Under Japanese labour law, employees are generally categorised based on their employment status. The key categories include regular employees (i.e. full-time indefinite-term employees), fixed-term employees, and part-time employees. Importantly, these classifications may impact various aspects of employment, such as job security, contract renewal, and eligibility for benefits.  

Nevertheless, fixed-term employees and part-time employees are protected under special legislation which prohibits employers from unreasonably treating them less favourably than regular employees as a result of their employment status. It is therefore important for employers in Japan who engage or are looking to engage fixed-term employees to understand the various rules that apply. Failing to do so can lead to unintended consequences that may undermine the very reasons for employing such types of worker. In this article, we focus on the key considerations that employers in Japan need to make.  

Fixed-term contracts in Japan are subject to several important restrictions: 

• Maximum duration: Generally, these contracts are capped at three years, although are extendable to five years for specialists or employees aged 60 or over. 

• Renewal conditions: Employers must clearly state whether a contract is renewable and outline the criteria that will be considered for renewal (e.g. performance, workload, health). 

• Conversion to an indefinite-term: Employees with over five years of continuous fixed-term employment can request conversion to an indefinite-term contract. If an employee whose aggregate contract periods exceed five years requests an indefinite-term contract before the expiration of the current term, the employer is deemed to have accepted such a request. The new indefinite-term contract will commence from the day immediately following the expiration date of the fixed-term contract on the same terms and conditions of employment, unless otherwise agreed.

Although a fixed-term employment contract will, in principle, expire at the end of the term unless it is renewed, there remains a possibility that the employment contract may be deemed to have been renewed. If the status of a fixed-term employment contract is not substantively different from an indefinite-term contract due to repeated renewals, or if an employee has reasonable expectations that the contract will be renewed, then standards similar to those required for the termination of indefinite-term contracts (i.e. ‘objectively reasonable grounds and social justification’) might be required before the fixed-term contract will legally expire at the end of the term.  

Factors considered in determining ‘reasonable expectations’ include the duties of the employee, whether the position is temporary, any statements or implications made by the employer, the number of times and length of time over which the contract has been renewed, and whether contracts have been renewed for other fixed-term employees in similar positions. 

Finally, it is important for employers to note that any differences in treatment between fixed-term employees and regular employees must not be unreasonable in light of the nature and purpose of the treatment, the details of the employees’ duties, the weight of responsibility of those duties, and the scope and possibility of changes in the duties or of relocation. If those elements are equivalent with regard to a fixed-term employee and a regular employee, an employer is prohibited from engaging in discrimination against the fixed-term employee in terms of base salary, bonuses, or any other employment terms based on their status as a fixed-term employee. Employers are also obligated to provide explanations to fixed-term employees regarding the measures taken to ensure equal treatment and the reasons for any differences in treatment compared to regular employees. 

Managing different categories of worker can be complex and if not done carefully, can have unintended consequences. For employers in Japan who engage fixed-term employees, it is particularly important to plan workforce needs and contract durations carefully to avoid unplanned permanent hires as a result of the indefinite-term conversion rule for contracts exceeding five years.