Resolving Labor-Management Disputes under Japanese Labor Law: An Overview of the System and Strategic Utilization

In corporate management, labor disputes with employees, also known as industrial relations conflicts, are unfortunately one of the unavoidable risks. These disputes range from issues concerning individual rights and obligations, such as unpaid wages and the validity of dismissals, to future relational issues like changes in working conditions. If a dispute escalates to litigation, not only does it require a significant amount of time and expense for the company, but since trials are generally public, it can also cause serious damage to the company’s reputation and brand image. To manage such risks and seek more prompt and flexible resolutions, the Japanese legal system actively promotes the use of alternative dispute resolution procedures (ADR), which are outside of litigation. ADR involves a fair and neutral third party mediating between the parties to aim for a settlement through discussion. It offers numerous strategic advantages for companies, including privacy, speed, low cost, and flexible solutions. The ADR system in Japan’s labor sector is primarily provided by administrative agencies, with the ‘Prefectural Labor Bureaus’ and the ‘Labor Commissions’ at its core. The services offered by these institutions can be described as a vital infrastructure for companies to effectively address the management challenge of labor disputes. This article will explain the specific content and procedural flow of these public ADR systems and detail how companies can strategically utilize them from a managerial perspective.

Labor-Management Disputes and Their Resolution Systems in Japan

Labor-management disputes in Japan are broadly categorized into “individual labor relations disputes,” which occur between individual workers and employers, and “collective labor-management disputes,” which involve labor unions and employers. Furthermore, depending on the nature of the dispute, they can be classified into “rights disputes,” which contest the existence or non-existence of rights under existing laws or labor contracts, and “interest disputes,” which seek the establishment or modification of future rights relations, such as wage increases or changes in working conditions.

The labor relations in Japanese corporate society are formed within the context of continuous human relationships based on the premise of long-term employment. This personalityistic means that once a dispute arises, the relationships tend to become more complex. In such situations, litigation that seeks to clearly define right and wrong, even if won by the employer, may leave irreparable rifts in the workplace environment. In contrast, Alternative Dispute Resolution (ADR) aims to form agreements between parties, and thus, it can be a superior option for fundamentally resolving disputes and rebuilding healthy labor-management relations thereafter.

In fact, the comprehensive labor consultation corners established nationwide by Japan’s Ministry of Health, Labour and Welfare receive over 1.2 million consultations annually, indicating the prevalence of potential disputes between labor and management. This fact suggests the importance for companies to understand and prepare effective means of dispute resolution in advance. Even typical “rights disputes,” such as those contesting the validity of dismissals, often take on the nature of “interest disputes,” involving negotiations over the amount of settlement money. The reality of these disputes highlights the usefulness of ADR, which allows for flexible financial resolutions tailored to the actual circumstances of the parties involved, rather than being bound by strict legal interpretations. By utilizing ADR, companies can transform legally uncertain risks into predictable and manageable business costs.

Services for Individual Labor Dispute Resolution at Prefectural Labor Bureaus in Japan

Prefectural Labor Bureaus, established across Japan, offer free services to resolve disputes between individual workers and employers based on the “Act on Promoting the Resolution of Individual Labor-Related Disputes.” This system is primarily composed of three progressive services.

Firstly, there is “Comprehensive Labor Consultation.” This service acts as an information desk aimed at preventing disputes before they occur, where specialized consultants provide information on laws and case precedents in response to various labor issues raised by workers or employers.

Secondly, there is “Advice and Guidance.” In cases where voluntary resolution between the parties is difficult, the head of the Prefectural Labor Bureau points out issues to the disputing parties and suggests directions for resolution. However, this does not carry any legal enforcement power; it is purely to encourage voluntary resolution by the parties involved.

Thirdly, and most importantly, is “Mediation.” This procedure involves a “Dispute Coordination Committee” composed of labor issue experts, such as lawyers and university professors, who facilitate discussions between the disputing parties to work towards resolving the issue.

The specific process of mediation is as follows: First, either the worker or the employer submits a mediation application form to the jurisdictional Prefectural Labor Bureau to initiate the procedure, at no cost. Once the application is accepted, the Labor Bureau invites the other party to participate in the mediation process. However, participation in this procedure is voluntary, and the other party cannot be forced to join. If the other party agrees to participate, a mediation date is set, and the mediation committee members usually hear the circumstances from both parties separately. This procedure is conducted in complete privacy, ensuring that no corporate internal information or personal privacy is leaked. The mediators organize the claims of both sides and encourage a compromise. In some cases, they may also present a specific resolution proposal (mediation proposal). If both parties agree to the proposal, the agreement has the legal effect of a settlement contract under civil law and legally binds the parties. If no agreement is reached, the mediation is terminated as “discontinued.”

According to statistics from the Ministry of Health, Labour and Welfare, “bullying and harassment” have been the most common issues in individual labor disputes for many years, followed by “dismissal” and “reduction of labor conditions.” This data indicates that interpersonal issues in Japanese workplaces are a major source of disputes, suggesting that companies need to adopt proactive HR policies to build a good working environment, not just comply with legal systems.

It is also noteworthy that among the reasons for the termination of mediation procedures, agreement is reached in only about 30% of cases, with approximately 65% ending in discontinuation without an agreement. This high discontinuation rate may seem to indicate the limitations of the system at first glance. However, from a strategic management perspective, a different interpretation is possible. The value of a company’s participation in mediation procedures is not solely in reaching an agreement. Even if no agreement is reached, participation itself can serve as excellent evidence that the company was sincere in seeking a resolution through discussion, which can be beneficial in subsequent labor tribunals or litigation. Furthermore, the opportunity to understand the other party’s claims and evidence in this confidential setting, without incurring any costs, is extremely valuable for gathering information to strategize future dispute responses. Therefore, refusing to participate in mediation when proposed by a worker may seem to avoid the dispute in the short term, but in the long term, it could push the other party towards more public and adversarial procedures, potentially disadvantaging the company. Participation in mediation should be seen as a strategic process for resolving disputes and assessing and managing risks.

Resolution and Adjustment Procedures for Labor Disputes at the Labor Relations Commission in Japan

While the prefectural labor bureaus primarily target individual labor disputes, the Labor Relations Commissions, established in each prefecture and at the national level (Central Labor Relations Commission), are administrative bodies with broader authority. They handle not only collective labor-management disputes (labor disputes) involving labor unions but also individual labor disputes. The dispute resolution procedures provided by the Labor Relations Commission include three types: “mediation,” “conciliation,” and “arbitration.”

“Mediation” is a procedure similar to that of the prefectural labor bureaus, but a significant difference lies in its composition. The mediators of the Labor Relations Commission typically consist of members representing the public interest, labor, and employers. This tripartite composition means that representatives who speak for each party’s position participate in the discussions, especially the presence of employer representatives, which allows for the exploration of more practical solutions based on the realities of business management and industry practices. The procedure begins upon the application of the parties involved, where mediators listen to both sides’ claims and provide advice towards resolution, and in some cases, propose a mediation plan. However, acceptance of this plan is voluntary.

“Conciliation” is a somewhat more formal procedure than mediation. Like mediation, a tripartite conciliation committee is formed, which not only listens to the parties’ claims but also conducts investigations into the facts as necessary. Based on this, the committee formulates an official conciliation proposal and recommends its acceptance to the parties. Although this conciliation proposal has no coercive force, it carries a certain weight for the parties as it is based on a detailed factual investigation by a public institution. If both parties accept it, its content has the force of a contract.

The most distinctive and powerful procedure is “arbitration.” Arbitration is initiated only if both parties agree to start the procedure or if there is a provision in the labor agreement. The arbitration committee is usually composed only of public interest members and, after hearing both parties’ claims, issues a final decision known as an “arbitration award.” The most significant feature of this arbitration award is its legal binding force. The arbitration award has the same effect as a labor agreement, and the parties are legally bound by its content. There is no recourse against this award.

Arbitration procedures, due to their finality and binding force, can be a double-edged sword for companies. They can be an effective option when the impact of a prolonged dispute on management is severe or when a company has absolute confidence in its claims and desires a swift final resolution. However, once a dispute is referred to arbitration, the company completely relinquishes control over the outcome of the dispute. Because there is a risk of an unpredictable or unacceptable award being issued, the use of arbitration should be a sophisticated management decision, made after carefully weighing the legal prospects against the business gains and losses.

Strategic Comparison of Various Dispute Resolution Procedures

As we have seen, Japanese labor law offers a variety of ADR (Alternative Dispute Resolution) options through two public institutions: the Prefectural Labor Bureaus and the Labor Relations Commissions. Deciding which procedure to choose based on the nature and circumstances of the dispute faced by a company, or how to respond to a procedure initiated by the other party, becomes a crucial strategy in dispute resolution.

First, if we distinguish by the type of dispute, the conciliation by the Prefectural Labor Bureaus is specialized for individual disputes with workers, whereas the Labor Relations Commissions cover a broader range, from collective disputes with labor unions to individual disputes.

Next, from the perspective of the enforceability of the procedures, there is a clear hierarchy. Participation in conciliation by both the Prefectural Labor Bureaus and the Labor Relations Commissions, as well as acceptance of the proposed resolution, is entirely voluntary. These procedures are designed to support the voluntary agreement formation between the parties. In contrast, arbitration by the Labor Relations Commission requires mutual consent to commence, but once initiated, the process and outcome (arbitral award) legally bind the parties, and no appeal is allowed. This personalityistic of ‘voluntary initiation and compulsory conclusion’ is the most significant feature of arbitration.

Another important difference is the composition of the neutral third-party institutions. The Dispute Coordination Committee of the Prefectural Labor Bureaus is primarily composed of legal experts, while the conciliation and mediation by the Labor Relations Commissions are composed of representatives from the public interest, workers, and employers. This tripartite composition allows for consideration from diverse perspectives and, particularly reflecting the employer’s viewpoint, may lead to resolutions that are satisfactory for companies.

All these procedures share the common benefits of being free of charge and conducted in private. This is a significant advantage of ADR as a whole compared to litigation, which is costly, time-consuming, and public.

The table below compares the main features of these procedures.

Conclusion

As outlined in this article, the Japanese labor law system has established a diverse and multi-layered framework for alternative dispute resolution (ADR) procedures through prefectural labor bureaus and labor relations commissions. These systems offer common advantages such as confidentiality, speed, and low cost, and can serve as powerful tools for companies to flexibly and strategically manage the inevitable management risk of labor disputes without relying on the public and rigid procedures of litigation. From consensus-based procedures such as conciliation and mediation to arbitration, which seeks a final and binding decision, it is possible to choose the most suitable means according to the specific circumstances of the dispute and the strategic objectives of the company. Proper understanding and utilization of these systems are essential not only for resolving individual disputes but also for protecting the reputation of the company and maintaining and building healthy labor relations.

However, mere legal knowledge is insufficient for successfully navigating these procedures. A deep understanding of the operational practices of each institution, the dynamics of negotiation, and sometimes unwritten customary practices is required. Monolith Law Office, with its unique combination of IT and legal expertise, has represented numerous client companies in Japan and has a wealth of experience in the areas discussed in this article, from prefectural labor bureau conciliation to labor commission coordination procedures. Our firm employs several attorneys who are also qualified in foreign jurisdictions and are English speakers, enabling us to provide legal support based on smooth communication and deep insight for companies engaged in international business facing unique challenges. If you are facing challenges related to labor disputes, please do not hesitate to consult with our firm.