COVID-19: Japanese supports for shrinking business activities and employment

Due to economic difficulties caused by the Covid-19, many companies in Japan are forced to consider reducing their workforce or suspending temporarily employment agreements in order to limit their costs. What are the options available?

• Temporary suspension of the employment agreements: partial activity plan

It is possible for the employer to suspend all or part of the employment agreements in order to cope with a business downturn under Article 26 of the Labor Standards Act

The employer has the obligation to pay a leave of absence allowance to all employees whose employment agreements are suspended. Such allowance shall be at least equal to 60% of the average wage for the past 3 months.

In case of a suspension of employment agreements, it is advisable that the employer enters into a labour management agreement with the representative of the employees. The purpose of the labour management agreement is to agree with the employees on the partial activity plan which shall provide the cause for such suspension of employment agreements, the duration of the plan, the envisaged reduction of the working time, the number of employees concerned by the plan per category and the detail of the calculation of the absence allowance to be paid by the employer to the employees. This would clarify the terms applicable to such suspension and avoid potential disputes. On the other hand, the employers who enters into the labour management agreement is eligible for the subsidies described hereafter.

• Subsidies from the unemployment insurance

An employer who is facing economic difficulties and who has to implement a partial activity plan may submit an application to the unemployment insurance scheme through Hello Work in order to get the leave of absence allowance under the plan covered by the unemployment insurance.

As rule, the conditions to be eligible to such subsidy are quite strict. However, under the current situation, the Japanese government has eased the possibility for companies to claim the benefit of such coverage.

The main conditions are the following: i) the implementation date of the partial activity plan shall take place between 24 January and 23 July 2020 and shall last more than 1/20 (1/15 for big companies) of the annual prescribed working days; ii) applicable to all employees (including employees with less than 6 months seniority); iii) the turnover or the volume of production has decreased by more than 10% compared to the previous year (or such other economic difficulties leading to the closure of an office or plant); iv) conclusion of a labour management with the employees and v) submission of the form to Hello Work with all supporting evidence.

If the application is validated and accepted by the unemployment insurance, the employer will get the leave of absence allowance to be paid to employees covered up to 2/3 of the amount per employee for an SME and up to 1/2 for a big company up to a maximum amount of JPY 8,330 per day per employee.

The subsidy can be granted for a maximum period of 100 days.

• Are termination/ dismissal due to business reason an option?

Regarding termination/dismissal, the current exceptional circumstances of the epidemic do not give rise to any easement of the conditions to be fulfilled to justify the termination of an employment agreement. The Ministry of Health, Labor and Welfare (MHLW) set out few criteria in order to identify a significant downturn resulting from Covid-19. The main assessments are related to overseas supplier dependency and the circumstances around the business interruption. Therefore, unless the situation of the company is at jeopardy due to the current situation, termination and dismissal would remain difficult.

• Financial support for parents forced to take leave due to temporary closure of elementary schools of their children

This financial support program is granted to the parents who have been forced to take annual paid due to the closure of their children schools (the recipient of such financial support is actually the company). This program will avoid the employer to pay absence allowance due to the annual paid leave taken by the employees.

This program is limited for the annual paid leave taken between 27 February and 31 March 2020 and the financial support shall be limited to 8330 JPY per day and per employee.