Japan – Obligations on Foreign Parent Companies to Engage in Collective Bargaining with External Unions representing their Japanese Subsidiary's Employees

Japan

Obligations on Foreign Parent Companies to Engage in Collective Bargaining with External Unions Representing Their Japanese Subsidiary's Employees

 

Collective Bargaining in Japan

In Japan, "Collective Bargaining" refers to:

negotiations between the representative of a group of employees or a labor union (on behalf of one or more of its members); and an employer or an employers' association representative, for the purpose of achieving agreement on some aspect of the treatment of employees; and/or the terms and conditions governing the employer-employee relationship.

In Japanese Law, an employees' right to bargain collectively is manifest in Article 28 of the Constitution, and Article 7 Item 2 of the Labor Union Act. Article 28 of the Constitution guarantees "The right of workers to organize and to bargain and act collectively."

 

Reinforcing and facilitating realization of this right, Article 7 Item 2 of the Labor Union Act states that employers are prohibited from refusing "to bargain collectively with representatives of the workers employed by the employer, without justifiable reasons" (referred to under the Act to as an "Unfair Labor Practice"). Accordingly, employers are under a compulsory legal obligation to engage in Collective Bargaining with respect to certain specific employment issues, known as matters of compulsory negotiation. This duty extends beyond the formalities of meeting with employee representatives. The obligation to engage in collective bargaining is also interpreted to include a requirement to negotiate in good faith, for the purposes of reaching agreement.

Obligations on Parent Companies to Engage in Collective Bargaining

As a general rule, the employer subject to the Article 7 obligations in the Labor Union Act discussed above (hereinafter the "Employer") is the individual or entity which directly hires the employee in question. However, due to recent diversification of employment arrangements, and increasingly complex relationships of control and subordination between corporate entities, third parties can have an enormously influential effect on the employment conditions of other entities' employees. Further, there are instances in which corporate restructuring is carried out specifically for the purpose of allowing certain entities to avoid employer's liabilities. For these reasons, when determining who should be deemed to be the Employer, courts and labor auithorities in Japan now consider who has actual control over the employee's employment conditions, in light of in all the circumstances of the case. On this basis, there have been some instances in Japan where an entity other than the hirer under the contract of employment has been deemed to be an employee's Employer.

In line with the above developments, Supreme Court precedent exists in Japan which has found that business owners other than the employee's original hirer may be subject to the legal obligations of an Employer. The Supreme Court found that in circumstances where a business owner other than the hirer is in a position to control and decide an employee's basic conditions of employment, in a manner comparable to the person who hired the employee (the "Effective Employer"), the Effective Employer must fulfill Employer's responsibilities toward that employee. As a result, the deemed Effective Employer will be subject to the obligation to engage in Collective Bargaining regarding working hours and work allocation, the nature of the work duties, the work environment and other working conditions. Holding companies may also be deemed to be an Actual Employer on the above basis.

Further, as a general rule, where a corporate spin-off occurs resulting in the establishment of a new corporate entity, the original corporate entity will not usually be under an ongoing obligation to engage in Collective Bargaining with the newly incorporated Spin Co. employees. However, if the original corporate entity still holds Actual Employer level control or influence over the conditions of employment of the Spin Co. employees, it will be obliged to engage in Collective Bargaining with Spin Co. employees.

In summary, a company which is able to materially affect the employment conditions of employees at another company will not be discharged of its obligation to engage in Collective Bargaining with the other company's employees, just because it is not their formal employer. As a result, companies are obliged to comply with demands for Collective Bargaining not only from their own direct employees, but also from the employees of other companies, over whom it exercises controlling power.

Penalties for Failure to Collectively Bargaining and Avenues of Appeal

• Sanctions Imposed by Labor Relations Commission

Where an employee believes an employer has carried out an Unfair Labor Practice, the employee can file an application with the Prefectural Labor Relations Commission for a relief order. If the Labor Relations Commission finds that the employer's disputed acts do indeed constitute an Unfair Labor Practice, the Commission can make a number of relief orders, including ordering the employer to agree to participate in Collective Bargaining.

A union or employee representative's demand for Collective Bargaining and the employer's refusal to bargain may also constitute a labor dispute under Article 6 of the Labor Relations Adjustment Act. As a result, an employee may also ask the Labor Relations Commission to mediate the dispute.

• Avenues of Appeal

If an employer wishes to challenge a relief order made by its Prefectural or city Labor Relations Commission, the employer can file an application to have the decision reviewed by the Central Labor Relations Commission. In addition, the employer also has the option to bring an administrative appeal to have the order of either commission overturned by a court. An administrative appeal must be brought within 30 days of the commission orders being issued.

Further, to ensure the effectiveness of relief orders, an employer which does not comply with a Commission order which becomes final without judicial review, will be subject to administrative fines up to 500,000 Japanese yen. Where the employer ignores a relief order even after it is upheld on judicial review, the individual who carried out the Unfair Labor Practice will be subject to criminal sanctions of imprisonment up to one year and/or fines up to 1 million Japanese yen.

• Court-Imposed Sanctions

Rather than taking a complaint regarding an employer's failure to negotiate with employee representatives to the Labor Relations Commission, a union or employee representative can instead chose to bring a court action based in tort law, arguing the employer's intentional or negligent refusal to meet legal obligations (to bargain collectively). In recent cases, courts have often found in interlocutory proceedings that the union is entitled to demand Collective Bargaining, until the main proceedings are decided. In final judgments, courts have often handed down declaratory judgments confirming the labor unions' right to demand Collective Bargaining, and ordering the employer to pay compensation for damages under the Civil Code Article 709, caused by the employers' intentional or negligent refusal to engage in Collective Bargaining.

 

Conclusion

In Japan, not only local subsidiaries, but also the subsidiary's parent or affiliated company may, where the latter has control or influence over the working conditions of the subsidiary's employees, be under a legal obligation to engage in Collective Bargaining with the union or representative of Japan employees. Failure to engage in such bargaining, in good faith, may result in the employer or Effective Employer being subject to Labor Relations Commission orders to bargain, or to criminal fines and sanctions for Unfair Labor Practices. Alternatively, employee representatives may sue the employer in tort and seek damages, and a declaratory order of the representative's right to demand Collective Bargaining. As a result, foreign parent companies with controlling interests in their Japanese subsidiaries can no longer afford to remain unaware of their possible direct labor law requirements in Japan.