How to navigate Japanese labor contracts and employment types like a pro

A good labor contract is one of the most important documents you’ll need as a thriving employee. Simply put, it can give you peace of mind. But it can also make or break a business relationship.

After all, as an employee, your labor contract, also known as a work contract, is essentially your bible. Everything regarding your employment, including your and your employer’s rights, is in there.

Knowing your labor contract well can save you from ending up in tough situations and help you protect your rights, but as labor contracts have to be drafted in accordance with official regulations, you should also know a thing or two about the basics of labor law, especially as a foreigner in Japan.

So, what do you know about Japanese labor law? Have you read your contract well before you signed it? Are you in a pickle because you haven’t done your homework? Then, you’re in the right place.

In this post, I’ll tell you the ins and outs of contract employment in Japan, as well as how contract work in Japan goes. I’ll also introduce some basic concepts regarding Japanese labor law that you should familiarize yourself with and talk about the main types of employment that exist in Japan.

Let’s start with a few definitions. Then, I’ll walk you through each component of a regular labor contract according to the Japanese labor standards law.

Contract Work in Japan: Types of Employment Contracts

Before we get into the specifics of labor contracts and the Japanese Labor Standards Act (LSA), you should first know what the three main employment types are in Japan. 

For most people, the main type of employment in Japan is “full-time employment,” which is known as seishain in Japan. I talked about this specific topic and what full-time employment means in Japan in my post about seishain extensively, which I recommend checking out after you’re done with this post.

Full-Time Employment (Seishain 正社員)

In short, Seishain or full-time employment essentially means “permanent employment.” This type of employment involves a 40-hour work week, usually from Monday to Friday. 

As it’s the case in many other countries, seishain is the strongest type of employment contract in Japan, and, as one would expect, it provides you with the highest level of job security.

Of course, such a high level of job security also brings along the most amount of responsibilities. Especially if you work in industries that are more on the traditional side, get ready to become a true part of the company.

I’m talking not just during the day, but at night as well, as it’s rather popular for companies to have after-hour drinking parties in Japan, which are called nomikais and, believe it or not, are rather important, as I explained in another post about Japanese work culture and how to survive it.

On the other hand, while companies may expect the most from you as a full-time employee, you also get benefits like yearly paid leave, national holidays, and sick leave, but more on the lattermost in a bit.

Another thing that sets a full-time contract apart is the fact that it provides insurance benefits, which allow for more affordable pension and health insurance coverage. 

In addition, you’ll also be guaranteed to advance in your career at a company by simply continuing to work at the same company, which is something that’s also protected by the law.

Overall, working as a seishain is what most people aspire to do in Japan because a seishain contract provides stability and allows you to scale your career.

Contractual Employment (Keiyaku Shain 契約社員)

Keiyaku shain is basically a contract-based employment type, and unlike seishain, keiyaku shain contracts usually last for a month up to a year. 

However, while this employment type seems limited in nature, it’s not unheard of for companies to continue renewing a contractual employee's contract and continue working together for years. 

In some cases, a company may even offer to change a keiyaku shain employment to a seishain contract after an employee has worked at the company for a few years. 

Contractual employment has many similarities, and a keiyaku shain contract provides an employee with almost the same benefits a full-time employment contract does. Employees have the right to have annual paid leave, as well as health and social insurance. 

A keiyaku shain contract even provides something that’s similar to job security, as the law doesn’t allow employees to be fired without reason, just like with seishain contracts. However, as I mentioned, these contracts have a clear beginning and end date, and the company has the right not to renew a contract once it comes to an end.

Temporary Employee/Dispatch Worker (Haken Shain 派遣社員)

Unlike the other contract types, haken shain contracts aren’t between you and the company you work for but between you and a dispatch company. Essentially, this contract type allows companies to hire employees when the need arises, and like keiyaku shain, this contract is also made for a set period of time.

While there is no upper limit for keiyaku shain contracts, haken shain employees can only work at the same company for three years before they have to switch. Of course, the company may decide to hire the employee with a seishain contract once the time limit is reached.

For most foreigners living in Japan, this type of employment is closely related to English teaching jobs, as most foreign English teachers in Japan work with a haken shain contract.

As expected, work conditions that come with being a haken are usually harder compared to full-time and contract-based employment contracts, and it comes with neither job security nor a real career prospect barring eventually getting hired as a seishain.

In line with that, it’s not all bad, as there are real cases where companies only hire candidates from dispatch agencies initially, and they hire the employees they like on full-time contracts. This sort of serves as a workaround for companies, as haken employment acts like a trial period in these situations, and companies have the option to fire the employee once the contract period ends.

Work Conditions in a Japanese Labor Contract

According to the Japanese Labor Standards Act (LSA), an employer must first and foremost inform the employee about the conditions related to work before entering into a contract.

What’s more, the employer has to do this in writing to ensure that it can be proven that everything was done according to the law if a future dispute arises. 

Essentially, the employer is expected to inform the employee about the basics of the job, so the following is required to be included in the contract:

• The term of the contract: The beginning and end dates of the contract must be clearly stated, and if it’s permanent employment, a special statement should be made regarding the nature of the contract.

• Place of work: The contract must clearly state where the work will be conducted. In the case of a permanent office, this means the address of the office.

• Employee’s duties: The duties required to be performed by the employee must be stated clearly and individually in the contract to define the employee’s responsibilities as clearly as possible.

• Work hours and breaks: The contract should clearly state when an employee’s work day begins and ends. This includes defining the lunchtime and other breaks — if any — as well. 

• Details regarding paid and unpaid time off, sick leave, overtime, and holidays: The amount of time off an employee is entitled to must also be clearly stated in the contract. Information about the pay and the frequency of overtime must be included as well.

• Details regarding pay and raise: The contract should clearly state how much money the employee will receive, the frequency of the payments (weekly/monthly), and information regarding pay raises (if determined from the get-go).

• The grounds for dismissal and resignation: The contract must clearly state the grounds on which the employer or the employee can terminate the contract and what the notice period will be in case of resignation.

Employment Term of a Labor Contract

In the case of regular, full-time employment, the contract won’t have an end period, and this is, of course, acceptable and valid. However, if a contract has a clear end date, this should be explicitly stated in the contract.

While the term of a contract may not feel as important if it’s a full-time one, it’s still important to have the beginning date of your employment in writing in your contract. 

This information not only dictates when you start working, but it will also come in handy in case a dispute arises between you and your coworker. If something like this happens, the wage and side benefits and the damages you’re owed will be calculated according to this date.

Also, it should be noted that if a contract is for a limited period, it can’t be for longer than three years at a time. The reason I’m saying “at a time” is that these types of contracts are often extended or renewed once they run out. 

The reason this rule exists is actually simple: the law is designed to limit the contract period to protect employers from taking advantage of employees by not hiring them as full-time employees but by signing contracts for 10-15 years instead.

The Validity of Trial/Probation Period Clauses in Labor Contracts

When you’re in the final stretches of a hiring process and are talking about the details of your employment, the offer you end up receiving may sometimes include a trial period.

You might be familiar with this, as it’s quite a common practice in labor law, but in Japan, it’s perfectly legal for some contracts to include a designated probation or trial period before the actual employment officially kicks in.

However, even though a trial period is usually described under these terms, this description creates a false impression. Many people think that a trial period is a period where you’re not an actual employee and that you can be fired without reason during this period because you simply weren’t even hired yet.

This is not exactly true because the Japanese LSA, like many other labor regulations in other countries, protects the employee from getting taken advantage of under the false pretense of a “trial period.” In reality, the trial period only implies that the employer won’t have to abide by a notice period and can terminate the contract immediately – but not without due reason, and you still have your rights as an employee.

As the law states that an employee must have a valid dismissal reason that’s stated in the law, this reason must not be evident at the time of hiring but has to come out during the probation period.

So, if a company asks for a probation period, you can accept it knowing that the employer can’t take advantage of you and that your rights are protected.

Internal and External Assignment and Dispatch of Workers 

In Japan, especially in traditional Japanese companies, employees’ positions, and roles can often be reassigned internally or sometimes even externally to other branches or locations. In some cases, this can even require the employee to relocate to a new address.

However, just because you’re an employee of a company doesn’t mean that the company can do whatever they want with you. As an employee, you agree to enter into a contract with an employer under the terms that were clearly laid out in front of you, and if the conditions changed drastically, you might not have accepted the offer.

Of course, position and role changes in the same company are common and aren’t deemed as “drastic,” as long as your work conditions don’t change, and you can still adapt without having to adjust your personal life. 

Some companies may even have a rotation system in place where employees' positions change every few years. These are generally tolerated under many legal systems, and Japan is no exception.

However, if a company wants to reassign an employee externally, such change can only be legal as long as the conditions of the reassignment comply with the Employment Security Act. This usually involves reassigning an employee to a different branch or location.

On the other hand, if the company wants to send an employee to another company to work for a limited period of time, which isn’t unheard of, the company needs a special license. As this act falls under the “dispatching of workers” by law, the employer needs to have a worker dispatching license in order for this act to be considered “legal.”

So, if you’re ever offered a contract where it states that they can dispatch you to other companies, remember that this clause isn’t legal and won’t hold up in court unless the company has a special dispatching license.

Changes to an Employment Contract: What Is Allowed?

As I mentioned, the law anticipates that employees only enter into a contract once they read it and are in agreement with the conditions set forth in the contract. So, as one would expect, changing the employment contract after it’s signed can be challenging because of this.

Of course, it’s totally possible as long as it’s done correctly, according to the law. Normally, such change has to be made by drafting a new contract that serves as an amendment to the original contract, as it’s the safest way. However, there are a few things to watch out for.

First of all, as I explained, changing the conditions of a contract so drastically that the employee has to reshape their whole life around it is not permissible, and you can reject any offer that implies such changes.

Of course, the law also protects the employee from any changes to the contract that puts the employee at a clear disadvantage. This includes lowering the pay while increasing the duties or the hours worked. 

However, you may also come across changes where the balance of work and pay remain unchanged, but accepting it means that you’ll have to change your lifestyle completely or you wouldn’t have accepted it if it was the initial offer. 

For instance, if your employer wants to change from a full flex-time system to a fixed-time system where you’re now required to work between specific hours, this is still illegal, and you have the right to reject it, as you may have accepted the job only because it allowed you flexibility.

Of course, the law still allows the employer to institute minor changes that are required due to the nature of the business, but regardless of their nature, these changes aren’t legal unless they comply with the rules of employment agreed upon in the initial contract. 

Governing Law and Jurisdiction of an Employment Contract

An employment contract is just that: a contract. So, like any other contract, the signing parties of an international labor contract are allowed to assign which country’s laws will govern the contract.

However, this statement is only true in principle because when you’re signing an employment contract as a foreigner in Japan, while you can pick another country’s law as the governing law, the legality of the clauses that have to do with your rights and responsibilities as an employee will still be protected according to Japanese law.

This is because labor contracts are a special type of contract that involves a power imbalance between the parties and are, therefore, specifically regulated by Japanese law, as is the case in many countries in Europe and in the States.

Essentially, what you need to know is that the law does partially allow parties to pick a governing law for a contract that’s international in nature, but the said choice will not affect the clauses that have to do with the employee’s rights.

The reason for this is clear and simple: the employee is deemed as the party that’s at a “disadvantage” in the face of the employer. So, Japanese law wants to make sure that no matter what, the employee's rights will be protected as intended in the Japanese Labor Standards Act and the Employment Security Act.

So basically, even if you sign an employment contract in Japan that’s governed by another country’s law, the contract and the clause will be valid, but you can still sue an ex-employer for the damages or wages you’re owed in a Japanese court, in accordance with Japanese law.

However, this may not be the case for predetermined indemnity clauses. Let’s have a look.

Predetermined Indemnity Clauses: Are They Valid?

In the past, before it was established that the relationship between the employee and the employer is imbalanced in nature, some companies, especially the ones that are more traditional, wanted to “protect” themselves against any sort of breach of contract despite having the better end of the deal anyway.

They’d usually do this by stipulating a lump sum to be paid by the employee in the event that they make a mistake or fail to deliver the work promised in the contract. Luckily, Article 16 of the Japanese Labor Standards Act forbids any sort of predetermined indemnity clauses that hold the employee accountable in case of an error or accident that may cost the company money.

In a similar fashion, another way companies would extort money from employees in the past was by locking an employee in and asking for damages should they decide to quit their jobs before the contract expired. This is also forbidden by law.

So, what happens when a contract includes an article that condemns the employee to damages due to an error? The answer is simple: the article will simply be void because it doesn’t comply with the law. So, even if you’re already under a contract that has a clause such as this, you can rest easy knowing that it’s not a legal claim.

On the other hand, it should be noted that Article 16 of the LSA doesn’t protect the employee against claims made in regard to an intentional act or negligence. So, if an employee intentionally and willingly damages company property or causes the employer to incur a loss, they will be fully liable for the damage done if a legal claim is made.

Guarantee of Good Conduct Clauses: The Limitations

If you’ve been on the job hunt long enough, not just in Japan but anywhere, you might have come across a company that wants to get a written guarantee of good conduct from you before entering into an employment agreement.

Good conduct clauses or agreements are another common component of labor agreements, and they serve as a guarantee for the employer. Essentially, it’s a way for companies to make sure that you have someone that can vouch for you. 

A good conduct clause can involve a financial or behavioral guarantee. Normally, most companies only need a relative or someone who you’re close with that can vouch for your good behavior. As much as it’s an outdated concept, good conduct clauses are still very much legal.

Unless stated otherwise in the contract, a good conduct clause or agreement has to have a time limit, and it expires by itself in three years. 

Of course, the agreement can be made for a shorter period, but the companies aren’t legally allowed to make good conduct agreements that are longer than five years.

In addition, some companies may also require a financial guarantor. When this is the case, the financial guarantee must also be specifically stated in the contract. Otherwise, the clause will simply be null and void in terms of financial guarantee but will only be applicable as a guarantee of good conduct.

The Benefits: Insurance, Paid Leave, and More

As an employee, the benefits stipulated in an employment contract can make or break the whole deal. After all, some things, like a substantial amount of paid time off or reliable health insurance, are simply non-negotiable. 

However, you might not even have to negotiate much when it comes to the benefits because — once again — the LSA has specific minimum requirements in place to protect the rights of employees.

According to the law, here are the mandatory benefits that your employer is required to provide, even if it’s not explicitly stated in your contract:

• Annual paid leave,

• Health insurance coverage (50%),

• Welfare pension premium coverage (50%),

• Employee accident compensation insurance, and

• Unemployment insurance premium coverage (partially).

Let’s now take a look at each one briefly.

Annual Paid Leave

The time off system in Japan has some nuances compared to the US that you may be unfamiliar with, and I talked about the paid time off and vacation days in Japan in another post that I recommend you check out if you want more detail, but to give you an overview, here’s what the LSA says about annual paid leave.

According to Article 39 of the Japanese Labor Standards Act, employees in Japan are entitled to a minimum of 10 days of paid time off after being employed continuously for six months. 

This is the minimum amount that’s mandatory for the employer to provide, and, as such, if there are no specifications regarding paid time off in your contract, this rule will automatically apply.

After the first six months are completed, the projected paid time off progression will be as follows unless, of course, stated otherwise in the contract:

• After 1.5 years are completed, the employee gets 11 days;

• After 2.5 years are completed, the employee gets 12 days;

• After 3.5 years are completed, the employee gets 14 days;

• After 4.5 years are completed, the employee gets 16 days;

• After 5.5 years are completed, the employee gets 18 days;

• After 6.5 years and onwards, the employee gets 20 days.

As I said, these are the minimum requirements, which means that a more desirable contract can include even more PTO days. In addition, some international companies may also choose to provide the first 10 days as soon as you start the job instead of waiting for six months.

National Holidays

In addition to the paid time off, employment contracts may often have other clauses regarding various types of holidays and leave, so let’s now see how they may differ compared to what you may be accustomed to in other countries.

First of all, you may be surprised to hear this, but employers in Japan aren’t legally bound to have national holidays off for their employees. So, even though most companies, especially the ones that are featured in the Japan Dev company list, do include the national holidays as off days in their contracts, it’s perfectly legal for companies not to do so as well. 

Sick Leave

Also, sick leave is another sore subject for many foreigners living in Japan, as unlike many EU countries or the US, companies aren’t required by law to provide separate sick days. As is the case with national holidays, however, modern tech companies and international ones do provide it as a perk (and I covered the ones that do here), which you shouldn’t take for granted should you come across one in a contract in Japan.

Additional Leave

In addition to these, it’s becoming more and more popular for modern tech companies in Japan to also provide additional leaves for specific occasions like childbirth and condolence leave or even a honeymoon leave, but these are, of course, all optional and are not mandatory by law.

Lastly, another type of leave that’s not covered by LSA but is common in practice in Japan is summer and year’s end vacations. Companies often provide a few days of summer vacation and a few days at the end of the year for employees to recharge and destress.

While these vacations may not be required by law, they’re more common to see in Japanese contracts compared to sick leave and congratulatory/condolence leaves.

Health Insurance and Welfare Pension Coverage

Although this isn’t included in the LSA, the Japanese legal system requires all workers that work at a corporation to be insured under the employee health insurance system, so health insurance also comes as a mandatory benefit in all employment contracts in Japan.

However, keep in mind that sole proprietorships that have less than five employees aren’t required to have their employees insured under the employee health insurance system. This is because the regulations state that sole proprietorships with less than five employees aren’t considered “compulsory business establishments” that need to insure their employees.

The same rule also applies to the welfare pension plan, as welfare pension coverage is mandatory for all corporations, as well as sole proprietorships that have five or more employees. This insurance allows you to make contributions throughout your employment so that you can retire and continue having a stable income in the form of pension payments.

Both your contributions for the employee’s health insurance and the welfare pension insurance are automatically collected from a portion of your earnings, and all you do is enroll at a Japan Pension Service branch office within five days from the beginning of your employment by submitting an application form.

Unemployment and Employee Accident Compensation Insurance Coverage

Unemployment and employee accident compensation insurances are also mandatory by law in Japan, and you’ll notice them when you check your net and gross salary amounts in your contract.

Just like the other insurance types, your contributions for unemployment insurance will also be deducted from your gross salary. Your contributions are calculated by multiplying the wage you earn with your unemployment insurance premium rate.

However, things work differently when it comes to employee accident compensation insurance. According to Japanese law (and many other legal systems in the US and Europe), having an employee work for you is one of the many risks of owning a business that business owners are required to bear. In turn, employee accidents must be fully covered by the employer as well.

This is why, unlike the other insurance types, you don’t have to pay contributions for employee accident compensation, so beware of contracts that stipulate such participation to be deducted from your pay.

Notice Periods: Resignation and Dismissal

Finally, after the wage and job description, perhaps one of the most important clauses of a labor contract is regarding the dismissal and quitting of employees and the notice periods. 

So, before I complete this guide, let’s first take a look at what the law says regarding the restrictions and notice periods in case of dismissal or resignation.

Dismissal of Employees: Restrictions and Notice Periods

In order for an employer to dismiss, or in layman’s terms, fire an employee, they must first issue a notice of dismissal at least 30 days prior to the date they wish to end the employment. If the employer fails to do so, the employee is entitled to the amount of one month’s pay in return.

Of course, if the employer still issues a notice but does it later than 30 days prior, the employee then will only be entitled to the amount they’d earn during the period the employer was late.

However, the law stipulates an exception to this rule. If the employer is objectively unable to issue the notice or is late due to a natural disaster or similar reason, which is called a force majeure, the employee won’t have a legal claim for damages.

Additionally, the law also makes an exception to the employer’s right to dismissal by forbidding them from firing employees when they’re on leave for medical treatment regarding issues developed during the term of the employment. 

For the same reason, the employer must also wait 30 more days — not including the mandatory notice period — after the employee gets back to work to terminate the contract. 

Lastly, another restriction for dismissal is regarding pregnancy. According to the LSA, an employer can’t fire an employee when they’re on leave before or after childbirth. What’s more, the 30-day waiting period is also present here, as the employer can only dismiss the employee once 30 days pass after the employee gets back from maternity leave.

Resignation: Restrictions and Notice Periods

Just as there’s a notice period for employers to end a contract, if an employee wishes to quit and terminate their contract, they’ll have to give notice to the employer as well.

Luckily, the notice period for employees is shorter than that of employers, as they only need to provide a two-week notice in advance. This period, however, only applies to permanent employment contracts that are not limited by a specific date or period.

So, if the contract in question is a fixed-term contract and at least one year has elapsed since the beginning of the employment, the employee is free to resign anytime without providing any sort of notice.

Also, in the event of unresolvable issues, you can resign immediately, as the law stipulates that both parties are free to end the contract at any time when this is the case. 

So, as an employee, if you know that your employee’s rights are being violated or that there is indeed an unresolvable issue, this rule allows you to quit without having to worry about your rights. 

If there’s a dispute, the burden of proof will be on the employer, and they’ll have to prove that either there wasn’t an “unresolvable” issue or that you have violated your contract. Remember that this proof needs to be cold, hard evidence and not just hollow claims either.

Last but not least, keep in mind that if you’re working in Japan on a work visa, you and your employer are both required to report your resignation to the immigration office within two weeks of your contract ending. So, I recommend notifying the immigration office as soon as possible to avoid visa issues.

All of the information provided in this article including the statutes was taken directly from Japan’s Labor Standards Act and the official websites of The Japan Institute for Labor Policy and Training and Tokyo Employment Service Center for Foreigners.