Is it always Ok not to renew a limited term employment contract when the term is expired?
Employers usually choose ‘limited term contract’ for the purpose of workload adjustment. That is, when the business is booming, workforce is in scarce, but when business is declining, the workforce is sometimes redundant. So, it happens that employers do not renew a limited term contract when it has expired.
In Japan, there is still no regulations about entrance for limited term contract. Employers can choose limited term contract for whatever jobs or with whoever candidates. However, there is two types of regulations regarding ‘exit’ of contract.
The first one is statutory requirement of ‘conversion to unlimited contract’. (Article 18 of the Labor Contracts Act) If a limited-term contract is repeatedly renewed over a period exceeding five years, this limited-term contract can be converted into an unlimited contract upon worker’s request. (Special provisions are provided respectively for fixed-term workers, such as researchers and teachers, etc. of universities or research and development agencies or those with advanced expert knowledge engaged in work scheduled to be completed in a certain period of time exceeding five years, and for fixed-term workers who are continuously employed after reaching the retirement age.)
The second one is so called the doctrine of non-renewal of employment (Yatoidome-Hori, Now incorporated into the Article 19 of the Labor Contract Act in 2012)
The Act has incorporated the doctrine of non-renewal of employment established by a precedence of the Supreme Court. If an employer’s non-renewal of a fixed term labor contract objectively lacks reasonable grounds and is not found to be appropriate in general social terms, such non-renewal is not allowed. In such a case, the employer is deemed to have accepted the worker’s offer for renewal or conclusion of a fixed term labor contract with the same working conditions as those of the previous fixed term labor contract, and a new fixed term labor contract comes into effect with the same working conditions.
What type of non-renewal of limited-term contract is applicable to such doctrine? 1st one is with the limited-term contracts that have been repeatedly updated in the past, and the non-renewal of the contract can be recognized as identical to termination of non-limited term contract. (Based on the Supreme Court First Small Court July 22, 1974 ruling (Toshiba Yanagimachi Factory Case))
Second type is that there is a rational reason for workers to expect the renewal at the end of the term. (Based on the Supreme Court First Small Court Dec. 4, 1986 decision (Hitachi Medico case)
Both types of non-renewal may be judged as invalid. So, please be careful about non-renewal of the limited term contract.
*** Excerpt from the Labor Contract Act ***
(Conversion of a Fixed-term Labor Contract to a Labor Contract Without a Fixed Term)
Article 18
(1) If a Worker whose total contract term of two or more fixed-term labor contracts (excluding any contract term which has not started yet; the same applies hereinafter in this Article) concluded with the same Employer (referred to as the “total contract term” in the next paragraph) exceeds five years applies for the conclusion of a labor contract without a fixed term before the date of expiration of the currently effective fixed-term labor contract, to begin on the day after the said date of expiration, it is deemed that the said Employer accepts the said application. In this case, the labor conditions that are the contents of said labor contract without a fixed term are to be the same as the labor conditions (excluding the contract term) of the currently effective fixed-term labor contract (excluding parts separately provided for with regard to the said labor conditions (excluding the contract term)).
(2) In between the expiration date of the preceding fixed-term labor contract and the start date of the following one with the same Employer, if there is a period of time outside of these two contract terms (excluding a period outside of either of the said contract terms which falls under the standards provided by Ordinance of the Ministry of Health, Labour and Welfare, provided that these contract terms be regarded as continuous; hereinafter referred to as a “vacant term” in this paragraph) and the said vacant term is six months or longer (if the contract term of one fixed-term labor contract which expired just before the said vacant term (if there is no vacant term between the contract terms of two or more fixed-term labor contracts including the said first one, the aggregate term of the said two or more contracts; the same applies hereinafter in this paragraph) is less than one year, the length of a term given by Ordinance of the Ministry of Health, Labor and Welfare, based on the length of a term determined as being one half of the said first contract term), the contract term of the fixed-term that expired before the said vacant term is not included in the total contract term.
(Renewal, etc. of a Fixed-term Labor Contract)
Article 19 If, by the expiration date of the contract term of a fixed-term labor contract which falls under any of the following items, a Worker applies for a renewal of the said fixed-term labor contract, or if a Worker applies for the conclusion of another fixed-term labor contract without delay after the said contract term expires, and the Employer’s refusal to accept the said application lacks objectively reasonable grounds and is not found to be appropriate in general societal terms, it is deemed that the Employer accepts the said application with the same labor conditions as the contents of the prior fixed-term labor contract:
(i) the said fixed-term labor contract has been repeatedly renewed in the past, and it is found that terminating the said fixed-term labor contract by not renewing it when the contract term expires is, in general social terms, equivalent to terminating a labor contract without a fixed term by expressing the intention to fire a Worker who has concluded the said labor contract without a fixed term;
(ii) it is found that there are reasonable grounds upon which the said Worker expects the said fixed-term labor contract to be renewed when the said fixed-term labor contract expires.