HR Legal Clinic

Laws on Retirement Age Workers
Vicki L. Beyer

Question: Are there laws that apply to and can guide companies employing near-retiree or retiree-age workers?

Answer:

Japan’s Act on Stabilization of Employment of Older Persons was originally enacted in 1971 to encourage the continued employment of workers after they have reached retirement age, which was quite low at that time. The purpose of establishing the Act was to provide “a regulation for setting targets on the percentage of middle-aged and older employees of age 45 and over in each job category,” according to the Japan Institute for Labour Policy and Training. The law was revised in 2007 and again in 2012 to require employers to exert further efforts in making jobs available to older workers. Today, this piece of legislation is the key driver in securing employment for workers over the age of 60. 

The law aims to address the gap between the mandatory retirement age at many companies (usually between 60 and 63 years old) and the age at which individuals are eligible to draw the national pension (65 years old). When the pension age was raised earlier this century, the government wanted employers to raise their retirement age, but many were reluctant to do so. This reluctance was driven by the strictures of Japan’s so-called lifetime employment system, under which pay rates are connected to longevity rather than productivity and dismissing workers is extremely difficult.

The 2007 amendments to the Act attempted to accommodate these concerns by requiring employers to make a greater effort in providing further employment to workers, from the time they reach the mandatory retirement age up to the time they reach the pension age. When employers still did not take adequate efforts to offer such opportunities to their retirement-age workers, the law was further revised to obligate companies to adopt one of three measures: 1) abolish mandatory retirement completely, 2) raise the retirement age to match the pension age, or 3) introduce a system to rehire “retired” employees, through the Act Concerning Stabilization of Employment of Older Persons, Article 9.

Statistics show that less than 20 percent of employers choose options 1 and 2, and more than 80 percent of employees choose the third option. The most common practice is for these employers to rehire the retired employees as contract workers with substantially reduced salary and benefits, even if their duties remain the same. Sometimes the employer changes the job duties and only offers part-time employment to the retired employee, effectively under-utilizing their skills and experience.

Either way, these employment practices potentially have a serious impact on the financial situation of individuals in the affected demographic, one which the Prime Minister Shinzo Abe's government has identified as necessary in the workforce to help meet Japan’s current labor shortfall. The Supreme Court decision on the Nagasawa Unyu Case in 2018 has essentially endorsed the practice of paying rehired workers less even if their job duties are unchanged, citing the employer’s expectations for long-term employment as the justification for the wage differential. This demonstrates an unfortunate attachment to the mindset of Japan’s lifetime employment system, in spite of the fact that the number of workers enjoying the protections of that system is ever-diminishing.

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Professor Vicki Beyer teaches employment, corporate and business law at Hitotsubashi University. She is also an active leader in the American Chamber of Commerce in Japan and does occasional consulting work on employee relations and employment policies. S he holds a J.D. from the University of Washington and an LL.M. in Corporate and Commercial Law from Bond University, as well as Bachelor's and Master's degrees in International Studies. Earlier in her career she was on the faculty of Temple University Japan Campus and Bond University in Queensland, Australia. 


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