personnel planning and to provide careful descriptions in their notices of employment conditions.

Timing and Method of Explicitly Stating Employment Conditions

Under Japanese law, specifically Article 15, Paragraph 1 of the Japanese Labor Standards Act, employers are obligated to explicitly state employment conditions “at the time of entering into an employment contract.” As will be discussed later, Japanese case law often interprets the establishment of an employment contract at the point of a job offer acceptance. Therefore, in practice, it is advisable to explicitly state employment conditions at the time of notifying a candidate of their job offer acceptance.

Regarding the method of explicit statement, many of the absolute explicit items require written documentation. Companies typically fulfill this obligation by issuing a document known as a “Notice of Employment Conditions.” Furthermore, if the employment conditions are detailed in the work rules, employers can make workers aware of these rules and refer to them in the Notice of Employment Conditions, stating that “details are as per the work rules.” Whichever method is chosen, it is crucial to ensure that all mandatory items, including those added by legal amendments, are comprehensively covered.

The Legal Nature of Job Offer Acceptance and the Strict Requirements for Rescinding an Offer Under Japanese Employment Practices

The Legal Status of Job Offer Acceptances Under Japanese Employment Practices

In Japanese employment practices, a “job offer acceptance” is not merely a promise of employment or an informal agreement, but an act with significant legal implications. The legal nature of job offer acceptances was defined by the Supreme Court’s decision on July 20, 1979 (Showa 54), in the so-called Dainippon Printing case. In this decision, the Supreme Court ruled that a “labor contract with a fixed start date and a reserved right of cancellation” is established through the notification of a job offer by the company and the submission of a pledge or similar document by the applicant.

The legal structure of a “labor contract with a fixed start date and a reserved right of cancellation” is extremely important for understanding the nature of job offer acceptances. Firstly, “with a fixed start date” means that although the labor contract is established at the time of the job offer acceptance, the actual obligations of the worker to provide labor and of the employer to pay wages come into effect on a future specified date (for example, April 1st after graduation for new graduates).

Secondly, “with a reserved right of cancellation” refers to a situation where the contract is established, but the employer reserves the right to unilaterally cancel this established labor contract if certain predefined conditions occur.

Due to this Supreme Court ruling, it has been confirmed that a legally valid labor contract relationship is established between the company and the job offer acceptee at the time of acceptance. This means that a job offer acceptance is fundamentally different from the relatively freely revocable employment offers commonly seen in many other legal jurisdictions. The job offer acceptee gains the status of a legally protected contractual party, not just a candidate, awaiting the start of future employment.

Strict Requirements for the Validity of Job Offer Revocation Under Japanese Employment Law

Once a labor contract is established through a job offer, its revocation is legally treated as a unilateral termination of an already established labor contract, which is equivalent to a “dismissal.” Therefore, the revocation of a job offer is subject to the strict constraints of the abuse of the right to dismiss as stipulated in Article 16 of the Japanese Labor Contract Act.

The criteria for a valid revocation of a job offer were established by the precedent set in the Supreme Court of Japan’s decision in the Dai Nippon Printing case. According to this decision, the grounds for revoking a job offer must be based on facts that “were not known and could not reasonably have been expected to be known at the time of the job offer, and can be objectively considered rational and socially acceptable to revoke the job offer in light of the purpose and intent of reserving the right to terminate.”

This standard is extremely strict. Analyzing the requirements, firstly, the facts that constitute the reason for revocation must be new and not known or reasonably expected to be known by the company at the time the offer was made. Secondly, revoking the job offer based on these facts must be objectively rational and deemed appropriate in light of common social norms. Reasons such as the company’s convenience or a change in the subjective impression of the hiring personnel do not meet these criteria. Companies considering the revocation of a job offer must carefully assess whether their decision can clear these stringent legal standards.

Specific Grounds for Valid Job Offer Revocation Under Japanese Employment Practices

The circumstances under which a job offer revocation can be deemed valid in Japan are limited and can be broadly categorized into reasons pertaining to the candidate and reasons pertaining to the company.

From the candidate’s side, a revocation may be justified if the conditions upon which the job offer was based were not met. For example, if a new graduate was required to complete their university degree but failed to graduate due to insufficient credits, this would constitute a valid reason for revocation. Additionally, if the candidate’s health deteriorates significantly after the offer, to the extent that it becomes clear they cannot perform the expected duties, revocation may be permitted. Furthermore, if serious misrepresentation regarding academic qualifications or essential work experience is discovered after the offer, this breach of trust can serve as a ground for revocation. Also, if the candidate commits a serious criminal act post-offer, their suitability as an employee may be called into question, justifying the revocation.

On the company’s side, severe deterioration of business performance can be cited as a reason. However, this is treated similarly to a “restructuring dismissal,” and its validity is judged very strictly. According to case law, for a restructuring dismissal to be valid, it generally requires a comprehensive consideration of four elements: (1) a high degree of managerial necessity for workforce reduction, (2) efforts made to avoid dismissals, (3) rational criteria for selecting individuals for dismissal, and (4) sufficient explanation and consultation with the workers. Mere poor performance or concerns about future economic downturns do not suffice as legitimate reasons for revoking a job offer.

Court Cases Where Job Offer Cancellations Were Deemed Invalid Under Japanese Employment Practices

Courts in Japan have taken a strict stance against the casual cancellation of job offers, resulting in numerous cases where such cancellations have been deemed invalid.

In the Dai Nippon Printing case, the reason cited for the cancellation of the job offer was the candidate’s “gloomy impression from the outset,” which was a factor that could have been recognized at the time of the offer. Therefore, it was judged not to be a valid reason for cancellation. This case established the principle that cancellations based on subjective and abstract reasons are not permissible.

Furthermore, cancellations based on uncertain information are also considered invalid. In a decision by the Tokyo District Court, a job offer cancellation based on “bad rumors” from the candidate’s previous job was contested. The court ruled the cancellation invalid, as it was based on hearsay and rumors without objective evidence.

There is also a high threshold for cancellations based on the actions of the candidate. In the Senden Kaigi case (January 28, 2005, Tokyo District Court decision), a company canceled a job offer after the candidate declined to participate in pre-employment training due to academic commitments. The court deemed the cancellation illegal, stating that companies have a duty of good faith to excuse candidates who present reasonable grounds for non-participation.

Additionally, the procedures and timing of the cancellation are crucial. In the Infomix case (October 31, 1997, Tokyo District Court decision), a candidate who had already resigned from their previous job was notified of the job offer cancellation just two weeks before the scheduled start date. The court invalidated the cancellation, considering it to impose an excessively harsh outcome on the candidate and not acceptable by societal norms.

These court cases indicate that companies in Japan must exercise extreme caution when canceling job offers. Once a job offer is made, companies are already in a legally binding contractual relationship, and cancellations should be considered a last resort, only to be contemplated when there is objective evidence of a significant and unavoidable reason.

Conclusion

As detailed in this article, the establishment of employment relationships in Japan is subject to detailed and strict legal regulations at each stage: the freedom of hiring, the explicit statement of working conditions, and the acceptance of job offers. While the “freedom of hiring” is a principle rooted in the Constitution and Civil Code of Japan, it is significantly restricted by numerous laws that prohibit discrimination based on gender, age, disability, and other factors. Next, when concluding a labor contract, there is an obligation under the Japanese Labor Standards Act to comprehensively and explicitly document important working conditions such as wages and working hours, and recent legal revisions have further expanded this scope. The “job offer acceptance,” which is unique to Japanese employment practices, is legally positioned as a labor contract with a reserved right of cancellation, and its withdrawal is subject to the same strict legal constraints as dismissal. Complying with these regulations and establishing an appropriate hiring process is essential to avoid legal risks and build healthy labor-management relationships.

Monolith Law Office has a wealth of experience in dealing with the themes related to the establishment of employment relationships discussed in this article, serving numerous clients within Japan. Our firm boasts attorneys who are fluent in English and hold both Japanese legal qualifications and foreign legal qualifications, deeply understanding both international business perspectives and Japanese legal regulations. We are capable of providing comprehensive legal support related to the establishment of employment relationships, including the formulation of hiring policies, review of notices of working conditions, and risk assessment of job offer cancellations. We offer strategic advice to ensure compliance with the complex Japanese labor regulations and to smoothly advance your business operations.