Japan: Some Progress Trimming Work Hours Since Overtime Law Took Effect

​Employees in Japan worked fewer hours after the country started implementing a law limiting overtime, although many companies have exceeded those mandatory caps.

Japanese policymakers passed the Work Style Reform Legislation in 2018 to address "karoshi," or death from overwork. The overtime limits became effective for large employers—generally those with more than 50 employees—in April 2019 and for small employers the following April.

The law, with some exceptions, established a basic limit on overtime, or work beyond eight hours a day and 40 hours a week, to 45 hours of overtime a month and 360 hours of overtime per year.

In special circumstances, employers may extend work beyond these limits on a temporary basis. Employees may not exceed the basic overtime limit more than six months per year.

A relatively narrow exemption to the overtime limits applies to highly skilled, well-paid professionals.

Lower Average Working Hours

Due to the law, monthly average working hours per employee declined from 142.2 to 139.1 in 2019 and further to 135.1 in 2020, noted Aki Tanaka, a Littler attorney in Boston focused on international employment and labor law. Overtime and other nonscheduled monthly hours declined by more than 13 percent in 2020, the Japanese government reported.

In response to a new mandatory requirement to take five days' annual leave, the percentage of those taking annual leave days has increased from 52.4 percent to 56.3 percent in 2020, Tanaka added.

Last year, the Japanese government announced that only 552 employees, or fewer than 0.001 percent of the country's employee population, were using the "highly skilled professional" exemption, Tanaka said.

"For U.S. employers in Japan, this could have been a more helpful exemption category for high earners," those making approximately $100,000 a year, she said. However, due to the narrow scope of its application, including a limited job duty test, and a complex system requiring employee consent to the exemption and allowing the employee to cancel the exemption at any time, "in practice this is a very hard exemption category to use."

The government found that 37 percent of companies inspected from April 2020 through March 2021 had exceeded overtime limits under the new law or under their own Article 36 agreement, a labor-management document setting out an employer's maximum overtime hours, according to Tanaka. That amounts to nearly 9,000 workplaces, according to news reports.

"This is actually a drop from the previous year's 47.3 percent rate, which may be due to the reduction in working hours overall because of COVID-19," Tanaka said.

A Long-Hours Mindset

Erika Collins, an attorney with Faegre Drinker in New York City, suggested employers have more progress to make in changing attitudes toward overtime, despite some progress so far.

"While I think the situation is better, the actual situation has not yet been clearly improved even with the overtime law becoming much stricter in Japan," she said. "Many Japanese people still think that long hours of work [are] valuable and that long hours … show employees' industriousness."

Among other steps, the law also requires employees who have accrued more than 10 days of unused annual leave to take at least five days off, and mandates that employers track hours on the job for all workers, not just nonexempt employees, as the law previously specified.

The overtime measure allows for criminal and civil penalties for noncompliance against employers and certain individuals, such as managers, in charge of a company's working hours. Violations could bring up to six months imprisonment or fines up 300,000 yen (approximately US$2,597).

"As far as I have seen, sanctions and lawsuits concerning the new overtime law are rare thus far," Collins said. "Employers should be aware of the law and should comply with the new overtime law, but there have been no unexpected issues."

One part of the overtime law has yet to become effective. In April 2023, smaller employers will be required to pay workers 1.5 times their regular rate for overtime exceeding 60 hours a month, as large companies must do now. Employers are required to pay 1.25 times for overtime up to 60 hours.

Extended Statute of Limitations

Tanaka noted that a new law took effect in April 2020, a revision to the Labor Standards Act, extending the statute of limitations for bringing claims for unpaid wages, including overtime. The statute of limitations has been extended from two years to three years and is expected to eventually be stretched to five years.

"Limiting overtime and holding employers accountable for paying proper overtime under the applicable law continue to remain the government's focus. Given the high threshold to classify employees as exempt under Japanese laws, U.S. employers in Japan tend to have misclassification issues," Tanaka said.

"Under the new laws that extend the statute of time limitation and also the new requirement on time tracking for employees, including exempt employees, employers are in riskier positions than before," she added. "Wage and hour audits, including an exemption category audit, are recommended for those operating in Japan."

Dinah Wisenberg Brin is a freelance reporter and writer based in Philadelphia.