Author: Attorney Kosuke Yoshida

On August 28, 2024, the government published the Guidelines for Job-Based Employment (hereinafter referred to as the “Guidelines”), actively encouraging companies to implement job-based employment practices tailored to each company’s specific needs.

In April of the same year, rules regarding working conditions were also revised, making it mandatory to specify the scope of job changes after hiring. Other measures are also being implemented with the aim of expanding job-based employment practices.

This column provides an overview of the content of the Guidelines and the challenges associated with a job-based employment system.

1. Job-Based Employment vs. Membership-Based Employment System

The job-based employment system is a human resources system in which individuals are hired based on the specific skills, experience, and qualifications necessary (or advantageous) to perform a specific job.

This system is different from the traditional Japanese membership-based employment system under which companies secure talent through mass hiring of new graduates with a focus on lifetime employment. Basically, under this system, the company dictates job roles and responsibilities, maintaining long-term employment without strict limitations on job content or type.

However, there is a growing consensus that to improve corporate productivity and achieve economic growth, it is necessary to facilitate talent movement between companies, making it easier for employees to transition between companies. This has led to a rising demand for a job-based employment system in Japan.

2. About The Guidelines

The Guidelines highlight the promotion of a job-based employment system as an urgent priority for the continued growth of Japanese companies and the Japanese economy. To this end, the Guidelines present specific examples from 20 companies, including Fujitsu and Hitachi, Ltd., that have already introduced a job-based employment system within their companies.

For each company, the Guidelines provide a detailed explanation of the following:
(i) the purpose of introducing the system and its role within the company’s management strategy;
(ii) the scope of implementation and the framework of the job grade system, compensation system, performance evaluation system, etc.;
(iii) employment management systems such as recruitment, personnel transfers, support for career self-reliance, grade changes, etc.;
(iv) the division of authority between the human resources department and other departments; and
(v) the implementation process, including the employee-management communication, etc.

The Guidelines encourage companies to use these examples as a reference point to consider introducing the job-based employment system according to the method that aligns with their corporate style. It is clear that the 20 companies mentioned in the Guidelines are actively self-evaluating their transition to a job-based employment system as a positive step.

3. Challenges of the Job-Based Employment System

Despite the growing momentum behind the job-based employment systems, their implementation also presents several challenges in relation to Japan’s existing labor law.

In the traditional membership-based employment system, it was uncommon for base salary to decrease as in-house experience and skills accumulated over time. In contrast, under the job-based employment system, base salaries are adjusted/reduced on a routine basis due to job transfers based on the skillset of the employee.

The concern arises when employees perceive such demotions and salary reductions not merely as reassignments but as “disadvantageous changes”, potentially leading to disputes with the employer.

In practice, the job-based employment systems currently implemented by many Japanese companies are mostly “hybrid models” that partially incorporate elements of job/role-based grade systems while retaining the traditional membership-based employment system. If a demotion under such a hybrid system leads to a lawsuit, the courts are expected to assess each case depending on the actual employment management practices of the company.

For this reason, some companies devise measures such as preparing improvement programs for the employee before a demotion is finalized, to avoid friction.

Furthermore, as explained in the column written by Attorney Kashiwada, the Supreme Court, on April 26, 2024, issued its first ruling, declaring it “illegal” for a company to unilaterally reassign an employee whose job duties were contractually limited to specific tasks.

In this particular case, the employee had been hired as a technical specialist with a clearly defined role. When the company abolished that position, it reassigned the employee to another role to avoid the employee’s dismissal. The lower court had initially ruled that this reassignment was not illegal, considering the special circumstances.

However, the Supreme Court rejected the lower court’s judgment. As a result, companies can no longer reassign employees in similar situations if there is a prior agreement limiting their job scope.

At the same time, if an employee refuses reassignment and is dismissed, there is a high likelihood that the case could escalate to a lawsuit, and the outcome in such a case remains uncertain.

In conclusion, the introduction of a job-based employment system requires preparation tailored to the specific circumstances of each company. To ensure proper preparation and understanding, we recommend that you consult with our firm in advance.