Copyright c 2001 The American Society of Comparative Law Inc The American Journal of Comparative Law Fall 2001 49 Am J Comp L 627 LENGTH 11365 words ARTICLE JAPANESE LAW SYMPOSIUM Labor Law Reform in Japan A Response to Recent Socio Economic Changes NAME RYUICHI YAMAKAWA BIO Ryuichi Yamakawa is Professor of Law University of Tsukuba This article is based on a paper submitted to the Sho Sato Conference held on November 1999 at the Boalt Hall School of Law at the University of California Berkeley The contents of the paper were updated based on new developments after the conference The author is grateful to Ms Stacy Steele for her valuable assistance on the manuscript SUMMARY Japanese labor law has undergone a number of reforms over the last few years In this sense Japanese labor law is now going into a new phase Then Part IV considers whether recent reforms have actually affected the fundamental features of Japanese labor law In some respects the recent labor law reforms have been influenced by the deregulation policies of the Japanese government Implications for Japanese Labor Law A Features of Japanese Labor Law One of the most distinctive features of Japanese labor law is the case law doctrine of abusive dismissal B Future Prospect of Japanese Labor Law Of course this is not to say that there will be no reason for changes in major features of Japanese labor law Thus it remains to be seen whether it will become necessary to reexamine the core features of Japanese labor law TEXT 627 I Introduction Japanese labor law has undergone a number of reforms over the last few years Significant amendments were made to such major statutes as the Labor Standards Law the Equal Employment Opportunity Law the Employment Security Law and the Worker Dispatching Law Also the legislature enacted new statutes such as the Individual Dispute Resolution Law and the Labor Contract Succession Law In this sense Japanese labor law is now going into a new phase These reforms are aimed at bringing the system of labor laws in line with socio economic changes that are now taking place in Japan This article analyzes how Japanese labor law has responded to recent socio economic changes and it examines the implication of recent reforms First Part II briefly describes the current situation regarding employment management and the labor market in Japan Next Part III outlines the recent amendments made to major labor laws and clarifies their relationship with recent socio economic changes Then Part IV considers whether recent reforms have actually affected the fundamental features of Japanese labor law This article concludes in Part V that these features have been maintained despite the significance of recent reforms II Recent Socio Economic Changes in Japan Japan is now experiencing a number of changes in its society and economy Employment management and the labor market are not exception to this trend The following is a brief description of the changes that are relevant for the purpose of the topic of this article n1 628 A Individualization of Working Conditions Traditionally wage systems in Japan have been described as seniority based wage systems n2 Although many large companies have adopted wage systems based on a worker s grade or rank with respect to job related ability the grading itself has been strongly influenced by the age or years of service of workers Also wage differences arising from performance appraisal have been relatively small among workers However in recent years Japanese employers have begun to emphasize more effective use of performance appraisal thereby making wage differentials larger n3 In addition a number of companies have now implemented a so called annual salary determination system n4 Under this system a worker s salary is determined on a yearly basis according to an evaluation of the worker s performance over the previous year Under this annual salary determination system salary differentials tend to become much larger because they depend on each worker s performance although the scope of such systems is usually limited to managerial or professional workers The purpose of this individualization of wage determination is to provide incentives for workers to be more competitive and to reward those who have achieved better performances Such individualization can also be seen in changes to other working conditions such as working hours This is at least in part due to changes in the type of work being performed As the Japanese economy has become more service oriented uniform ways of working that might have been standard in factories are now giving way to more flexible working styles As a result many companies have implemented flexible working time arrangements such as flextime n5 Overall the contents of employment contracts are in the process of diversification B Increase in Atypical Employment There has also been an increase of atypical workers n6 The term atypical worker refers to part time workers dispatched workers and workers who conclude fixed term employment contracts While 629 regular workers mainly in large companies who conclude employment contracts without fixed term have enjoyed so called Japanese employment practices such as seniority based wage systems and long term employment atypical workers have been outside the scope of such practices In fact they have functioned as a buffer during times of recession In a process of reducing a workforce it is usually these workers whose employment is terminated before the dismissal of regular workers Although such atypical workers have long played an important role in the Japanese labor market their numbers have been increasing considerably in recent years especially in the service sector In 1999 atypical workers comprise 27 5 percent of the employed workforce in Japan it was 22 8 percent in 1994 part timers being the largest component 20 3 percent n7 In retail wholesale and food service industries part timers comprise 38 1 percent of the employed workforce as of 1997 n8 This is partly based on the employers need for workers who are less costly than regular workers There is also a need for part time work from the workers side mainly from women who have responsibilities for childcare C A Decline in Long term Employment In the mass media it is often claimed that Japan s lifetime employment system has already disappeared To be sure the unemployment rate reached 5 5 percent a record high in November 2001 n9 Also when we look at the reason for
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