Rule to Convert Fixed-Term Employees to Permanent Employees Is Enacted

In 2013, Japan amended its Labor Contract Act to introduce a “conversion rule” under which fixed-term employees could insist on a permanent contract after five years of continuous employment on a series of fixed-term contracts. The legislation, which was introduced on April 1, 2013, counts only the periods of fixed-term employment after that date. As such, fixed-term employees are only now (i.e., as of April 2018) reaching the five-year threshold and thus becoming eligible to become permanent employees.

Although the legislation refers to an employee making a “request” for permanent status, the employer is required to accept the request and enter into an employment contract without a definite term.

The conversion rule applies only to fixed-term employment contracts executed or renewed on or after April 1, 2013. The conversion rule does not apply to the employment period under any contracts executed or renewed before that date will not be considered.

The conversion rule applies regardless of an employee’s working hours, job type, etc. Therefore, it will affect many companies employing fixed-term employees.

Comment

Companies may want to take appropriate measures as their employees reach the five-year threshold under the conversion rule, including the following:

1. confirm the number of fixed-term employees currently employed and, for each employee, the number of contract renewals, total period of employment, work duties and responsibilities, and other relevant circumstances;
2. analyze the types of work that will be assigned to each category of fixed-term employee;
3. consider the terms and conditions of employment that will be applicable after a fixed-term employee’s contract is converted to an indefinite-term employment contract and, where applicable, establish new rules of employment or amend existing rules if the terms and conditions of employment that will be applied after conversion are different from those applicable before conversion and/or from those applied to other indefinite-term employees who are hired under indefinite-term employment contracts;
4. add in the employment rules applicable to fixed-term employees a provision stipulating the procedure to request conversion to an indefinite-term employment contract; and
5. inform fixed-term employees of the conversion rule by, for example, holding an explanatory meeting and/or distributing documents.

Refusing to renew a fixed-term employment contract upon its expiration solely to impede the right to request conversion to an indefinite-term employment contract may be illegal.

Written by Sho Ando, Yuka Kamio, and Junichi Ueda of Anderson Mōri & Tomotsune and Roger James of Ogletree Deakins