Acute shortages of manpower in Japan are prompting changes in the country’s labor market, and a new rule to facilitate the conversion of fixed-term contract workers into indefinite-term employees will come into full force in April.

The status conversion rule was included in the revised Labor Contracts Act, which took effect in April 2013, after a large number of employees on fixed-term contracts found themselves unable to renew amid the global financial crisis triggered by the collapse of major American financial services firm Lehman Brothers in 2008.

Under the new rule, a fixed-term contract worker is entitled to apply for an indefinite-term employment contract if he or she has been employed continuously by one employer for a total of five years. The employer will be prohibited from turning down the application.

Some companies have made changes to their employment practices ahead of the revised law coming into force.

In September, for example, Credit Saison Co. Ltd. converted some 2,200 fixed-term contract workers, including part-timers, into indefinite-term, regular employees. The leading retail-based credit card company also raised the employees’ wage levels to those of existing regular workers, although the revised law does not require employers to improve employment terms for newly transferred regular employees.

Despite a substantial increase in labor costs — totaling several hundred million yen annually — Credit Saison expects the conversion to generate greater benefits through improvements in employee morale. “The growth of each employee is important for sustainable growth (of the company),” a company spokesman said.

Effective in April, cosmetics and health food maker Fancl Corp. will convert some 970 fixed-term contract workers at about 200 retail outlets under direct management across Japan to indefinite-term, regular employees who will also benefit from increases in bonuses and paid holidays.

The trend reflects acute labor shortages in Japan. The ratio of effective job offers to seekers stood at 1.59 in January, meaning that there were 159 job offers for every 100 seekers.

Of some 15 million fixed-term contract workers in Japan, several million will become eligible for indefinite status in April, according to the Health, Labor and Welfare Ministry.

But companies wishing to avoid the conversion for the sake of management flexibility, such as the ability to conduct layoffs during a business downturn, are already taking advantage of a loophole in the regulation.

To calculate years of continuous employment, the revised law permits employees to add the length of their work under previous contracts if they are rehired within six months of the end of the earlier contract.

A labor ministry survey found that 7 of Japan’s 10 major automakers have now specified intervals of more than six months between the expiry of fixed-term employment contracts and re-employment.The automakers are also limiting the length of continuous employment to no more than five years, effectively preventing conversion to indefinite employment status. The measures adopted by the automakers cannot be regarded as outright illegal, a ministry official said. But the official questioned whether exploitation of the loophole by automakers is advisable in light of their supposed status as leading players in Japan’s economy.

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