Legal Commentary on Labor Agreements in Japanese Employment Law

In the realm of employer-employee relations in Japan, labor agreements are extremely important legal documents. They are not merely agreements between labor unions and employers but are special norms with strong legal effects that take precedence over individual employment contracts and company work regulations. The Japanese Labor Union Law grants labor agreements the power to directly regulate and modify the individual working conditions of employees. Therefore, for business managers and legal professionals, a precise understanding of the legal nature, formation requirements, scope of effect, and termination rules of labor agreements is essential. This knowledge goes beyond mere compliance demands and is crucial for building stable and predictable labor relations and managing legal risks. The conclusion of a labor agreement signifies that employers delegate a portion of their authority to unilaterally determine working conditions to the outcome of bilateral negotiations with labor unions. The impact of this extends widely, from core labor conditions such as wages and working hours to procedures related to management decisions like personnel transfers and dismissals. This article will clarify the legal positioning of labor agreements under Japanese labor law, elaborate on their formation requirements and two unique effects—namely, the ‘general binding force’ that extends to employees who are not members of the labor union—and discuss the legal procedures and points of caution when a labor agreement comes to an end, all from a specialized perspective based on specific statutes and case law.

The Legal Treatment of Labor Agreements and Their Relationship with Other Norms Under Japanese Law

In Japan, workplace labor conditions are governed by multiple norms, which have a clear hierarchy. Understanding this structure is fundamental to grasping the legal status of labor agreements. At the top of the hierarchy are laws such as the Japanese Labor Standards Act and the Japanese Labor Contract Act. Following these in strength are labor agreements, which take precedence over work rules and individual labor contracts.  

This hierarchy is established by several Japanese laws. First, Article 92 of the Japanese Labor Standards Act stipulates that “work rules must not contravene laws or labor agreements applicable to the workplace.” This prohibits employers from unilaterally creating work rules that infringe upon the contents of labor agreements, which are agreements between labor and management.  

Next, Article 13 of the Japanese Labor Contract Act further reinforces this relationship by stating that “if work rules conflict with a labor agreement, the provisions of Articles 7, 10, and the preceding article shall not apply to the labor contract with the worker subject to the labor agreement.” This effectively means that parts of work rules that contradict a labor agreement do not have legal effect on the workers covered by that agreement.  

Moreover, the relationship between individual labor contracts and labor agreements is decisively regulated by Article 16 of the Japanese Trade Union Act. This article declares that “parts of a labor contract that violate the labor conditions or other standards of treatment for workers set forth in a labor agreement are invalid,” and the invalid parts are governed by the standards of the labor agreement.  

Combining these provisions, the priority of norms governing labor conditions is as follows: laws, labor agreements, work rules, and labor contracts. This hierarchy demonstrates that labor agreements function not merely as contracts but as a form of mini-legislation that sets minimum standards for specific groups of workers.  

It is important to note that the principle of favorability, which applies to the relationship between work rules and labor contracts, does not usually apply to the relationship between labor agreements and labor contracts. According to Article 12 of the Japanese Labor Contract Act, parts of a labor contract that do not meet the standards of work rules are invalid and the standards of the work rules apply. Conversely, if a labor contract sets more favorable conditions for the worker than the work rules, those favorable conditions take precedence. However, regarding labor agreements, Article 16 of the Japanese Trade Union Act simply invalidates labor contracts that “violate” the standards of the agreement, without considering whether they are more or less favorable to the worker. This means that labor agreements can have the power to invalidate even more favorable conditions agreed upon by individual workers and employers, in order to ensure uniformity and fairness in labor conditions for all union members. While this can be useful for employers in maintaining consistency in employee treatment, it also suggests a potential constraint on offering special incentives to exceptional talent that deviate from the agreement.  

The table below summarizes the hierarchy of these norms.

Requirements and Legal Effects of Labor Agreements Under Japanese Law

In order for a labor agreement to exert its powerful legal effects, it must meet the stringent formal requirements set by law. Once established, the agreement possesses two distinct types of legal effects: ‘normative effects’ and ‘obligational effects’.

Requirements for Validity

In order for a labor agreement to be established, it is essential to comply with the formal requirements set forth in Article 14 of the Japanese Labor Union Law. This article stipulates that “a labor agreement shall come into effect by creating a written document and having both parties sign or affix their names and seals to it.” Verbal agreements or documents lacking signatures or name seals, even if there is a substantive agreement between labor and management, are not granted the special legal effect of a labor agreement, particularly the normative effect mentioned later.  

The importance of this strict formalism has been established by precedents of the Supreme Court of Japan. In the case of Tomin Auto Driving School (Supreme Court judgment on March 13, 2001 (2001)), the Supreme Court ruled that despite a clear agreement between labor and management regarding a wage increase, because it was not created as a written document with signatures or name seals, it did not produce the normative effect of a labor agreement. The court stated that since a labor agreement has the powerful effect of directly regulating the contents of individual employment contracts, its existence and content must be clear to prevent future disputes.  

The strict formalism demonstrated by this case also serves as a protective function for employers. That is, it prevents provisional agreements or verbal promises made during collective bargaining from unintentionally acquiring the legal binding force of a labor agreement. Legal obligations with significant force arise only when a formal document signed and sealed by both parties is finally created, allowing companies to reduce legal uncertainties during the negotiation process.

The Dual Effects of Labor Agreements Under Japanese Law

A validly established labor agreement in Japan simultaneously generates two distinct effects: “normative effects” and “obligational effects.”  

The normative effect, derived from Article 16 of the Japanese Labor Union Law, ensures that the standards for wages, working hours, holidays, and dismissal procedures set forth in the labor agreement are directly applied to individual employment contracts and work rules, taking precedence over them. If any provision in an employment contract or work rules contradicts the standards of the labor agreement, that portion automatically becomes invalid, and the standards of the labor agreement are applied. This effect allows the labor agreement to function as a legal norm directly shaping the rights and obligations of individual workers.  

On the other hand, the obligational effect binds the parties who have entered into the labor agreement, namely the employer and the labor union as an organization, with an effect similar to that of a regular contract. This effect primarily applies to matters governing the relationship between labor and management, such as rules for collective bargaining, permission to use company facilities for union activities, and the duty to maintain peace by not engaging in disputes over matters agreed upon during the effective period of the agreement. In case of a breach of the obligational effect, one party can demand the other to fulfill their contractual obligations or claim damages for non-performance.  

Distinguishing between these two effects is crucial when addressing legal responses to violations. For example, if an employer fails to pay the wages stipulated in the agreement, this is an issue of normative effect, and the affected individual workers can directly demand payment of unpaid wages from the employer as a right under their employment contract. Conversely, if an employer refuses to provide union offices as promised in the agreement, this is an issue of obligational effect, and it is the labor union as an organization, not the individual workers, that would bring a lawsuit against the employer to enforce the obligation. Employers need to assess and manage the risks arising from labor agreements on two different levels: claims from individual employees (normative effect) and disputes with the labor union as an organization (obligational effect).

The table below compares the differences between normative and obligational effects.

The Extension of Labor Agreement Effects: General Binding Force Under Japanese Law

The normative effects of a labor agreement in Japan typically extend only to the members of the labor union that concluded the agreement. However, an important exception to this principle exists in the Japanese Trade Union Law, which provides for the ‘general binding force.’ This system automatically extends the effects of a labor agreement to employees who are not union members under certain conditions.  

Article 17 of the Japanese Trade Union Law stipulates that when three-quarters or more of the workers of the same kind who are regularly employed at a single factory or workplace become subject to a labor agreement, the same agreement shall also apply to other workers of the same kind employed at that factory or workplace.  

Breaking down the requirements of this article, we find the following:

1. ‘A single factory or workplace’: This refers to a specific location such as an individual factory, branch, or office, rather than the entire company.  
2. ‘Workers of the same kind who are regularly employed’: This is determined not by the form of the employment contract (full-time, contract employee, etc.) or job title, but by the objective similarity of job duties. Workers on temporary employment may also be included if they are employed on a continuous basis.  
3. ‘Three-quarters or more’: At least 75% of the workers of the same kind within the aforementioned unit must be union members subject to the labor agreement.  

When these requirements are met, the normative parts of the labor agreement (such as wages and working hours) automatically apply to the remaining non-union workers of the same kind, who make up less than one-quarter of the workforce. The purpose of this system is to eliminate inequalities in working conditions among workers engaged in the same labor, to unify labor management, and to prevent employers from treating non-union members more favorably than union members, thereby weakening the solidarity of the labor union.

However, there are significant constraints on the application of this general binding force. In particular, the issue arises as to whether a labor agreement that changes working conditions to the disadvantage of employees can extend to non-union members. A leading case on this point is the Asahi Fire & Marine Insurance case (Supreme Court judgment of March 26, 1996). In this case, the Supreme Court held that, in principle, the general binding force of a labor agreement that meets the three-quarters requirement applies even if it contains terms disadvantageous to non-union members. However, the Court also established an important exception: if applying the labor agreement to a particular worker is deemed ‘significantly unreasonable’ due to special circumstances, then its effects do not extend. The existence of such ‘special circumstances’ should be determined by considering the degree and nature of the disadvantage suffered by the non-union member, the circumstances under which the agreement was concluded, and whether the non-union member had the opportunity to join the union, among other factors.  

This case provides important implications for employers. Just because an agreement has been reached with a majority union does not mean that any terms of employment can be unilaterally applied to the remaining minority non-union members. In particular, when concluding a labor agreement that includes disadvantageous changes such as lowering the retirement age or cutting wages and attempting to extend its effects to non-union members, it is necessary to carefully consider whether the changes will result in significantly unreasonable outcomes for specific non-union members. If a court deems the situation ‘significantly unreasonable,’ there is a legal risk that the agreement’s effects on those non-union members will be denied.

Termination of Labor Agreements Under Japanese Law

Labor agreements in Japan are not perpetual once concluded; they terminate due to certain reasons. However, special consideration is required for the termination procedures and the legal effects that follow.

The main reasons for the termination of a labor agreement are as follows:

1. Expiration of the effective period: According to Article 15 of the Japanese Labor Union Law, the effective period stipulated in a labor agreement cannot exceed three years. An agreement with a defined period naturally expires at the end of that period. However, it is possible to include an “automatic renewal clause” in the agreement, which allows for automatic renewal under the same conditions upon expiration, with mutual consent between labor and management.
2. Mutual cancellation: Regardless of whether there is a defined effective period, both parties can cancel the labor agreement at any time by mutual agreement.
3. Unilateral cancellation: A labor agreement without a defined effective period (including agreements renewed through an automatic renewal clause) can be unilaterally canceled by one party by providing at least 90 days’ notice to the other party in a signed or sealed document, as per Article 15 of the Japanese Labor Union Law.

Employers must exercise particular caution when exercising this unilateral right to cancel. Although the law does not require a specific reason for cancellation, legal issues may arise if the motivation for the cancellation is deemed unjust. Article 7 of the Japanese Labor Union Law prohibits employers from dominating or interfering with the operation of a labor union, labeling such actions as “unfair labor practices.” Case law has established that if an employer’s cancellation of a labor agreement is found to be solely for the purpose of weakening the labor union without legitimate business reasons, it may constitute an unfair labor practice of interference (Suruga Bank case, Tokyo High Court judgment of December 26, 1990 (Gregorian calendar year)). Therefore, when an employer unilaterally cancels an agreement, it is crucial to prepare a rational explanation for the decision to avoid the risk of unfair labor practices.

Furthermore, there are legal points to consider regarding labor relations after the termination of a labor agreement. This concept is known as “post-effectivity.” It refers to the idea that even after a labor agreement has formally expired due to the expiration of its effective period, the working conditions stipulated by the agreement continue to have factual effect as part of individual employment contracts. The expiration of an agreement does not immediately revert working conditions to their pre-agreement state or reduce them to the statutory minimum standards. The working conditions formed by the agreement generally continue as part of individual employment contracts until a new labor agreement is concluded or legally valid procedures (such as a reasonable disadvantageous change to the work rules) are implemented. The existence of this post-effectivity means that even if an employer terminates a labor agreement, it cannot unilaterally reduce working conditions immediately. This is an important legal constraint that should be fully recognized when making management decisions.

Conclusion

As detailed in this article, labor agreements occupy a special and powerful legal status within the Japanese labor law system. Their effect takes precedence over work rules established by employers and individual labor contracts, directly regulating employment conditions. Managers and legal professionals must understand that the conclusion of a labor agreement requires strict written formality and the necessity of signatures and seals, and they must avoid the risk of unintended legal binding force that can arise from casual verbal agreements. Furthermore, it is necessary to distinguish between the ‘normative effect’ of an established agreement, which shapes the rights and obligations of individual workers, and the ‘obligatory effect’ as a promise between the labor union and the organization, managing the different legal risks that arise from each. Additionally, when union members comprise more than three-quarters of the workplace, there is a system of ‘general binding force’ where the effect of the agreement extends to non-union members, but one must keep in mind that changes that are disadvantageous may be subject to rationality review by the courts. When terminating an agreement, careful procedures are required, considering the risk that unilateral cancellation may be deemed an unfair labor practice and the legal principle of ‘survivor effect,’ where employment conditions persist even after the expiration of the agreement. While labor agreements contribute to the stability of labor-management relations, once concluded, they have a long-term and significant impact on corporate management decisions.

At Monolith Law Office, we have a track record of providing abundant advice and support on legal issues related to labor agreements discussed in this article to numerous clients within Japan. Our firm includes several English-speaking attorneys with foreign legal qualifications, enabling us to strategically support companies expanding internationally in dealing with Japan’s complex labor regulations. We offer specialized legal services at every stage, including negotiations for new labor agreements, revisions of existing agreements, or dispute resolution with labor unions.