Nagasawa Transportation and Hamakyorex Supreme Court Rulings: 1/3 The Nagasawa Transportation Case

Two  transportation companies in Japan have had their non-full time employees (both rehired after retirement and fixed term workers), take cases all the way to the Supreme Court in Japan, claiming that they should be entitled to the same allowances as the full time employees on the grounds of that according to Article 20 of the Labor Contracts Act there should not be unreasonable differences in salaries between those on fixed term and non-fixed term contracts. Please see the details of what has transpired below.

On June 1st, the Japanese Supreme Court made two rulings regarding working conditions. The media have not been widely reported this but the plaintiffs are members of the same Union, and the rulings were given on the same day by the same judge.

The Hamakyorex ruling was followed two hours later by the Nagasawa Transportation ruling, and in the Nagasawa Transportation ruling the relationship with the Hamakyorex case was cited.

The various media have reported in a number of ways, but in accordance with the judgement I would like to look at the details accordingly:

The point that was contested, was Article 20 of the Labor Contracts Law that prohibits the unreasonable treatment of workers who perform the same duties with the only difference being the a fixed term or unlimited (non-fixed term) employment contract.

The Supreme Court examined whether the treatment would be deemed unreasonable according to the following 4 points:
1. The fact that Article 20 of the Labor Contracts Act is regarded as the provision requiring balanced treatment according to the difference in the content of the duties, the extent of the change in the arrangement and other circumstances.
2. Whether the difference as per Article 20 of the Labor Contracts Act that was afforded was in fact only due to the difference of a contract that was with or without term.
3. In verifying whether the differences were  “unreasonable” as per Article 20 of the Labor Contracts Act, the differences are not only limited to the content of the duties and the extent of the change in arrangement and circumstances concerning them, but that other circumstances must also be considered. And hence in this case, the fact that “that the fixed term employee is re-hired after retirement” should be considered as one of the “other” circumstances.
4. In judging whether or not the differences in working conditions of fixed term and non-fixed term workers are unreasonable, not only should the total wages of both parties be compared, but the purpose of the wages should be individually considered.

In addition, while it is the decision of the Supreme Court, this case ruling describes the significant impact of the salary and bonus of the retired and rehired workers.
Regarding the allowances such as No absence, Housing, Family and Overtime at Nagasawa Transportation, I will discuss in the next edition of the PMP News.

Proceeding onto the Base Salary Points:
At Nagasawa Transportation, full time employees receive a base salary (this term is actually confusing, but used by the Company so I have not changed), ability allowance and a responsibility allowance, while the fixed term workers’ salary is composed of a basic salary and a commission payment.
With regards to the fixed basic salary, it should be noted that attention is drawn to the fact that the fixed basic salary amount exceeds the base salary of the full time employees.

The ability allowance and the commission are positioned as being paid according to the results of the labor performed, with the commission rate being set at two to three times that of the ability allowance.

Fixed term workers do not receive the responsibility allowance but instead a different system was created as follows:
Fixed basic salary for fixed term works is greater than the base salary for full time employees and the commission rate is greater than the ability allowance

Total amount of basic salary and commission for the three fixed term employees who were the plaintiffs in this case is only 10% less, 12% less and 2% less respectively when compared to total amount of the base salary + ability allowance + responsibility allowance that they received prior to retirement.

In addition, given the fixed term workers who are rehired retirees may be receiving their pension payments, it was acknowledged that until their receive the portions that were linked to their income prior to retirement, an adjustment (Y20,000/month) allowance is also paid.

Consequently, given that full time employees receive a base salary, ability allowance and responsibility allowance while fixed term workers receive a base salary and commission as their working conditions it was determined that the difference was not unreasonable.

Regarding the bonus:
The bonus is a lump sum payment, and the purposes of this payment are many but can include but is not limited to compensation for previous work, achievement, subsidies for living expenses, and motivation for workers, such that if the fixed term employee is a retired employee:
1. Who received their Retirement Allowance (upon mandatory retirement)
2. Will be eligible to receive their Pension
3. Will receive an adjustment allowance until the payments linked to part of their pension are paid
4. Whose annual compensation is about 79% of the full time employees

then not paying the rehired workers a bonus such that the full time employees receive is not unreasonable.

Hence when looking at the Nagasawa Transportation case the following can be considered:
1. Perhaps the biggest point is that even when considering Article 20 of the Labor Contracts Act, if the fixed term worker is a rehired retiree then special conditions can in fact be considered.
2. However, PMP is aware that currently the salary comparisons of full time and rehired workers is not just 80%, but 60-70% and in some cases we see it as low as 50%.
When considering “other conditions” how large can the discrepancy be before it is deemed unreasonable was not addressed.
In addition, we should take note that the Supreme Court did not address the ruling of the High Court that ‘ it is usual for the salaries of the rehired workers after retirement to be reduced.”
3. Furthermore, in order to more concretely consider the circumstances of each company in addition to considering the “duties and the scope of change in the placement considering the duties” in the salary system of full time employee and the salary system of rehired retirees, the “other circumstances”, can be considered such that this treatment is not deemed to be unreasonable. Namely, it is necessary to review the reemployment systems where the annual income level is 60 ~ 70% when compared to the income prior to retirement.

Side Note:
Many of PMP’s clients are headquartered in the US, and management and HR are often on assignment from headquarters, and they are find this difficult to accept. In the US age discrimination is illegal with mandatory age based retirement also prohibited.
To be able to reduce employee’s salaries at age 60 due to them being rehired is not unreasonable when considering Article 20 of the Labor Contracts Act is discrimination! In addition the fact that the Supreme Court of Japan says that Companies can include the receiving of pensions when considering their compensation systems is nothing short of nonsense!
And it is on that point that I would like all organisations who are looking to diversifying globally, not
just to the US, to consider.

Thank you.