Gaba teachers challenge 'contractor' status

Union fears employment model could mark first step on slippery slope for eikawa firms

Long accustomed to being ignored, being forgotten proved too much to take for unionized teachers at Gaba language school. On Oct. 4, the General Union registered an official complaint and request for an investigation with the Ministry of Finance’s Securities and Exchange Surveillance Commission (SESC).

The union accuses Gaba Corp. of lying in its 2009 financial report filed in March with the Tokyo Stock Exchange, which states that there is no union at Gaba and that labor-management relations were “smooth and harmonious.”

The G.U. argues it has an established Gaba Branch. Its complaint also points out that the Osaka Labor Commission ruled in December 2009 that it considered earlier negotiations held between the union and Gaba to represent collective bargaining.

The union also charges that the financial statement’s description of Gaba instructors as independent contractors rather than employees is disingenuous. The complaint points out that the Osaka commission also acknowledged Gaba’s instructors as employees under trade union law last December, and that the firm’s failure to mention that fact was misleading.

Francis Strange, chair of the G.U.’s Gaba Branch, expects the investigation to take plenty of time, since the SESC receives about 7,000 complaints a year. He adds that the SESC won’t even publish results of their investigation, and that the union will have to use the Freedom of Information Act to determine the outcome.

It appears unlikely the SESC will discipline Gaba even if its investigation concludes the company published misleading statements in its financial report, says Christopher Gunson, an international transaction attorney. The majority of such problematic statements go unpunished in Japan, he says.

“Even if the Tokyo Stock Exchange did take issue with Gaba’s filing, it is unlikely they would impose any sanctions against Gaba for incorrectly reporting this information.” The most likely scenario, says Gunson, is that the SESC would merely instruct the company to correct the filing.

Elected union executives who work as instructors for Gaba say that their motivation for filing the complaint was not to seek a harsh penalty against the company.

“Hopefully we can get them to be honest in their shareholders’ report about the presence of a union that exists,” says Jason Combs, executive officer for the G.U.’s Gaba Branch.

“The complaint is an attempt to reveal what the true facts are,” adds Treasurer Adrian Ringin, “which Gaba should have done on their own, but they’ve chosen not to. From the union’s point of view, the union making a complaint is a way to say, ‘Yes, there is a union.’ “

The union declined to divulge how many Gaba instructors are members, citing a desire to keep the information from the company. Many members are undeclared, executives said, as they fear their contracts won’t be renewed if they admit belonging to the union.

Asked why the union waited seven months after the company filed its financial report before submitting its complaint, Ringin explained that members tried talking to the company and its majority shareholder, Daiwa Securities, but that neither showed much interest in discussing the issue.

The SESC complaint is tied to a larger struggle for union recognition and employee rights at Gaba.

Instructors first formed a union in September 2007 and, according to union members, met with company representatives for talks. However, managers always refused to enter into serious negotiations, arguing the instructors were not employees and, as itaku — independent contractors — weren’t covered by Japanese labor laws.

Determining who qualifies as an employee and who can be classed as an independent contractor isn’t always clear. However, the method in which workers are scheduled and their place of work are important considerations.

“The company must be very careful it’s not treating them as employees,” says Gunson. “Even having someone in an office and working with an employee is risky.”

In its financial report, the company argues that because it doesn’t designate working time or location and doesn’t give specific instructions for lesson content, it considers its instructors to be independent contractors.

The union counters that while technically the company allows teachers the flexibility to decide when they are available to teach each month, it controls the working time indirectly by setting opening and closing times for the learning centers and the start and finish times for lessons. The company also dictates the workplace, because all lessons must take place at a Gaba learning center, they say.

The union also claims Gaba does control lesson content by training instructors in the Gaba method and having all students buy company textbooks that instructors must ask their students at the start of the lesson if they want to use. According to union members, if a teacher didn’t use the Gaba text and a student complained, they would probably receive a warning from the company.

In July 2008, the G.U., which is based in Osaka, had their first hearing with the city’s labor commission in a suit they filed claiming the company had refused to bargain with the union in good faith. On Dec. 22, 2009, the labor commission ruled in favor of Gaba by recognizing the previous negotiation sessions as standard collective bargaining between an employer and union.

However, the ruling may turn out to be a Pyrrhic victory for the company. After examining the details of class scheduling, learning center classrooms, training and payment, the panel also declared Gaba Corp. instructors to be employees under labor law.

According to the ruling, Gaba instructors should be considered employees because they are “integrated in the company organization as part of the workforce, who provide work, based on the unilateral terms and conditions determined by the employer, in accordance with the company’s direction and control in performing their duties, and receive remunerations in return.”

However, the commission’s finding doesn’t yet have the weight of law, points out lawyer Timothy Langley, president of Langley Enterprise K.K., a consultancy specializing in labor issues.

“It’s serious business, and one would be well-advised to listen carefully to what the commission might decide, but the hearings and the rules of evidence are not as strict as in a court of law. Only a court of law can decide the application of law to a specific set of facts and arrive at a decision that is legally enforceable,” he says. “This is still a live dispute and either party is able to further contest the findings of the commission.”

Gaba did indeed appeal the ruling to the Central Labor Commission. The latest hearing into the appeal took place in July, and Ringin says the union doesn’t know when to expect a decision but that it remains cautiously optimistic.

Precedent would suggest the union has every reason to be hopeful, adds Gunson, the attorney. “Gaba faces an uphill battle to reverse this ruling on administrative appeal, or later in court. Japan’s administrative agencies and judges are notably employee-friendly.”

A Gaba industrial relations department employee said the company declined to comment on the labor commission case or any other questions before the commission announces its ruling.

Gaba instructors are not alone in their fight for recognition as regular employees. According to journalist Naoki Kazama’s book “Koyo Yukai” (“Employment Meltdown”), there are no official statistics for the number of independent contractors working in Japan, but estimates range from 500,000 to 2 million workers.

Japan’s Statistics Bureau’s annual Labor Force Survey shows the number of nonregular workers has increased steadily since 1999, after the Japanese government started relaxing regulations to make it easier for companies to hire workers outside their regular employment system. In 1999, 25.6 percent of Japan’s labor force was classified as nonregular. By 2009 the figure had increased to 33.7 percent.

Employing instructors as independent contractors allows Gaba to reduce labor costs.

“There are absolutely no benefits and Japanese labor standards law doesn’t apply,” says Combs. Instructors receive no paid sick days or vacation, no pay for training, no overtime pay, and there’s no limit on the number of unpaid overtime hours that can be worked. The company also avoids enrolling its instructors in unemployment insurance, the national health insurance and pension schemes, and workers’ compensation. It also fails to pay a commuting allowance to instructors.

The instructors, working on six-month contracts, also lack job security. Employment as independent contractors means Gaba can dismiss any teacher, with or without cause, simply by not renewing their contract.

According to figures from the company posted on the G.U. website, pay for Gaba instructors ranges from ¥1,500 to ¥2,200 per 40-minute lesson depending on the instructor’s status level and the time of the lesson. Most instructors fall into the bottom of the pay scale, with 502 out of 854 instructors receiving the minimum ¥1,500. Only 16 instructors earn ¥2,200 and Gaba caps the number of instructors that can be promoted to the higher pay brackets, the union says.

Promotions to a higher pay scale tend to be ephemeral, argues Ringin. “Basically, a pay raise is not a pay raise at Gaba; it’s a temporary privilege, which they can take away more or less when they feel like it.”

An instructor review committee evaluates each instructor monthly, Ringin explains. Receiving too many less-than-perfect scores on student evaluations, being late submitting your available hours, or calling in sick can be grounds for demotion to a lower pay scale, he says.

Despite their concerns regarding overall employment conditions, Ringin and Combs stress that they still enjoy teaching at Gaba. Both say they receive a great deal of job satisfaction from working with students one on one and seeing those they teach regularly improve over time.

It was the lack of benefits under the independent contractor system that sparked some teachers to unionize in 2007, says Strange, who helped launch the Gaba union branch.

“I was really annoyed at the way the company was taking advantage of instructors and of the Japanese health and welfare system,” he recalls. “I wanted to make sure that they would be operating in a way that would be fair to all, including the other companies in the English instruction industry. Something needed to be done, and forming a union seemed to be the only proper way to do this.”

Not long after organizing, the union had a number of meetings with management and conditions seemed to start improving for instructors. Gaba extended contracts from four to six months and increased the rate of the lowest pay scale from ¥1,400 to ¥1,500 per lesson. However, the union claims the company refused to enter further negotiations and then introduced a number of cost-cutting measures in 2008 that are still in place.

The General Union web page cites figures showing Gaba has increased the rate of demotions to lower pay scales and reduced the number of promotions to higher ones. Gaba also continues to hire new instructors from overseas at the lowest pay scale. A recruitment drive around British Columbia, Canada, will take place Oct. 20 through 23.

Starting this summer, instructor managers and leaders — former instructors given management positions as regular salaried employees — are required to teach at least 60 lessons a month. This is reducing the number of lessons available to regular instructors, the union fears.

Ringin says he recognizes the need for the company to turn a profit. “But given the fact that we already lack pretty much any benefits, the cost-cutting has bitten a bit deeper at Gaba than it would have at other places where you have guaranteed income.”

Despite these cost-cutting efforts, Gaba Corp.’s 2009 financial report shows the company is still in the red. Sales dropped 25.9 percent last year and the company lost just over ¥174 million.

The drop in sales was attributed to a tough economic climate and an advertising budget that was slashed nearly in half from 2008. Gaba’s stock price closed at ¥40,500 a share on Oct. 15, well off a high of ¥276,000 when it was listed on the Mothers section of the Tokyo Stock Exchange in December 2006.

Ringin claims the General Union is already seeing the impact of Gaba’s independent contractor conditions during negotiations with other language schools. When G.U. local chapters try to negotiate improved conditions for instructors, a typical way companies refuse demands is by pointing out that Gaba instructors don’t even receive a commuting allowance or paid vacations, he says.

Combs warns that instructors at other schools may also face being shifted to independent contractor status in the future.

“Gaba lowers the bar on the entire industry, and it will tempt other companies to try the same thing,” he says.

Ringin agrees that the stakes are high in the union’s battle with Gaba over the individual contractor issue.

“If Gaba gets away with using the itaku system, Berlitz and the other chains would be crazy not to follow.”

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