Article 20 of the Labor Contract Act does not intend to remove the differences between the working conditions of fixed-term and indefinite-term employees

Article 20 of the Labor Contract Act enacted in 2013 prohibits employers from establishing unreasonable disparities between the working conditions of employees under fixed-term contracts and employees under indefinite-term contracts, such as so called “regular workers”, due to the former having a contract with a limited term. Since the introduction of this Article, more fixed-term employees have brought lawsuits to the court seeking equal treatment. There are cases in which verdicts have already been delivered in district courts as well as high courts. In some cases, the court decided partially in favor of plaintiffs, while in other cases claims of plaintiffs were mostly rejected. Further, there are cases in which the district court and the high court reached completely opposite decisions. What has caused these differences in the court decisions? Article 20 does not prohibit employers from establishing different working conditions between fixed-term employees and indefinite-term employees. It prohibits employers from establishing “unreasonable working condition differences” between them. Therefore, a court decides whether differences between the working conditions of fixed-term and indefinite-term employees are unreasonable or not. However, it is not easy to envisage in advance whether the court will decide alleged differences are unreasonable. Let us look at actual court cases as examples.

Court decisions vary case by case

The “Japan Post Case” was that the fixed-term employees of Japan Post, who were in charge of mail delivery, sued their employer in an effort to seek equal treatment, claiming that there were unreasonable disparities in the working conditions between them and regular workers under indefinite-term employment. In September 2017, the Tokyo District Court approved that the disparities between plaintiffs and regular workers in work allowance during year-end and New Year holiday, housing allowance, summer and winter vacations and paid sick leave are unreasonable. Then, the court ordered the defendant to partially compensate the plaintiffs. The court acknowledged that it is unreasonable not to provide year-end and New Year holiday work allowances to fixed-term employees. This allowance aims to compensate those employees who work at the busiest period of a year in the company when most people are on year-end and New Year holiday. In view of this, the court recognized that both indefinite-term and fixed-term employees are under the same conditions and should be treated equally. At Japan Post, fixed-term employees were not subject to transfer to new areas. Indefinite-term employees were grouped into two categories based on transfer; employees who were subject to transfer and employees who were not subject to any transfer. The latter were called “new general staff” and even they were entitled to the housing allowance while fixed-terms employees were not. Taking this into account, the court ruled in favor of the plaintiffs that it is unreasonable for the company not to pay housing allowance for fixed-term employees. This point should be given due attention. Examining the difference between indefinite-term employees who are subject to transfer and fixed-term employees who are not subject to any transfer, it is also likely that the court would decide that it is not unreasonable not to provide housing allowances to fixed-term employees.

In contrast, in the “Metro Commerce Case,” most claims of plaintiffs were rejected. In this case, the fixed-term employees working in kiosks at subway stations sued the company, claiming that there were “unreasonable disparities in the basic salary, bonuses and other allowances between regular workers and fixed-term workers.” The court comprehensively scrutinized the working conditions of wide range of regular workers, which may have affected the court’s verdicts. In March 2017, the Tokyo District Court decided most differences between the working conditions of the two modes of employment were not unreasonable because there are substantial differences between indefinite-term and fixed-term employees in contents of duties, the extent of changes in the content of duties and work locations.

In the “Japan Post Case,” the court also decided the differences in working conditions were not unreasonable for allowance while working outside the workplace, early morning allowance, holiday allowance, summer and year-end allowance, late-night allowance, outside delivery allowance and skill allowance for office work. Further, while ruling in favor of the plaintiff over payment of some allowances, the court ordered Japan Post to pay the plaintiff 80% of year-end and New Year holiday work allowance and 60% of housing allowance provided to regular workers. In other words, the court recognized non-payment for some of the allowances as unreasonable disparities, however, it did not consider it necessary that the same amounts should be paid to fixed-term employees to address the unreasonableness. It is truly difficult to predict on what grounds the court decided which matters were reasonable or unreasonable.

*In February 2018, after this article was published, another lawsuit was brought against Japan Post by the fixed-term employees and the Osaka District Court ordered that Japan Post pay fixed-term employees allowances for the year-end and New Year holiday, housing and employees’ dependents with the same amounts as those given to regular workers.

“Equal Pay for Equal Work” mightt cause confusion

If the court decisions like the above continue, companies may take the step of changing the working conditions for all their indefinite-term employees so that different working conditions between the two modes of employment would not be recognized as unreasonable by the court. On the other hand, Prime Minister Abe promotes “Equal Pay for Equal Work” and aims to pass “the work style reform” bills through the Diet. It is believed that the bill will require a company to explain reasons for establishing different working conditions for indefinite-term and fixed-term employees. However, current salary system of each company has been determined by considering various conditions and situations of a company. For example, names of some allowances correctly reflect the real purposes of such allowances, however, others are introduced with an aim to pay designated amount to their employees, and names of such allowances do not reflect the real background and intentions. The new bill will mandate a company to explain the objectives of each allowance without regard to why and how they were introduced in the first place. It will not be an easy task for a company. In this sense, the bill will encourage companies to undertake reforms.

Further, the term “Equal Pay for Equal Work” might be misleading. The bill does not aim to create the system in which a company must pay equal pay for equal work at any time. It prohibits employers from establishing unreasonable differences in treatment between “regular workers” and “non-regular” (part-time, fixed-term and dispatch (temporary) workers. In this aspect, the bill is in accord with Article 20 of the Labor Contract Act. As the past court verdicts indicate, it is difficult to decide whether differences in treatment amount to unreasonableness. Some courts may reject demands claimed by fixed-term employees etc.. In reality, whether the established differences in treatment are unreasonable or not will be decided case by case, depending on the details of each case. Even though one court may rule against one company with the decision that an unreasonable difference in housing allowance was practiced by a given company, such decisions will not always apply to all companies who have differences in the provision of such allowances between the two modes of employment.

Work-style reform bills to give opportunities for comprehensive negotiation between employers and employees

Work-style reform bills to give opportunities for comprehensive negotiation between employers and employees
It will probably be the most desirable scenario that employers and employees mutually agree to fair and reasonable working conditions through negotiations. It is important that the labor union of the company integrates workers under fixed-term employment, along with regular workers, in the negotiation processes. In the past, union activities were mostly for the benefits of regular workers. In the current business environment where globalization is unavoidable, it is difficult for companies to return to the system of Japanese-style long-term employment. Fixed-term employment will be continuously practiced as a necessary mode of employment. Labor unions should accept such changes. They should comprehensively negotiate with employers to agree on working conditions by taking into consideration opinions and concerns of all employees, including fixed-term employees. Participation of fixed-term employees in unions may negatively affect working conditions of regular workers. However, in the current business environment, where fixed-term employees play vital roles, labor unions should aim to work for both types of employees; fixed-term employees and indefinite-term employees. On the other hand, companies should be positively engaged in negotiation with labor unions to mutually agree on working conditions so that risks to be sued by their employees will be reduced. Both employers and employees should look for what both can agree and accept. It is desired that the work style reform bills will provide an opportunity for both employers and employees to positively engage in negotiations.

* The information contained herein is current as of April 2018.
* The contents of articles on are based on the personal ideas and opinions of the author and do not indicate the official opinion of Meiji University.

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