Probationary Periods and the Legal Status of Non-Regular Workers in Japanese Labor Law

Japanese labor law constructs a system that robustly protects workers. This protection manifests in significantly limiting an employer’s ability to unilaterally terminate a contract, that is, to dismiss an employee, once a formal labor contract has been established. However, from a business management perspective, there is a need to assess whether newly hired personnel truly fit the company’s culture and job requirements through actual work performance. The legal mechanism designed to balance this managerial demand with the principle of worker protection is the ‘probationary period’ system. While many companies utilize probationary periods as part of their hiring process, there are often misconceptions about their legal nature and the legality of terminating a labor contract during or at the end of the period. Under Japanese law, a labor contract during a probationary period is legally positioned as a ‘labor contract with a reserved right of cancellation,’ and the act of terminating such a contract corresponds to ‘dismissal.’ Therefore, its validity is judged within the strict dismissal regulations set by Japanese labor law. This article will explain the legality of exercising the reserved right of cancellation during the probationary period, based on the criteria used by Japanese courts and specific case examples. Furthermore, we will also explore the legal issues related to employment forms of non-regular workers that have functions similar to probationary periods, particularly focusing on the system of ‘temporary-to-permanent’ staffing arrangements in Japan.  

The Legal Nature of Probationary Periods: Labor Contracts with Reserved Termination Rights in Japan

In Japanese employment practices, the legal nature of probationary periods is clearly defined by established case law. The probationary period set by many companies at the time of hiring is not merely an evaluation period; it is interpreted that a formal employment contract is established between the employer and the employee from the first day. In this respect, there is no essential difference in legal status between an employee during the probationary period and an employee after official hiring.  

The core feature that distinguishes a labor contract during the probationary period from a regular employment contract lies in the employer’s reservation of the “right to terminate” the contract. The judgment given by the Supreme Court of Japan on December 12, 1973 (commonly known as the Mitsubishi Rayon case) continues to exert its influence as a leading precedent in this field. In this decision, the Supreme Court defined the labor contract during the probationary period as a “labor contract with reserved termination rights.” This contract implies that, due to the limited information available at the initial stage of hiring, the employer reserves the right to observe the employee’s qualifications, personality, and capabilities for a certain period and to make a final decision on official hiring based on that evaluation.  

Therefore, the act of refusing official hiring upon the expiration of the probationary period or terminating the contract during the probationary period is not a refusal to conclude a new contract but a unilateral termination of an already established employment contract by the employer, which corresponds to “dismissal.” Understanding this legal nature is extremely important in managing human resources related to probationary periods. This is because such an act constitutes “dismissal,” and as such, it is subject to the strict dismissal regulations set forth by the Japanese Labor Contract Law, which will be discussed later.  

The Limits of Exercising the Right to Rescind During Probation: The Abuse of Dismissal Rights Principle Under Japanese Employment Law

In Japan, an employer’s right to rescind a labor contract during the probationary period is not unlimited. As mentioned earlier, the exercise of the right to rescind is legally evaluated as a “dismissal,” and therefore, it is subject to the strict regulations of Article 16 of the Japanese Labor Contract Act, which governs the abuse of dismissal rights.

Article 16 of the Japanese Labor Contract Act stipulates that “a dismissal shall be invalid if it lacks objectively reasonable grounds and is not considered appropriate according to social norms.” This provision requires that, for an employer to dismiss an employee, both “objectively reasonable grounds” and “appropriateness according to social norms” must be satisfied. This applies equally to dismissals during the probationary period.

However, in the case of dismissals during the probationary period, case law takes into account the special nature of the probationary period. In the Mitsubishi Rayon case judgment, it was indicated that a dismissal based on the reserved right to rescind cannot be discussed in exactly the same way as a normal dismissal after formal employment, and that “a broader range of freedom to dismiss should be recognized” for the former than for the latter. This “broader range” does not mean that the requirements for dismissal are relaxed; rather, it implies that the scope of reasons for dismissal is expanded. Specifically, since the purpose of the probationary period is to evaluate the suitability of the worker, if the result of this evaluation leads to a judgment of unsuitability based on objective and rational evidence, then this can constitute a valid reason for dismissal. While it is extremely difficult to dismiss an employee after formal employment based solely on “lack of suitability,” during the probationary period, this becomes a central criterion for evaluation.

Furthermore, when executing a dismissal, procedural requirements must also be adhered to. Article 20 of the Japanese Labor Standards Act obligates employers to give at least 30 days’ notice before dismissing an employee or to pay an amount equivalent to at least 30 days’ average wages (dismissal notice allowance). However, for workers during the probationary period, this obligation to give notice of dismissal is waived if the dismissal occurs within 14 days after hiring.

Assessing the Legality of Exercising the Right of Rescission in Japanese Case Law

In Japan, whether the exercise of the right of rescission is deemed “objectively reasonable” and “appropriate according to social norms” is ultimately determined by the courts on a case-by-case basis. Therefore, analyzing past court decisions is essential for concretely understanding the criteria for judging legality.

Cases Where Dismissal Was Deemed Valid Under Japanese Law

In cases where the courts have deemed dismissal during a probationary period valid, it is often recognized that the employee lacked the expected abilities or aptitude to a significant degree, as objectively assessed. This is particularly true for cases where an individual was hired as a specialist with certain skills or experience but was found to be fundamentally lacking in those areas, making dismissal more likely to be upheld.

For example, in the case of an employee who was hired as a qualified social insurance labor consultant expected to manage labor affairs but failed to perform basic tasks (Cool Biz Uniform Case, Tokyo High Court, August 3, 2016 (Heisei 28)), the court upheld the dismissal. In such cases, the obligation of the company to provide extensive training and education is often interpreted as limited. Similarly, in the case of a securities company employee who was hired as an immediate asset but continued to make mistakes despite numerous instructions and showed no improvement (Company G Case, Tokyo District Court, February 25, 2019 (Heisei 31)), the refusal to confirm permanent employment was deemed valid. These precedents suggest that the exercise of the right to terminate a contract is justifiable when there is a clear lack of core competencies that were a prerequisite for the hiring.  

Cases Where Dismissal Was Deemed Invalid Under Japanese Law

On the other hand, there are notable cases where the courts have deemed dismissals invalid due to problematic actions on the employer’s side. Common types include situations where the reasons for dismissal lack objective evidence, or where the employer has neglected necessary guidance or training.

In the case where a design company refused to formally hire an employee, citing poor drawing skills despite being hired as an experienced worker (Design Company Employee Dismissal Case, Tokyo District Court, January 28, 2015 (2015)), the court invalidated the dismissal. The court pointed out that the company’s instructions lacked specificity and there was a shortage of objective evidence to conclusively determine the employee’s insufficient abilities. Similarly, in the case where an employee, hired as a veterinarian, made mistakes in their duties but was not deemed beyond improvement and was thus refused formal employment (Fanimedick Case, Tokyo District Court, July 23, 2013 (2013)), the dismissal was also judged to be invalid. These cases indicate that the courts view the probationary period not only as a time to evaluate employees but also as a period during which employers should provide proper guidance and opportunities for improvement. If employers neglect this process, even if there are issues with the employee, the risk of a dismissal being invalidated increases.  

Comparative Analysis

Comparing these court cases reveals the dividing line that determines the validity of dismissals during probationary periods. The judgment is based not solely on an employee’s performance but also on a comprehensive evaluation of the entire process, including the nature of the job at the time of hiring (whether it is a specialized position or not), the nature and severity of the issues, and most importantly, the guidance and opportunities for improvement provided by the employer. Dismissals are more easily justified for professionals hired for their expertise who fail to demonstrate it, while more extensive guidance and training are expected from companies for inexperienced or newly graduated employees. Dismissals based on vague ‘inadequacy’ are highly likely to be deemed legally invalid without concrete records of guidance or objective evaluations.

The table below compares the key points of judgment in representative court cases.

Legal Issues Similar to Probationary Periods for Non-Regular Workers in Japan

Similar to probationary periods, mechanisms for evaluating the suitability of workers exist in the realm of non-regular employment in Japan. In particular, the framework of temporary staffing offers possibilities for legal risk management that differ from those of direct employment.

Refusal of Permanent Employment in Japan’s Temp-to-Perm Hiring

“Temp-to-perm hiring” is a form of worker dispatch in Japan where the dispatched worker is expected to be directly employed by the client company. Under the Japanese Worker Dispatch Law, the dispatch period is limited to a maximum of six months, which effectively functions as a probationary period.  

The decisive legal difference between the probationary period of direct employment and that of temp-to-perm hiring lies in the nature of the refusal of permanent employment after the dispatch period ends. While the refusal of permanent employment after the probationary period of direct employment is considered a “dismissal,” the refusal of permanent employment in temp-to-perm hiring is generally interpreted as a “rejection to enter into a direct employment contract.”

An important legal precedent in this regard is the case of Nintendo (Kyoto District Court, Reiwa 6 (2024) February 27th decision). In this case, the court pointed out that the temp-to-perm hiring system inherently assumes that there may be cases where direct employment is not reached, and ruled that the worker’s expectation of direct employment is not a legally protected right. As a result, the court concluded that the client company’s refusal to directly employ the dispatched worker was lawful. This judgment indicates that when using the temp-to-perm hiring system, client companies can assess the suitability of workers with a lower legal risk compared to the probationary period of direct employment. This is because there is no direct employment contract relationship between the client company and the worker during the dispatch period.  

Dispatched Workers’ Tenure Limitations and Direct Employment in Japan

Under Japanese Worker Dispatch Law, there is a principle that dispatched workers can be accepted continuously at the same workplace within the same organizational unit for up to three years. If a company wishes to continue utilizing a worker after reaching this tenure limitation, it is deemed that the company has made an offer for direct employment to that worker. However, this obligation to offer employment does not necessarily mandate permanent, full-time employee status; it is also possible to offer employment under a fixed-term contract.

Summary

Under Japanese labor law, the probationary period is a crucial management tool for assessing the suitability of new hires. However, it is not a period during which employers are free to dismiss employees at will. A labor contract during the probationary period is a “labor contract with a reserved right of cancellation,” and its termination is subject to strict scrutiny under the doctrine of abuse of the right to dismiss. To legally justify the exercise of the reserved right of cancellation, it is essential to have objective and reasonable grounds supporting the lack of suitability, a fair evaluation process, and above all, the provision of careful guidance and opportunities for improvement. Case law tends to be harsh on dismissals made without these processes. On the other hand, frameworks for non-regular employment, such as temp-to-perm staffing, offer a different risk profile from direct employment and can be an effective alternative under certain circumstances. Accurately understanding these legal frameworks and practicing appropriate HR and labor management is key to preventing legal disputes and achieving stable business operations.

Monolith Law Office has a proven track record of providing specialized legal services to numerous domestic and international clients on complex labor law matters, as discussed in this article. Our firm employs several English-speaking attorneys with foreign legal qualifications, who understand the nuances of Japanese employment practices and regulations, and can strongly support companies expanding their businesses internationally. We are ready to assist with setting up probationary periods, organizing work regulations, addressing dismissal issues, and all other HR and labor-related consultations.