Termination of Employment Contracts under Japanese Labor Law: A Legal Analysis of Mutual Termination Agreements and Resignations Based on Employee Requests

Termination of employment contracts is a common occurrence in corporate management. Particularly, situations where the employment relationship ends due to a worker’s initiative happen frequently. However, there is a significant difference in legal effects, especially regarding the timing of the termination’s effectiveness and whether a submitted resignation can be withdrawn, depending on whether the termination is a ‘mutual agreement to terminate’ or a ‘resignation.’ Failing to accurately understand this distinction can lead to unexpected legal disputes, such as when a company hires a successor only to have the worker who offered to resign withdraw their notice and claim that their employment status still exists. The termination of an employment contract is not merely a procedural issue; it is a critical legal matter directly connected to a company’s legal obligations and risk management. In this article, based on Japanese labor law, we will provide a detailed professional analysis of the legal requirements, effects, and rules regarding the withdrawal of notices for the termination of employment contracts initiated by workers, namely ‘mutual agreement to terminate’ and ‘resignation,’ referencing specific statutes and case law. Our goal is to assist in achieving stable and legally appropriate personnel and labor management.

Legal Types of Employment Contract Termination in Japan: Mutual Agreement and Resignation

In Japan, the termination of an employment contract initiated by the employee is legally classified into two main types: “mutual agreement” and “resignation.” While both result in the termination of the employment contract, their legal nature and requirements for establishment fundamentally differ.

A mutual agreement is a contract in which the employee and employer agree to terminate the employment contract at a future date based on mutual consent. This is established when the “offer” from one party and the “acceptance” from the other party coincide. In practice, the act of an employee submitting a “resignation request” is often interpreted as the “offer” for a mutual agreement. Only when the employer accepts this does the agreement to terminate the contract become established.

On the other hand, resignation refers to the unilateral termination of the employment contract by the employee. Also known as “voluntary resignation,” it does not require the employer’s consent. The contract termination takes effect automatically after a prescribed period defined by law, once the employer receives the employee’s notice of termination.

The practical issue arises when the “resignation notice” or “resignation request” submitted by the employee is not clear whether it legally constitutes an “offer for a mutual agreement” or a definitive “expression of intent to resign.” This distinction is extremely important because the possibility of withdrawing the expression of intent depends on the interpretation of its legal nature. Considering that an employee’s position is the foundation of their livelihood, Japanese courts take a cautious approach to interpreting an employee’s expression of intent. As a result, unless it is objectively clear that the employee’s declaration of resignation is intended to definitively end the employment contract regardless of the employer’s response, the courts tend to interpret the expression of intent as an “offer for a mutual agreement,” which can be withdrawn, rather than as “resignation.” This judicial tendency poses a significant risk factor for employers. If an employer prematurely assumes that an expression of intent to resign is definitive and proceeds with hiring a successor or makes internal announcements, they may later face a situation where a legally valid employment contract exists in duplicate if the employee withdraws their expression of intent, necessitating a cautious response.

Rules for Resignation in Indefinite-Term Employment Contracts Under Japanese Law

In Japan’s labor legal system, workers who have entered into indefinite-term employment contracts, similar to full-time employees without a fixed term of employment, are in principle allowed to request the termination of their employment contract at any time. The legal basis for this right is Article 627, Paragraph 1 of the Japanese Civil Code.

According to this provision, “If the parties have not specified a term of employment, either party may request termination at any time. In this case, employment shall terminate upon the expiration of two weeks from the date of the termination request.” This is known as the “freedom to request termination,” and it means that the employment contract legally ends two weeks after the worker expresses their intention to resign, regardless of the employer’s consent. The two-week period begins the day after the termination request is made.

In practice, many companies in Japan stipulate in their work rules that “those wishing to resign must submit their notice at least one month prior to the intended date of resignation,” which is a longer notice period than the two weeks provided by the Japanese Civil Code. Here arises the issue of which takes precedence: the provisions of the work rules or the provisions of the Japanese Civil Code. On this point, opinions are divided in academic theory and case law as to whether the provisions of Article 627 of the Japanese Civil Code are mandatory provisions that cannot be excluded by special agreement. However, work rules that impose an unduly restrictive long-term notice obligation on the freedom of workers to resign are likely to be considered contrary to public order and morals (Article 90 of the Japanese Civil Code) and thus invalid. There are past court cases that have interpreted Article 627 of the Japanese Civil Code as a mandatory regulation and ruled that the effects of resignation occur two weeks after the worker’s request, regardless of the provisions of the work rules (Takano Meriyasu case, Tokyo District Court, October 29, 1976). Therefore, while it may be permissible for companies to set a notice period of about one month in their work rules due to the rational necessity of handing over work, etc., it should be understood that it is difficult to legally prevent a worker from resigning within two weeks based on Article 627 of the Japanese Civil Code if they assert this right.

Rules for Resignation in Fixed-Term Employment Contracts Under Japanese Law

In the case of fixed-term employment contracts, such as those for contract employees, where the duration of employment is specified, resignation during the contract period by the employee is more strictly limited compared to indefinite-term employment contracts. Fixed-term employment contracts are concluded on the premise that both parties will adhere to the contract period, and unilateral termination is generally not permitted.

The principle governing this is Article 628 of the Japanese Civil Code. This article stipulates, “Even if the parties have determined a period of employment, either party may immediately terminate the contract if there are unavoidable circumstances.” In other words, for a fixed-term contract employee to resign during the contract period, the existence of “unavoidable circumstances” is necessary.

Whether or not a situation qualifies as an “unavoidable circumstance” is judged on a case-by-case basis, but generally, the following cases are considered:

• When the employee’s own serious illness or injury makes it impossible or significantly difficult to provide labor.
• When family circumstances, such as caregiving, objectively make it difficult to continue working.
• When there is non-payment of wages, or when the actual working conditions significantly differ from those that were explicitly stated at the time of hiring (this is also recognized as an immediate right of termination under Article 15, Paragraph 2 of the Japanese Labor Standards Act).
• When the employer’s business operations are in violation of laws and regulations.

However, there is an important exception to this strict principle. Supplementary Provision Article 137 of the Japanese Labor Standards Act states that for workers who have entered into a fixed-term employment contract exceeding one year, “after one year has elapsed from the first day of the contract period, they may resign at any time by notifying their employer.” This provision allows, for example, an employee on a three-year contract to freely resign at any time after one year from the start of the contract, even without “unavoidable circumstances.” This exception is intended to prevent the long-term restraint of workers and is a legal constraint that employers must be aware of when planning to secure personnel through multi-year fixed-term contracts.

Withdrawal of Resignation: Can You Rescind Your Resignation Under Japanese Employment Practices?

In practice, cases where an employee attempts to withdraw a resignation after it has been submitted can easily become a source of dispute. Whether a resignation can be withdrawn hinges on the legal distinction between a “resignation” and an “offer to mutually terminate the employment contract.”

A “resignation,” which is a unilateral notice of contract termination by the employee, becomes effective once it reaches the employer, and therefore, in principle, cannot be unilaterally withdrawn by the employee. In contrast, a resignation that is made as an “offer to mutually terminate the employment contract” can be freely withdrawn by the employee until the employer makes a declaration of acceptance.

The most crucial point here is determining when and how the “employer’s acceptance” legally takes effect. Once acceptance is deemed to have occurred, the employee can no longer withdraw the offer, and the mutual termination of the employment contract is finalized. There are two contrasting leading cases from the Supreme Court and district courts on this matter.

The first is the Okuma Iron Works case (Supreme Court of Japan, September 18, 1987). In this case, an employee submitted a resignation letter to the head of the personnel department, who accepted it. The employee attempted to withdraw the resignation the following day, but the court found that the head of the personnel department was substantively entrusted with the authority to approve the employee’s resignation. The court ruled that the mutual termination of the employment contract was established when the personnel department head accepted the resignation letter, rendering the employee’s attempt to withdraw the next day invalid.

The second case is the Hakuto Academy case (Osaka District Court, August 29, 1997). In this case, a private school teacher submitted a resignation letter to the principal but withdrew it by phone a few hours later. In this school corporation, the final authority to appoint or dismiss teaching staff rested with the chairman of the board. The court ruled the withdrawal valid because it occurred before the chairman, who had the final authority to accept, made a declaration of acceptance to the teacher.

What can be derived from these cases is the fact that the success or failure of a resignation is closely related to the structure of authority distribution within a company. Whether the person accepting the resignation letter is merely a recipient or someone with the authority to decide on acceptance can change the timing of when a mutual termination is established. This lack of legal stability poses a significant risk for employers. Therefore, from a dispute prevention perspective, it is highly effective for companies to clearly define in their work rules or similar documents that “submission of a resignation letter will be treated as an offer for mutual termination, and the mutual termination will be established when a written notice of acceptance by the head of the personnel department reaches the employee.” This clarifies the point at which acceptance is established and limits the period during which an employee can withdraw to a foreseeable range.

Comparative Table: Legal Differences Between Mutual Termination Agreements and Resignation in Japan

Below is a table summarizing the legal differences between mutual termination agreements and resignation, as we have discussed so far.

Legal Obligations After Termination of Employment Contracts in Japan

Even after the termination of an employment contract, employers are legally bound by certain obligations. Particularly important are the handling of wage payments and confidentiality obligations.

Payment of Wages

Article 23 of the Japanese Labor Standards Act stipulates strict rules regarding the return of money and goods at the time of an employee’s resignation. According to this article, employers must pay wages within seven days of a claim made by a resigned employee and return all money and goods belonging to the employee’s rights, regardless of their name, such as accumulated funds and deposits. This obligation takes precedence over the company’s regular payday. In other words, if a resigned employee requests payment before the scheduled payday, the company is legally required to respond within seven days. Failure to comply with this provision may result in a fine of up to 300,000 yen, so the accounting and human resources departments must have a system in place that allows for the prompt settlement of resigned employees’ wages.

Confidentiality Obligations

While employed, workers are obligated to maintain the confidentiality of their employer’s business secrets under the principle of good faith and trust associated with the employment contract (Article 3, Paragraph 4 of the Japanese Labor Contract Act). However, this duty based on the principle of good faith significantly diminishes with the termination of the employment contract.

Therefore, to impose a duty of confidentiality on an employee after resignation regarding specific information, it is crucial to have clear provisions in the work rules or to conclude an individual confidentiality pledge at the time of resignation. With such written agreements, it is possible to protect a broader range of information than the definition of “trade secrets” under the Japanese Unfair Competition Prevention Act, enabling more effective measures against information leakage. Especially for employees who had access to information that is the source of a company’s competitive edge, such as customer information, technical data, and business strategies, it is essential to have a clear agreement on post-resignation confidentiality obligations as an indispensable risk management measure.

Conclusion

As detailed in this article, the termination of an employment contract by a worker’s request follows two legal paths in Japan: “mutual agreement termination” and “resignation.” This distinction is not merely an academic classification but is directly connected to highly practical issues such as the timing of the resignation’s effectiveness, the notice period, and most importantly, the possibility of withdrawing the resignation intent. Ambiguities in interpreting an employee’s intent and disputes over withdrawal can potentially bring unexpected turmoil to the stable operation of a company. To effectively manage these risks, it is essential to have a precise understanding of the legal differences and to clearly define internal procedures from the acceptance to the approval of a resignation request.

Monolith Law Office possesses deep expertise and extensive practical experience in Japan’s complex labor law system. We have provided legal advice at all stages of employment contracts, from their initiation to termination, for a diverse range of domestic clients. In particular, we have a significant track record in dealing with legal issues related to employee resignations, as discussed in this article. Our firm also employs several English-speaking attorneys with foreign legal qualifications, enabling us to accurately address the unique needs of foreign-affiliated companies operating in Japan. We offer optimal legal support tailored to your company’s situation, including the creation and review of work regulations, handling individual resignation cases, and constructing measures to prevent disputes before they arise.