In order to deal with the economic impact of the spread of COVID-19, many companies are currently reducing labor costs by introducing a partial leave of absence for all or a part of their employees.In this memo, we would like to provide you with a summary of the involuntary leave system (work suspension system) permitted under Japanese law.
1. Leave System and “Reasons Attributable to Employer”
The Labor Standards Act (Art. 26) requires employers to pay wages equivalent to at least 60% of the average wages of employees while they are on leave if such leave is due to “reasons attributable to the employer”.
In this regard, any involuntary leave of absence, except due to a force majeure event, is deemed to have been caused by “reasons attributable to the employer”.
Therefore, employers are required to pay a certain allowance for a leave of absence resulting from a business reason, such as a decrease in business transactions or a shortage of funds.
Note that there are no other statutory restrictions on introducing an involuntary leave of absence.
2. Calculation of Leave Allowance
In the case where a company introduces an involuntary leave of absence by partially reducing the amount of working hours prescribed under the company’s work rules, the following administrative circular will apply:
If an employer introduces a leave only for part of the prescribed working hours per day due to reasons attributable for the employer, the employer must pay wages equivalent to 60% of the average wages for that day. Accordingly,
if the amount of wages based on the hours actually worked is less than 60% of the average wages, the employer must pay the balance.”
(Circular No. 3445 by the Director-General of the Labor Standards Bureau of August 7, 1952) in accordance with this circular, wages for employees who took an involuntary leave during part of their prescribed working hours will be calculated as follows
An employee employed under the following conditions:Prescribed working hours: 8 hours (9 a.m. to 6 p.m. with a one-hour break period between noon and 1 p.m.)Hourly wages: JPY 2,000
60% of average wages: JPY 12,000.
If, upon the employer’s instruction, the above employee worked from 9 a.m. through noon only and took leave of absence in the afternoon from 1 p.m., the employer is required to pay JPY 6,000 (JPY 2,000 X 3 hours) as well as a leave allowance of JPY 6,000 (JPY 12,000 – JPY 6,000).
If, upon the employer’s instruction, an employee employed under the same conditions as Case I above worked for 6 hours from 9 a.m. through 4 p.m. (excluding the break period) and took leave of absence for the remaining 2 hours, the employer only needs to pay JPY 12,000 (JPY 2,000 X 6 hours) without being legally required to pay any leave allowance because this amount already satisfies 60% of the average wages.
3. Other Issues
In addition to the above, we would also like to refer to two common examples where companies mistakenly deal with leave issues.
- if a company temporarily reduces the wages of employees with the same amount regardless of their working hours without introducing a leave system, such action would constitute a unilateral and disadvantageous change of employment conditions by the company, and it would not be permitted.
One exception that may allow such reduction of wages is if the company has already become or is highly likely to become insolvent.
- if a company introduces a deemed working hour system for all employees working from home which restricts the payment of extra wages which the company is legally required to pay (e.g. overtime or late-night work allowance), such restriction would be considered illegal.