You are getting ready to put your first person on the ground in Japan. Somewhere in that process — from an adviser, a market entry guide, or a colleague who has done it before — you have been told that in Japan you cannot fire anyone. It is one of the most repeated claims about doing business here, and it almost always arrives without a citation.
It is also, in the words of Japan’s own government-affiliated labour research institute, “a gross exaggeration”. In a 2015 paper, the Japan Institute for Labour Policy and Training reported that 16.0% of the 5,964 firms it surveyed had dismissed at least one regular worker for individual reasons in the preceding five years, and that among firms with 1,000 or more employees the figure was 30.3%. The OECD, which in its 2004 Employment Outlook placed Japan among the most strictly regulated countries for individual dismissal, reclassified it in 2013 into the third of member countries where regulation is less stringent.
So the scare story is wrong. The problem is that the reassurance which usually follows it is wrong too, and in a way that costs more if your entire Japanese operation is one person. Whether dismissal is permitted is not the question that decides your risk. The questions that decide it are who carries the burden of proof, how long the financial exposure runs if you lose, and how much of your defence has to already exist by the time the problem appears.
Employment law changes and the figures below are drawn from specific survey years. Treat this as preparation for a conversation with a Japanese employment lawyer or a certified social insurance and labour consultant (sharoushi), not as advice you can act on directly.
What this article covers
- What Article 16 of the Labor Contracts Act actually says, and what it does not say
- The notice rules under the Labor Standards Act, and the fact that Japan has no statutory severance pay
- What an invalid dismissal costs, and why the cost is measured in time rather than in a fixed sum
- The recorded outcomes of dismissal disputes in Japan, including how much money actually changes hands
- Why most of your defence has to be built before you hire, not after the relationship goes wrong
- Where this argument cuts the other way, and when a direct hire is the more sensible route
Key facts at a glance
| Item | What the law or the data says |
|---|---|
| Baseline rule | The Civil Code allows either party to terminate indefinite employment on two weeks’ notice. That freedom is then restrained, not removed, by later statutes. |
| Test for a valid dismissal | Labor Contracts Act Article 16: a dismissal “lacking objectively reasonable grounds” and “not considered to be appropriate in general societal terms” is an abuse of rights and is invalid. |
| Advance notice | At least 30 days, or 30 days’ wages in lieu, under the Labor Standards Act. |
| Statutory severance pay | None. No Japanese Act requires it. Retirement benefits are customary practice, not a legal entitlement. |
| Burden of proof | On the employer. |
| Remedy if the dismissal is invalid | The employment contract is treated as having continued. The employer owes wages from the dismissal date to the date of judgment. |
| Time to judgment | Labor tribunal: disposed of within three sessions, premised on a few months. Civil litigation: about one year on average. |
| Typical monetary outcome (fiscal 2012) | Half of administrative conciliation settlements fell below ¥175,000. Half of labor tribunal outcomes fell below ¥1,000,000. A separate JILPT study estimated the average civil court settlement at ¥6,640,500. |
| Reinstatement | Rare — roughly 5% of dismissal disputes. Most claimants seek money, not their job back. |
The law restrains abusive dismissal — it does not ban dismissal
The starting point in Japanese law is not protection. The Civil Code, in force since 1896, provides that where employment has no definite period, either party may terminate it, with the contract ending two weeks later. That is the baseline, and it still stands.
What sits on top of it is a doctrine that lower courts began building in the 1950s and that the Supreme Court endorsed in two cases between 1975 and 1977. It was written into statute in 2003 and moved to the Labor Contracts Act in 2007. In its current form, Article 16 reads: “If a dismissal lacks objectively reasonable grounds and is not considered to be appropriate in general societal terms, it is treated as an abuse of rights and is invalid.”
Read it closely. It does not list permitted reasons, set a minimum tenure, or require government approval. It sets a standard, and leaves the application to courts. That is why the same statute supports both the claim that Japan is impossible and the claim that it is manageable — the text does not settle the question, and the answer depends entirely on the record you can produce.
Separately, the Labor Standards Act requires at least 30 days’ advance notice, or payment of 30 days’ wages in lieu, and it prohibits dismissal outright in specific windows: during leave for a work-related injury or illness and for 30 days afterwards, and during statutory childbirth leave — six weeks before and eight weeks after birth — and for 30 days afterwards. Dismissal on grounds of nationality, creed, social status, sex, marriage or pregnancy is prohibited by statute, as is dismissal for reporting an employer’s legal violations.
What an invalid dismissal actually costs you
This is the part that gets left out of most Japan market entry guides, and it is the part that should shape your decision.
If a court finds a dismissal abusive, it does not fine you. It confirms that the employment relationship never ended. The employer is then ordered to pay the wages the employee would have earned between the dismissal date and the date of judgment. In practice the employee has no right to actual reinstatement, and JILPT records no statute of limitation on claims of abusive dismissal.
The consequence is structural rather than dramatic. Your exposure is not a number you can budget for at the point of dismissal — it is a function of how long the dispute runs. Civil litigation takes about a year on average to reach a settlement or judgment. Because Japan has no statutory severance, there is also no schedule of payments you can consult in advance to price the decision. You are exposed to a clock, and the clock is not under your control.
Set against that, the recorded outcomes are milder than the framing suggests. In the JILPT survey, 78.4% of firms that dismissed an employee for individual reasons reported no conflict with that employee at all. Of the disputes that did arise, about half were settled directly between the parties. Where money changed hands through the formal routes in fiscal 2012, half of administrative conciliation settlements were below ¥175,000 and half of labor tribunal outcomes were below ¥1,000,000. Fewer than 1,000 dismissal cases reached formal civil litigation nationwide that year.
Both halves of that picture are true at once, and the reason they coexist is that the mild outcomes belong to employers who had a record to point to. The open-ended exposure belongs to employers who did not.
Most of your defence has to exist before you hire
When a court assesses whether a dismissal was abusive, JILPT describes the sequence plainly: it starts by asking whether the alleged misconduct, incapacity or economic necessity falls under the reasons for dismissal set out in the employer’s work rules. It assesses whether that stated reason is itself reasonable, and only then whether it applies to the case in front of it.
That first step is where a foreign company with one employee in Japan is quietly exposed. The Labor Standards Act requires businesses employing ten or more people to draw up and publicise work rules. Below that threshold there is no obligation — so a company that has hired exactly one person in Japan very often has no work rules at all, and therefore no listed grounds for the court to begin from. The written statement of employment conditions given at hiring must state the grounds for dismissal, but a one-page offer letter drafted at headquarters rarely does the same job.
The dismissal route that foreign employers reach for most often — insufficient job performance — is also the one that demands the most groundwork. JILPT sets out what courts examine: whether the employer offered assistance including education and training, whether it tried to match the employee to a role better suited to their qualifications, and whether it gave a warning that termination was in prospect. None of that can be assembled after the decision has been made. It has to have happened.
Where the risk runs the other way
An article on a recruitment support company’s website has an obvious incentive to leave you as alarmed as possible about direct employment. Two findings cut against that, and both are worth more to you than the alarm.
The first is that the profile of a typical first hire in Japan is the profile courts treat most favourably to the employer. JILPT notes that while courts weigh performance dismissals carefully for ordinary employees in long-term employment, they are “more likely to approve the validity of dismissals of well-paid professional or managerial employees who were recruited mid-career but who failed to exhibit the expected high level of special capability”. A senior specialist hired from outside on a substantial package, for a defined mandate, is closer to that description than to the lifetime-employment archetype the scare story is built on.
The second is that the four-factor test for redundancy dismissals has loosened. Courts once required employers to satisfy all four factors — genuine economic necessity, serious efforts to avoid dismissal, objective and rational selection criteria, and sufficient consultation with employees or their union. Since the 2000s courts have weighed them together rather than as independent hurdles. JILPT cites a case in which the Japanese subsidiary of a British bank closed an unprofitable branch and dismissed a manager who refused early retirement; the dismissal was initially held abusive under the old framework, then upheld on the basis that the severance package offered had been generous.
Two things follow. If you are hiring a senior specialist and can fund a real exit package, direct employment is a more defensible route than the general commentary implies. And engaging a contractor instead is not automatically the safer option: an engagement structured as outsourcing but run like employment can be recharacterised, at which point the protections you were avoiding apply anyway, together with retroactive social insurance liability. Contracting removes a specific risk. It does not remove risk.
Redundancy in a one-person office
If the reason for ending the relationship is that the Japan project is being wound down rather than that the individual failed, you are in redundancy territory, and the four factors above apply. Three of them are awkward at a headcount of one.
“Efforts made to avoid dismissal” normally means reassignment, and there is nowhere to reassign to. “Objective and rational selection criteria” is close to meaningless when there is one candidate. “Sufficient consultation” would ordinarily involve a union; with no union, JILPT’s data shows only 19.9% of unorganised firms consulted any form of workplace representative during economic dismissals — meaning the consultation, if it happens at all, happens directly with the person being dismissed.
The practical reading is that in a one-person operation the redundancy route rests mostly on demonstrable economic necessity and on the terms you offer. That is a narrower base than a larger employer has, and it is one of the clearest reasons to think carefully about the commitment level of the first engagement rather than the tenth.
Questions to ask before you commit
Worth putting to a Japanese employment lawyer or sharoushi before the offer goes out, not after:
- Do we need work rules for a single employee, and what does it cost us not to have them?
- Does our written statement of employment conditions set out grounds for dismissal in a form a Japanese court would recognise, or is it a translated headquarters template?
- If this role does not work out in month nine, what specifically will we need to be able to show — and are we set up to generate that evidence from month one?
- Does a probationary period change our position materially here, and under what conditions?
- If we use a fixed-term contract instead, what happens at renewal, and what is our exposure if the term is repeatedly extended?
- If we engage a contractor rather than an employee, which features of how we intend to work would put that classification at risk?
Frequently asked questions
Can you legally fire an employee in Japan?
Yes. The Civil Code permits termination of indefinite employment on two weeks’ notice, and the Labor Contracts Act restrains that freedom rather than removing it. A dismissal is invalid only where it lacks objectively reasonable grounds and is not appropriate in general societal terms. In the JILPT survey, 16.0% of responding firms had dismissed at least one regular worker for individual reasons within five years.
How much notice must an employer give in Japan?
At least 30 days under the Labor Standards Act, or 30 days’ wages in lieu of notice. This applies regardless of length of service, with limited exceptions such as temporary workers engaged for under two months.
Is severance pay required by law in Japan?
No. No Japanese Act requires severance pay. Substantial retirement benefits are a long-standing and widespread practice, and firms commonly add a further payment when soliciting voluntary retirement, but these are customary and negotiated rather than statutory entitlements.
What happens if a Japanese court finds a dismissal invalid?
The employment contract is treated as having continued past the dismissal date, and the employer is ordered to pay the wages that would have been earned up to the date of judgment. The employee has no right to actual reinstatement, and in practice most claimants seek monetary compensation rather than their job back.
How long does a dismissal dispute take in Japan?
It depends on which of the four available routes is used. Administrative conciliation is usually completed in a single session within two months of the request. The labor tribunal must dispose of a case within three sessions and is premised on a few months. Formal civil litigation takes about a year on average.
Are foreign companies treated differently under Japanese labour law?
No. JETRO states that the Labor Standards Act and related legislation apply in principle to all enterprises in Japan regardless of whether the employer is Japanese or foreign, and regardless of whether the company is a foreign or Japanese-registered corporation.
Does hiring a contractor instead avoid these rules?
Only where the engagement is genuinely independent. Classification in Japan turns on how the relationship actually operates, not on the label on the contract. Where an arrangement described as outsourcing is run with employer-style direction over hours, attendance and method, it can be recharacterised, and the employment protections apply from that point along with retroactive social insurance liability.
Summary
- Dismissal is legal in Japan. Article 16 sets a standard of reasonableness and social appropriateness; it does not prohibit termination.
- The employer carries the burden of proof, and the remedy for an invalid dismissal is back pay running to the date of judgment — an exposure measured in elapsed time, not in a fixed sum.
- Recorded outcomes are mostly modest, but they belong to employers who had documentation. Work rules, written grounds for dismissal, and a contemporaneous performance record have to exist before they are needed.
- Courts treat well-paid mid-career specialists more favourably to the employer than long-tenure generalists, so a senior first hire is not the worst case the general commentary describes.
- Redundancy in a one-person office rests almost entirely on economic necessity and on the terms offered, because reassignment, selection criteria and consultation have little to work with.
The useful conclusion is not that Japan is dangerous, and not that it is fine. It is that the first hire is the one decision in a Japan entry where the cost of being wrong is set by how long it takes to unwind, and where almost none of the protective work can be done retrospectively.
That is a reason to be deliberate about what the first engagement in Japan needs to be — whether it needs to be permanent employment at all, whether the scope is defined tightly enough to be delivered on a contract basis, and what evidence you would want on file either way. Those are answerable questions, and they are much cheaper to answer before the offer than after it.
BLP is a Japanese company that supports overseas businesses entering the Japanese market by breaking required work into defined tasks and placing it with contractors, rather than starting from a permanent hire. If you are working through this decision, we are happy to talk it through.
Sources
- JETRO, "4.8 Resignation and dismissal", Setting Up Business in Japan — https://www.jetro.go.jp/en/invest/setting_up/section4/page8.html
- JETRO, "4.3 Labor contracts", Setting Up Business in Japan — https://www.jetro.go.jp/en/invest/setting_up/section4/page3/
- JETRO, "4.1 Application of laws", Setting Up Business in Japan — https://www.jetro.go.jp/en/invest/setting_up/section4/page1.html
- Kazuo Sugeno and Keiichi Yamakoshi, "Dismissals in Japan, Parts One and Two", The Japan Institute for Labour Policy and Training (JILPT), 2015 — https://www.jil.go.jp/english/archives/documents/201501_dismissals_in_japan.pdf
- Labor Contracts Act (Act No. 128 of 2007), official English translation, via ILO NATLEX — https://natlex.ilo.org/dyn/natlex2/natlex2/files/download/79056/JPN79056%20Eng%202018.pdf
Comments