Introduction 

Japan is the third-largest economy in the world, and for many global companies, it’s a key strategic market. But with opportunity comes the responsibility to understand and respect the local employment framework. Japan’s labour laws are rooted in cultural expectations around loyalty, hierarchy, and work ethic – and getting them wrong isn’t just a legal risk, it’s a reputational one too.

As of 2024, Japan has implemented several labour reforms aimed at improving work-life balance and addressing the country’s demographic challenges. According to the OECD, Japan’s ageing population and declining birth rate are accelerating changes in how businesses must approach employment. This makes compliance in Japan not only a legal necessity but a strategic imperative.

Quick Tips

• Understand Japan’s lifetime employment culture and how it shapes termination practices.

• Be aware of mandatory overtime caps and premium pay rules.

• Ensure all contracts are written in Japanese and clearly define working conditions.

• Use proper procedures for contract renewal and fixed-term contracts.

• Respect rules around social insurance enrolment, even for part-time staff.

Working Hours and Overtime – Know the Limits 

Japanese law sets a standard working week of 40 hours, with a daily maximum of 8 hours. However, many companies historically relied on significant unpaid overtime, contributing to the phenomenon known as “karoshi” – death from overwork. In response, recent reforms have introduced strict caps on overtime: generally up to 45 hours per month and 360 hours annually, though exceptions can apply during busy periods.

Employers must pay overtime premiums: 125% of base pay for overtime, 135% for late night work (between 10pm and 5am), and up to 150% for excessive hours. Failing to comply not only risks financial penalties but can severely damage employer reputation in a country where respect and fairness are deeply valued.

Termination Procedures – A Cautious Approach Required 

Unlike some countries where employment can be ended quickly, Japan has high thresholds for lawful termination. Dismissals are scrutinised by courts and must meet strict requirements of "objective and reasonable grounds" and be seen as “socially acceptable.”

This makes redundancy rare and difficult. Most companies instead rely on voluntary resignation, early retirement schemes, or mutual agreements. As a result, poor performance must be documented carefully over time, with clear communication and multiple improvement opportunities.

In one client case, a foreign-owned business sought to restructure its Tokyo office. We helped them navigate legal risks by designing a voluntary exit programme, supported by transition assistance and clear documentation. The result: no legal disputes and a respectful outcome for all involved.

Contract Types and Language – Precision Matters 

All employment contracts in Japan should be issued in writing and in Japanese. While a bilingual contract may be helpful, the Japanese version takes legal precedence. Contracts must clearly outline terms such as wages, working hours, holidays, probation, and conditions for termination.

Fixed-term contracts are common, but renewals must be handled carefully. If renewed repeatedly, the employee may be entitled to permanent status after five years. This is an area where international employers often stumble.

During one engagement, we supported a US-based company that had unintentionally rolled over fixed-term contracts without clarity. By the time they sought to end the engagement, the employee had a strong claim to indefinite employment. We worked with local legal counsel to restructure future contracts and training for their Japan-based managers.

A Real Example: Avoiding Missteps in Japanese Expansion 

I worked with a UK-headquartered company expanding into Japan to support local clients. Their enthusiasm was matched by a desire to get it right - which paid dividends. We built fully localised employment contracts, trained their local leaders on termination etiquette, and established a compliant overtime tracking system.

When the Labour Standards Office conducted a spot inspection six months later, they passed without issue – a rarity for new entrants. The team’s cultural sensitivity and attention to legal detail was noticed by both employees and regulators.

Final Thoughts 

Japan’s labour laws reflect a unique blend of structure, tradition, and evolving reforms. For global employers, compliance isn’t just about ticking legal boxes – it’s about earning trust in a market where long-term relationships matter.

What’s next for your global people strategy? 

Book a free compliance check-in or HR audit with ThinkGlobal HR. Whether you’re expanding into Japan or already operating there, we can help you align your people practices with local law and cultural expectations – so you can grow with confidence and integrity.