Frequently Asked Questions – Redundancy

The current Covid-19 pandemic has forced organizations to consider whether they should make their
employees redundant. This FAQ Sheet is provided to assist companies to address and manage issues
of redundancy in the workplace.

What is a redundancy?
A redundancy occurs when an employer decides they no longer need an employee’s position to be
done by anyone. A redundancy can occur when the business slows down due to lower sales, closes
down or restructures due to a merger or takeover.

What needs to be considered in a redundancy?

A redundancy is rigorously restricted in Japan. Japanese judicial precedent has established the
practice that the following four factors should be met:
(a) necessity of decreasing the number of employees;
(b) necessity of adopting the “unilateral termination of employment contract” method as a means of
employment adjustment;
(c) adequate selection of the employees whose employment contracts are to be terminated; and
(d) adequacy of the termination procedure.

In practice, a company needs to ensure that it follows the factors described above, with special
attention being given to reasonableness and to communicating and collaborating with employees or
any union representative during the redundancy process.

Alternatives to redundancy?
Importantly, with regards to (b) above, an employer is required to make every effort to avoid
terminating employees. Even a seemingly justified redundancy plan may be held invalid if a company
does not first exhaust all reasonable measures to avoid employee dismissals, for example, by not
renewing any expiring fixed term employment contracts, freezing external hiring, transferring or
redeploying qualified employees into open positions in other departments or to subsidiary/sibling
companies (subject to the employee’s consent, if required), soliciting employee early retirements or
voluntary resignations and other non-employee related cost cutting measures.

Is severance pay legally required?

Under Japanese law, there is no statutory obligation to pay severance allowance upon termination,
except in circumstances when payment is in lieu of notice.

What is the common practice for a redundancy?

Any employment relationship can be terminated by voluntary resignation on the part of the
employee even if such voluntary resignation occurs at the suggestion of the employer.

When termination of employment due to redundancy is desired, Japanese employers typically offer
voluntary resignation packages to induce employees to voluntarily resign. As long as each employee
to be terminated agrees to the terms and conditions of termination, the employer can terminate
him/her with or without paying severance, in accordance with the terms and conditions to which the
employee agrees. There is no statutory standard for the amount of severance to be offered in
connection with a voluntary resignation package.
What are the legal risks associated with a redundancy?
On the other hand, if the employee does not accept the offer, the employer may choose to
terminate the employee even without the employee’s consent although this may of course result in
litigation.

In circumstances where the employer has failed to satisfy the court that all such elements and
principles are present in its case for redundancy, unilateral termination of employment by the
employer would be considered to be void.