Japan’s June 2018 Supreme Court decision signals that mandatory retirement—a core concept underlying “lifetime employment” culture in many Asian countries—persists with some limitations, and employers may want to update and implement mandatory retirement programs accordingly. The country’s highest court confirmed that employers can require employees to retire upon reaching mandatory retirement age then offer them fixed-term contracts with less favorable terms if such terms are reasonable.

What is “Mandatory Retirement”?

Employers accustomed to U.S. discrimination laws recoil at the concept of forced age-based retirement—but a standardized retirement age must be understood within a legal and cultural framework quite different from the unique “at-will” default structure present in the United States. Labor laws in countries like China and Japan require employers to enter into contracts, and they prohibit employers from making unilateral decisions adverse to employees (absent extreme circumstances). Their courts frequently order employers to pay bonuses at last year’s levels, continue benefit plans or equivalents, or reinstate discharged employees. The law motivates employees to fight termination and other changes that may (even hypothetically or marginally) result in less favorable employment terms. Conversely, employers often lack much negotiating leverage or means to quantify the costs of implementing a desired change.

Retirement age, then, often serves as an employer’s only reliable measure of staffing costs when contemplating workforce restructurings, policy changes, and succession planning—and employers are generally well served by setting one and enforcing it consistently.

In addition to Japan, countries where mandatory retirement is required or permitted include:

Despite the prevalence of these mandatory retirement laws, for many, retiring at such a young age does not make sense. Technological and medical advances facilitate employees’ ability, desire, and financial need to remain in the workforce beyond the mandatory retirement ages. Moreover, pressures on national pension systems have been mounting from the increased life expectancy of retired employees. As the recent court holding illustrates, laws struggle to keep up.

Mandatory Retirement in Japan

Two facets of Japanese law come into play with regard to retiring employees: (1) the laws on mandatory retirement (including the Labor Standards Act and the Older Person’s Employment Stabilization Law), and (2) the laws on discrimination against employees without direct, indefinite contracts (the Labor Contracts Law).

(1) Mandatory Retirement Laws

Japanese law permits but does not require employers to set a mandatory retirement age. Traditionally, employers institute a mandatory requirement age of 60. The national retirement age is now being raised to 65, and the Older Person’s Employment Stabilization Law allows employers to retain their mandatory retirement age of 60 but requires any employer that does so to “re-employ” workers age 60 and older until age 65. Employers typically do so on fixed-term contracts.

(2) Discrimination Laws

Labor contract law Article 20 forbids employers from discriminating against employees based on their status as fixed-term employees.  Employers may treat employees differently only if rational (goriteki) in light of operations, level of responsibility, work duties, and all relevant circumstances.

Supreme Court Decision

The Supreme Court decision deals with the interaction of these two issues—upholding mandatory retirement at 60, but placing limits on the changes employers can make in post-retirement “reemployment” contracts. Employees who were retired at 60 sued because their fixed-term “reemployment” offer differed substantially from their previous employment contracts, despite that the nature of the job (trucking) was similar. Ultimately, the Court held that some of the changes the employer made in the offer were “rational,” and others were “irrational” per Labor Contract Law article 20.

This was the first recorded decision on Article 20. Most surprisingly (and upsetting to employees), the Court specifically found that it was “rational” to reduce certain allowances based on the fact that the employees were now pension-eligible. In other words, employers are “rational” to cut net pay based on the existence of another source of passive income.


On balance, this decision was good news for employers, as it means they don’t have to overhaul their age-60 retirement programs in Japan. Now that the dust from this decision has settled, employers may benefit from the following:

Finally, consider that mandatory retirement is a global issue. Post-retirement engagements are often considered “precarious employment.” Legal challenges to all types of precarious employment, as well as mandatory retirements, are increasing all over the world, whether through unions, labor organizations, media, or political candidates. Employees with touchpoints in multiple jurisdictions (e.g. the United States) often try to sue under age discrimination laws, putting the company to a difficult burden with a difficult narrative as a defense, with not much caselaw to defend themselves.

Written by Bonnie Puckett of Ogletree Deakins

© 2019 Ogletree, Deakins, Nash, Smoak and Stewart, P.C.