A large multinational consulting Company has been sent to the Prosecutors Office for Violation of the Labor Standards Act.

As the issue of overtime and working hours continues to gain a lot of attention in Japan we would like to bring to your attention an ongoing case and the issues around overtime exemptions in Japan.

To begin, in Japan, violations of the Labor Standards Act, which usually result in only administrative penalties, in malicious cases criminal penalties may be enforced. Last month, a major multinational consulting firm, (hereinafter “the Company”*1) was prosecuted for violating this law.
While the concept of “exempt employees” is commonplace in the U.S. and other countries, in order to introduce in Japan, it is necessary to comply with the detailed provisions of the Labor Standards Act. There are many cases in which an employee who would naturally be an exempt employee in the U.S. but does not qualify in Japan.
The Company in the situation being investigated may have been deficient in its compliance with respect Japanese labor laws and regulations in the application of this exempt concept.
 The Company, which had been championed as a model company by the Ministry of Health, Labor and Welfare (MHLW) as an advanced company in terms of diversity, has subsequently been delisted from the nomination list for various system development projects by the MHLW.

Let’s take a closer look as the issue that has resulted in the above delisting.

First, here is a summary of the reports:

Note: Please understand that the following information may at the time of publishing no longer be accurate due to the compilation of multiple news reports.

On March 8, the Tokyo Labor Bureau of the Ministry of Health, Labor and Welfare filed a complaint with the Tokyo District Public Prosecutors Office against the Company for violating the Labor Standards Act by requiring its employees to work 143 hours of illegal overtime per month.
According to the Bureau, there were multiple instances of illegal overtime work, and the Company failed to make appropriate improvements.
The documents allege that from January 3 to 30 of last year, one employee, a software engineer, was forced to work in excess of 40 hours per week despite the absence of a statutory reason for exemption.
* Please not that in Japan for employees to be able to work more than eight (8) hours a day or 40 hours a week a “36 Agreement” must be in place.
We know the company submitted the “36 Agreement” to the Labor Standards Bureau, but must assume that it was not deemed to be valid due to deficiencies. The Company’s “36 Agreement” stipulated that a maximum of 99 hours and 59 minutes of overtime per month could be worked by employees up to six times per year.

The exact facts are unknown at this time because information cannot be gathered during the investigation period by the Labor Bureau and the questioning stage by the Tokyo District Public Prosecutors Office due to the secrecy of the investigation. PMP will keep a close watch on the court proceedings regarding this matter.
PMP has also checked the Tokyo Labor Bureau’s page for the release of company names, just in case, but the page was last updated on February 28 even though it is now April.
There is a lot of interest from many organisations, and some of you may have questions from the press articles. We have prepared answers by expanding on the generalized questions.

1. “The Company identified multiple instances of illegal overtime work but failed to make appropriate improvements.”

In 2015, special task forces for the elimination of overwork, known as “KATOKU,” were established in Tokyo and Osaka to provide supervision and guidance organisations in response to overwork. The following year, “KATOKU” groups were established at all labor bureaus to oversee priority supervision of problem industries, oversee supervision of all workplaces with overtime exceeding 80 hours per month, and  supervise organisations (identification, analysis, implementation, coordination, and guidance of problem companies).
In the light of this, it is unlikely that “KATOKU” was the first to start the process, but rather, the local Labor Standards Bureau first provided guidance and corrective actions, and only if the company’s response to these actions is deemed insufficient, “KATOKU” will then be called upon to take action.

2. “Despite the absence of a statutory reason for exemption, the Company proceeded with the overtime exclusion.” What does “no statutory reason for exemption” mean?

One thing that immediately comes to mind related to working hours is, the discretionary working hours system for professional work. This is a system in Japan for certain professionals to manage their working hours outside standard practices. The discretionary working hours system for professional work has a limited and very specific list of applicable work that can be performed under this system, and each group of work must be further specified in detail in the enforcement regulations and notices of each Company.
If a Company applies the discretionary working hours system for professional work to an employee who regularly performs work that falls outside the interpretation of these detailed regulations, the application of discretionary working hours system for professional work will be deemed illegal, and hence the statutory reason for exemption to overtime cannot be applied.
Most  discretionary working hours systems are introduced through a  labor-management agreement. Once a labor-management agreement has been concluded, there are in fact many situations where the operation actually remains unclear. In many cases, there is also no system in place to check the appropriateness of the application of the discretionary working hours system for professional work in accordance with the law on an individual basis for newly hired employees or employees who are newly assigned to projects.
To avoid this potential legal risk, PMP proposes a labor-management committee method based on the Act on Special Measures for Improvement of Working Hour Arrangements.

3. “A 36 Agreement was submitted to the Labor Standards Bureau, but it was not recognized as valid due to being incomplete.”

The 36 Agreement must be submitted to the local Labor Standards Bureau . From an administrative side, this means that the Labor Standards Bureau must receive the agreement submitted by the company. Although we often hear HR professionals say that the Labor Standards Bureau has “accepted” a 36 Agreement, legally speaking, the term “acceptance” does not exist, and the role of the Labor Standards Bureau is simply to receive the notification.
In particular, a 36 Agreement is considered to be effective upon submission, many people seem to have the misconception that the Labor Standards Inspection Office has approved the company’s 36 Agreement as being in compliance with the Labor Standards Act.
There is always a possibility that the Labor Standards Burau will find the 36 Agreement to be invalid if the Labor Standards Bureau finds that the contents of the 36 Agreement are inadequate. This is an important point to be aware.
Occasionally, we hear that when HR went to the Labor Standards Bureau to submit a 36 Agreement, they were pointed out various missing details in the agreement at the counter. HR professionals who have had such an experience sometimes report that, unlike a previous occasion the last time they went to the Labor Standards Bureau, thanks to PMP’s advice, their 36 Agreement was “accepted” (this expression is also misleading) without being told anything at the Labor Standards Bureau. However, it may be that the person at the counter was just busy this time, and depending on what the person at the counter pointed out last time, there may have been no problem in accepting the agreement as submitted.

Lastly, based on the summary of the reports, it may be that this employee is a software engineer, and therefore, the company applied Labor Standards Act Limitation Standards (Notification 154), Article 5, Item 3, to this employee and operated on the assumption that the 36 Agreement would not be applicable to this employee as they would be exempted from the application as research and development work for new technology and new products would not be covered.
If the detailed  specific work does not constitute a reason for the statutory exemption, then naturally the exemptions in the 36 Agreement would be inadequate.

PMP has never recommended exempting research and development work for new technologies and new products from the application of the 36 Agreement. We think it is better to at minimum conclude a labor-management agreement (PMP recommends the Labor-management committee method under the Act on Special Measures for Improvement of Working Hours Arrangements) according to “research and development of new products or technologies, or research in the humanities or natural sciences,” which is included in the list of  “professional discretionary labor “.

Finally, in the light of this current case, we strongly recommend you take this opportunity to reevaluate the management of your company’s working hours.

*1) In this article we have not used the Company’s name, however the newspapers have already reported and the Company is Accenture.