Terminating permanent employees in Japan: Why “You’re fired” rarely works

Permanent employees (full-time, no fixed term) are protected under Article 16 of Japan’s Labour Contracts Act. Article 16 states that any dismissal is invalid unless it has objectively reasonable grounds and is appropriate under social norms. As a result, dismissals without solid justification or supporting documentation are often overturned by courts, with employees reinstated and sometimes awarded back pay. For foreign employers used to more flexible employment regimes, this can be a major shock and challenge.

Grounds for dismissal and compliance requirements

Japanese law recognises three main categories of dismissal:

Dismissal Type	Typical Trigger	Legal Threshold
Disciplinary	Serious misconduct (e.g. embezzlement, property damage)	Must be proportionate and consistent with company work rules. Non-criminal misconduct rarely qualifies.
Redundancy	Financial hardship	Must meet the four-factor test:  1) compelling business necessity;  2) efforts to avoid dismissal;  3) fair selection of employees;  4) proper notice and consultation.
Ordinary	Poor performance or lack of aptitude	Courts apply a strict, case-by-case review of the necessity and proportionality of the dismissal.

In all categories, Japanese courts apply Article 16 and focus on whether dismissal was truly unavoidable. Employers are expected to exhaust alternatives such as reassignment or performance improvement plans before moving to termination. Without sufficient warnings and opportunities to improve, dismissals rarely survive judicial scrutiny.

In practice, many employers in Japan first encourage voluntary resignation with a severance package before pursuing termination. This approach demonstrates efforts to avoid dismissal, reduces the risk of strict judicial scrutiny, and often prevents contested terminations.

Documentation and evidence

Courts rely heavily on written records. Efforts not documented effectively hold no weight in court. Therefore, employers should maintain:

• Discussion notes
• Emails and correspondence
• Meeting minutes
• Performance evaluations

These records must clearly set out the reasoning for dismissal so that even a judge without specialised labour expertise can follow the decision-making process. 

Conclusion

Termination of permanent employees in Japan demands careful planning and a structured process. Because of Japan’s strict employment regulations and rules, dismissals are rarely straightforward. To manage them effectively, employers should:

• Explore and implement all feasible alternatives (e.g. reassignment, improvement plans);
• Keep detailed documentation of performance issues and remedial steps; and 
• Consider negotiated resignations and severance packages.

Handled poorly, dismissals can lead to costly litigation and reputational harm. Handled carefully, they protect organisational integrity while limiting legal and financial risk.

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Hirokzau Amemiya is a partner at Kojima Law Offices, located in Tokyo, Japan. He has over 19 years of experience in handling various cross-border corporate, M&A, and employment matters. 

Abbey Schultz serves as a US-licensed Associate at Kojima Law Offices. She handles various cross-border matters, including corporate, M&A, international inheritance, and employment.

Katsuya Ishii is an associate at Kojima Law Offices. He handles various cross-border matters, including corporate, M&A, and labour & employment.