This article first published at The HR Agenda Magazine [July-September 2012 issue].
Legal risks, management concerns and social responsibility – these are issues to prioritize when making decisions about collective dismissals or downsizing. Whether your firm is just entering the Japanese market or is already well established in Japan, it is vital that you are aware of responsible and culturally-sensitive practices during staff reduction.
This becomes more important in the face of globalization, economic challenges and current events that demand dynamism from Japan’s workforce. The issue of dismissal has a deep cultural context in a country traditionally known for lifetime employment and seniority-based pay. In general, the main areas to be considered are legal, HR and cost management, budgeting, security, and communications.
Japanese Laws on Dismissal
The Japanese Constitution provides that the right to work is a fundamental right of the Japanese people. Up until 2006, Japan did not have a special system that dealt with individual employment-related matters as in many Western countries. According to the “doctrine of abusive dismissal,” which has become the de facto law on the issue, an invalid dismissal obliges the employer to pay wages lost during the period of dismissal, and to reinstate the dismissed worker if the dismissal becomes null and void.
In the Labor Standards Law (LSL), Article 20 states that a 30-day advance notice is necessary before an employee can be dismissed, or the employer is bound to pay the employee’s average wage for a period of not less than 30 days. Discriminatory dismissals (e.g., gender, race, creed, national origin, etc.) are illegal and invalid under various laws.
The starting point for firms considering an employee downsizing is to look at the company’s own Work Rules and seek sound legal advice on current interpretation and application of the doctrine.
Parent company executives must also recognize that “Western-style downsizing” will likely cause a significantly greater degree of morale problems for the remaining employees than would typically be expected in the West and even greater loss of trust in management. The current realities of the Japanese labor market, however, make the promise of lifetime employment more uncertain, so employees in both foreign and Japanese firms are becoming more aware of the possibility of involuntary termination.
Fortunately, some of the best solutions are preventive in nature. A firm’s recruitment selection, assessment, performance and workforce management practices should all work together in a well-managed organization to both minimize the need for large-scale downsizings and to make the necessity for downsizing much more manageable.
It is well worth remembering that in the Japanese marketplace, the expectation of corporate social responsibility regarding employee downsizing is much greater than many foreign firms are used to. For Japanese firms the weight of this responsibility makes handling downsizing even more critical as it flies in the face of many employee and societal expectations of them. Hence, if downsizing becomes inevitable, adapt accordingly and recognize the shared interests between the employer, the employee and the organization’s extended community. As Shakespeare once said: “Parting is such a sweet sorrow...” Letting go of employees in Japan need not be a horrific experience so long as you consider the Japanese way.