Some contract workers in Japan to gain indefinite status

March 6, 2018

Tokyo- Acute shortages of manpower in Japan will move its labor market into a new phase, as a rule to facilitate the conversion of fixed-term contract workers into indefinite-term employees will come into full force in April.

The status conversion rule is included in the revised Labor Contracts Act, which took effect in April 2013, after a large number of employees on fixed-term contracts were unable to renew them amid the global financial crisis triggered by the collapse of major American financial services firm Lehman Brothers in 2008.

Under the new rule, a fixed-term contract worker is entitled to apply for an indefinite-term employment contract if he or she has been employed continuously by one employer for a total of five years. The employer will be banned from turning down the application.

Some companies have reformed their employment practices before the revised law comes into force.

In September last year, for example, Credit Saison Co. <8253> converted some 2,200 fixed-term contract workers, including part-timers, into indefinite-term, regular employees. The leading retail-based credit card company also raised the wage levels of converted employees to those of existing regular workers, although the revised law does not require employers to improve employment terms for newly added regular employees.

Despite a substantial increase in labor costs, totaling several hundred million yen annually, Credit Saison expects the conversion to generate greater benefits through improvements in employee morale. "The growth of each employee is important for sustainable growth (of the company)," a company spokesman said.

Effective in April, cosmetics and health food maker Fancl Corp. <4921> will convert some 970 fixed-term contract workers at about 200 retail outlets under direct management across Japan to indefinite-term, regular employees under geographically confined contracts that do not assume transfers. The new regular employees will also benefit from increases in bonuses and paid holidays.

The trend reflects acute labor shortages in Japan. The ratio of effective job offers to seekers stood at 1.59 in January, meaning that there were 159 job offers for every 100 seekers. Amid tougher competition for labor, Fancl said it will improve working conditions for employees who gain regular status in order to be more attractive to job seekers.

Of some 15 million fixed-term contract workers in Japan, several million will become eligible for indefinite status in April, according to the Ministry of Health, Labor and Welfare.

Companies wishing to avoid conversion, for the sake of management flexibility, including layoffs during a business downturn, are taking advantage of a loophole in the regulation.

To calculate years of continuous employment, the revised law permits employees to add the length of work under previous contracts if rehired within six monthsof their expiry.

A labor ministry survey found that seven of Japan's 10 major automakers have set an interval of more than six months between the expiry of fixed-term employment contracts and re-employment. They avoid promising re-employment after the contract expiry.

In addition, the automakers limit the length of continuous work to no more than five years, preventing the conversion to indefinite employment status.

Contracts adopted by the seven automakers cannot be regarded as illegal outright, a labor ministry official said. The official, however, questioned whether the use of the loophole by automakers is advisable in light of their status as leading players in the Japanese economy.

Satoshi Hasegawa, an associate professor at Senshu University familiar with labor laws, said the conversion rule may make it difficult for companies to adjust employment. But the "education of workers under long-term employment will help improve productivity," he added. Jiji Press