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an employer exercises its right of dismissal, the dismissal will be void as an abuse of
the right if it is not based on objectively reasonable grounds and cannot receive social

approval as a proper act.” Courts have strictly construed this standard in favor of
20
employees even in cases where layoffs are motivated by economic necessity.
21
In a number of cases the courts have defined criteria that serve as the basis for
assessing whether layoffs are appropriate. For example, the Tokyo District Court
22
stated: «An employer may only validly discharge an employee in circumstances where

there is just cause for the dismissal, based on the common sense of society. . . .» 23
The key phrases in this sentence are «the common sense of society» and “just cause”;
their meaning is ultimately determined by the courts. The requirement of “just cause”

is defined at a high standard so that it is be very difficult to satisfy it “leading to a de
facto system of permanent employment”. 24

When the termination of employment is based on the economic reasons of the
employer, the courts have taken a restrictive view in deciding what constitutes just
cause. Economic dismissals must satisfy four requirements:

1. There must be an economic necessity to reduce the workforce to keep
the employer in operation from a business standpoint. The courts tend to
leave to the employer to decide the need for adjusting the number of

employees, but will examine whether the reasoning used by employers is
logically consistent.
25
2. There must be good faith efforts by the employer to avoid dismissals.
This may include measures such as reducing executive compensation, cutting
work hours, wages, or bonuses, establishing a voluntary early retirement

program and so on.

20 The Supreme Court 25 April 1975 (Ichikawa v. Nihon Shouken Seizou) 29 Minshu (1975) 456.
21 Hiroya Nakakubo, The 2003 Revision of the Labor Standards Law: Fixed-term Contracts, Dismissal
and Discretionary-work Schemes, Vol.1 No.2 Japan Labor Review (2004) 4, 14.
22 Kazuo Sugeno, “Japanese Labor and Employment Law” (Durham, NC: Carolina Academic Press) 480.
23 Tokyo District Court supra note 17.
24 McAllin supra note 17.
25 Ryo Kambayashi, Dismissal Regulation in Japan, in Koich Hamada, Keijiro Otsuka, Gustav Ranis, and
Ken Togo (eds.) “Miraculous Growth and Stagnation in Post-War Japan” (Routledge, 2011) 74.

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