6 Factors That Affect Termination in Japan

For many organizations, hiring in Japan is an excellent opportunity to tap into skilled and highly educated talent, rich culture, and a strong economy. You can learn more about hiring in Japan within TCWGlobal’s hiring guide here.

That said, if you have workers in Japan or are thinking of bringing on new workers this upcoming 2025, you should consider the termination laws in country, that way you are fully prepared to some of the norms you may experience in country.

Terminating a worker in Japan is vastly different from the US and other countries, mainly because of the country's unique labor laws, higher termination costs, loyalty protected programs, and cultural attitudes towards employment. Fair to say, that Japanese workers value loyalty, and it’s common to stick with one employer, if possible, for the rest of their lives. With that, it makes it harder for companies to terminate their workers.

Here are the main factors that make terminations in Japan so unique:

Strong Worker Protection Laws

Japan has extensive labor laws that prioritize worker protections, especially in the case of dismissal. The Labor Standards Act and the Employment Security Act, can make it difficult for employers to terminate workers without cause.

As seen in other countries, there needs to be a valid reason to dismiss workers and provide applicable notice, which in Japan, the minimum is 30 days’ notice, or to pay a 1 month salary in lieu of.

Cultural Norms and Social Expectations

In Japan, there is a strong loyalty culture, meaning long-term employment and mutual commitment between employer and worker. Companies often reciprocate with job security for a worker’s entire career. This has contributed to the culture of making dismissal viewed as socially undesirable.

Potential for higher termination costs

Japan has relatively strong protections against unfair dismissal, which can result in expensive legal proceedings if a worker challenges their termination.

The process of dismissal itself can be costly due to severance pay and potential legal fees, as well as the impact on company reputation. This is something we’d like all our clients to consider when terminating a worker as costs are important to budgeting.

Workplace practice

Instead of dismissing workers, companies often try to find alternative roles within the company or offer retraining, especially in larger organizations. Even when workers are underperforming, companies may go to great lengths to avoid direct termination. Retraining offers the worker another opportunity to enhance their work performance and any gaps the company may be experiencing.

Severance in Japan

There is no legal requirement for severance pay in Japan. It typically depends on the contractual agreement between the employer and the worker. However, many larger companies tend to offer severance pay, or where company-specific regulations stipulate such payment upon termination of employment.

While it is not mandatory, some businesses choose to provide severance payments based on tenure or other internal policies. On the other hand, terminated workers are not entitled to receive severance pay in Japan, unless otherwise specified in their individual employment contract or company’s labor policy.

Legal challenges

If a worker chooses to contest their dismissal, Japanese courts can intervene. The burden of proof is on the employer to demonstrate that the dismissal was justified, and courts often require evidence of a "reasonable" cause and adherence to fair procedures.

If a worker is wrongfully dismissed, they may be entitled to compensation or reinstatement. Workers themselves may also seek redress through a tribunal or a union, where collective agreement is required. And where two or more aggrieved workers join, they may form a union or go outside a union and pursue a legal case.

We hope that this information is helpful as you explore employment in Japan! As shared, there are so many benefits to hiring in Japan, so if you would like to move forward with hiring a worker in Japan, TCWGlobal can help and can offer guidance with common best practices.

Its best practice to hire workers under indefinite contracts due to the reasons previously mentioned around employment and termination culture in Japan. If a fixed contract is desired, there is no minimum term but please be aware it can only be renewed up to 5 years.

After that, the contract must be transitioned into an indefinite contract. If termination is required during the engagement, TCWGlobal will partner with you to collect details on the reasoning, to advise on next steps, including if the reasoning for termination would meet the local requirements. If you have any questions, please reach out to your TCWGlobal contact or hello@tcwglobal.com. Our team is happy to assist you!