I n recent years, labor disputes involving individual workers, particularly with regard to layoffs and wages, have increased rapidly in Japan. In the background are sweeping changes in the employment situation, as illustrated by sharp rises in the number of temporary and part-time workers. Current labor-related legislation is proving inadequate in dealing with these problems.

That is why the Health, Labor and Welfare Ministry is considering new legislation to regulate labor contracts — from hiring to separation. It is a timely and necessary move. The proposed “labor contract law” is designed not only to settle promptly individual labor disputes, such as those involving layoffs and wages, but also to prevent their recurrence.

Under the existing Labor Standards Law, employers are prohibited from firing workers in certain cases. The new law would permit such layoffs with cash compensation. The ministry’s study group, which prepared an interim report in April, plans to publish a final report in September. The ministry then will draft a bill based on the panel’s recommendations.

The planned legislation needs to be worked out carefully with an eye on temporary and part-time workers, who have become particularly vulnerable to layoffs. The new law must be one that is acceptable to both labor and management. In drafting the bill, therefore, the ministry should listen thoroughly to what both sides have to say.

The current standards for wages and other conditions of employment are laid out in a number of laws, including the Labor Standards Law, the Minimum Wage Law and the Industrial Safety and Health Law. The standards law, however, has few provisions concerning labor contracts. Moreover, its regulations are compulsory, meaning that any contract that sets substandard employment conditions may be declared null and void. Employers who impose such a contract may be fined.

These tight regulations have prevented employers from abusing their right to fire and have thus played an important role in protecting workers from layoffs. But as work habits diversify, with a greater shift to temporary and part-time employment, more and more people view these rules as impractical or unreasonable. Some companies are now reluctant to hire full-time workers due to the restrictions on the right to fire. If many companies follow suit, a vast number of workers will be left out on a limb with no legal protection against layoffs.

The interim report made a number of notable proposals, including legal accountability for informal decisions to hire — and a partial employment guarantee for — job-seeking college graduates. For example, cancellation of a hiring decision for any reason that the prospective employer was aware of at the time the decision was made — such as a student’s informal job agreement with another company — would be deemed invalid.

This rule would not apply, however, if an applicant had been notified in writing of the specific reasons why the decision might be canceled and if the cancellation was considered reasonable in the light of socially accepted principles.

Meanwhile, the “layoff by compensation” formula is creating controversy. The plan would broaden the range of options for settling layoff disputes, which tend to become drawn out under current rules. Compensation would be made under prevailing standards. Yet workers laid off for unwarranted reasons could find it difficult to return to work, while employers could be tempted to fire workers more easily. With labor critical of this proposal, an in-depth discussion is needed.

Also controversial is a proposal for a standing “labor-management committee” to set employment conditions. Management is not positive about this idea, saying that employers already get along with company unions. And labor is opposed to using such a committee to supersede the responsibility of unions. With the rate of unionization steadily falling, it is important to discuss seriously what kind of mechanism can best represent the interests of workers.

It would be unrealistic to expect that the proposed law can fix most of the problems involving labor contracts. The basic aim is to provide the parties involved — employers and workers — with guidelines for determining the contents of their labor contracts. As such, it would set only voluntary rules based on the principle of contract freedom.

Although the labor contract law would have no compulsory provisions for penalties and for government supervision and guidance. However, individual labor disputes would be resolved more efficiently and effectively if the guidelines were put to good use.

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