Workforce adjustment during the COVID-19 outbreak
In response to the recent COVID-19 outbreak and the economic downturn triggered by it, many companies are dealing with adjustments in their workforces. For those who need to consider their options in their Japan operations, we summarize some of the frequently asked questions and our responses thereto.
Q: Can a company reduce salaries at its discretion for cost saving purposes due to the recent economic downturn?
A: The short answer is No. Generally speaking, a company cannot amend its employment contracts with employees without their consents. If the proposed reduction is a result of an amendment of the company's work rules (e.g., the company revisits base salaries specified in it), that might be viable insofar as the proposed amendment is communicated to employees properly in advance and is a reasonable action, taking into account the given circumstances.
In practice however, the amendment of work rules to the detriment of employees is subject to serious scrutiny in courts. This is even more so if the amendment of work rules results in the reduction of salaries. Thus, for planning purposes, it is advisable for a company to assume that it cannot reduce salaries at its discretion. If your company has a union, the reduction might be achievable through a collective bargaining agreement with the union.
Q: Can a company request employees to work less hours or days without employees' consent and reduce their salaries on a pro rata basis?
A: Yes, as long as the company pays at least 60% of the salary as statutory leave allowance for the reduced workdays.
Under the Labor Standards Act, companies are required to pay statutory leave allowance if they suspend their operations for company reasons. These "company reasons" are usually interpreted more broadly than negligence in a breach of contract. If a company temporarily closes its offices by its own judgment due to the recent COVID-19 pandemic, it is generally considered that the company must pay leave allowance. However, if a particular employee is infected and therefore cannot report to work, he/she cannot receive leave allowance.
If a company reduces any work days in a week, the company needs to pay 60% of the salary for these "off" days. If a company reduces only work hours per day but the reduced salary is not less than 60% for that day, it does not need to pay the statutory leave allowance. If a prorated salary according to the reduction of work hours is less than 60%, the company should pay the difference so employees can receive at least 60% for that day.
Q: Can a company lay off some employees due to the recent economic change?
A: Yes, technically, as long as the company meets certain criteria set by the court precedents. However, because the standard to justify the reduction in force is set high, many companies avoid taking unilateral terminations. For more details, please see our newsletter at: https://iwklaw.com/newsletter-en/20161226
Q: Does the government offer any financial assistance for companies in regard to some of their employment costs incurred due to the recent impact caused by the COVID-19 pandemic?
A: As of March 28, 2020, the government has a program to support payment of leave allowance by companies whose sales decline by 5% due to the pandemic. For small and medium enterprises, at least 80% of leave allowance will be reimbursed. As this program has more detailed eligibility criteria, you should consult with experts for application. Further, Japan Finance Corporation makes special loan programs available to cope with the crisis.
Disclaimer
The information contained in this newsletter is for informational purposes only and should not be construed as legal advice on any matter. The material herein may not reflect the most current legal developments. The content and interpretation of the law addressed herein is subject to revision. We disclaim all liability in respect to actions taken or not taken based on any or all the contents of this newsletter to the fullest extent permitted by law. Do not act or refrain from acting upon this information without seeking professional legal counsel.