2018 saw the biggest changes in the employment law regimes of both Singapore and Japan. Both jurisdictions have recently gone through a fundamental change to the key legislation concerning employees’ rights. This includes a wider coverage of employees who are entitled to statutory benefits, and the introduction of overtime pay to compensate for additional hours worked by employees.
1. Expansion of applicability of the protections under the Employment Act to a wider range of employees
The Employment Act (Cap. 91) of Singapore (the “EA”) is about to undergo drastic changes on 1 April 2019, with the passing of the Employment (Amendment) Bill 2018 in November 2018.
The EA currently covers all employees (regardless of nationality) under a contract of service with an employer, except: (a) any person employed in a managerial or executive position earning more than S$4,500; (b) any seaman; (c) any domestic worker; and (d) any person employed by a statutory board or the government.
Professionals with tertiary education and specialised knowledge or skills whose employment terms are akin to those of managers or executives eg. advocates and solicitors, chartered accountants, practising doctors and dentists are generally also excluded from the application of the EA.
However, as of 1 April 2019, the core provisions under the EA will extend to professionals, managers, executives and technicians (“PMETs”). These include minimum of 7 to 14 days of annual leave, paid public holiday and sick leave entitlements, as well as other protections, such as timely payment of salary and protection against wrongful dismissal.
2. Amendment of Salary Cap for EA Protections
Part IV of the EA only applies to workmen with a monthly salary of not more than S$4,500 and also to employees (who are not workmen) with a monthly salary not exceeding S$2,500. Further, Part IV of the EA currently does not cover all persons employed in a managerial or executive position. Part IV of the EA provides for rest days, hours of work, holidays and other conditions of service.
Pursuant to the amendments to the EA, there will be additional protection on hours of work, overtime pay and rest days for (i) workmen earning up to S$4,500 per month, and (ii) non-workmen earning up to S$2,600 per month. The Government will also align the salary cap of S$2,250 for calculating overtime pay with the new salary threshold of S$2,600.
3. Revisions on laws regarding suspension, termination with notice and dismissal of employees for gross negligence
Employees can only be suspended if they are provided with at least half of their pay. Suspension is only permitted for a maximum period of 1 week (or such longer period as the Commissioner may determine on application by the employer). This will apply to all employees.
Termination with notice
All employees will be entitled to the minimum EA notice periods for termination. Termination must be in writing and employees can make payment in lieu of notice.
All employees must be provided with ‘due inquiry’ prior to being dismissed for gross misconduct. While there is no prescribed procedure for conducting an inquiry into an act of misconduct, as a general guideline, the Ministry of Manpower has suggested that the employee should be told of their misconduct, the person hearing the inquiry should not be in a position which may suggest bias and the employee being investigated for misconduct should have the opportunity to present their case.
On 29 June 2018, a comprehensive “work-style” reform bill was passed that amends eight different labour-related laws, including core statutes such as the Labor Standards Act, the Worker Dispatching Act and the Labor Contracts Act.
The legislation is meant to modernize Japan’s working systems, create a more fair and equal workplace for employees, and provide more freedom and flexibility to workers. Some of the amendments will become effective as of April 2019, while others do not become effective until 2023.
We have summarised some of the key changes that would be of interest to foreign companies with operations in Japan.
1.Labour law reform on overtime
One of the prevalent issues that Japan has been facing is setting a maximum number of overtime hours that can be worked by an employee.
Under the reform bill, the upper limit of overtime hours permissible shall be set as 45 hours per month, and 360 hours per year in principle. However, even if companies conclude an Article 36 Labor-Management Agreement with a special clause for extraordinary circumstances, an employer will not be permitted to require employees to work in excess of:
- 100 hours or more of overtime and holiday work in a month;
- 80 hours or more of overtime and holiday work on average anytime within a 2 to 6 month time frame; and
- 720 years per year.
Violations can result in imprisonment with labor for up to 6 months or a fine of JPY 300,000 or less.
The new law will become effective on 1 April 2019. For small and middle size companies, this will be effective on 1 April 2020.
Furthermore, currently if an employee works more than 60 hours of overtime in a month, the employer has to pay an overtime allowance at the rate of 150% for those hours in excess of 60 hours (and not the standard 125%). This rate currently does not apply to small and medium size companies.
However, from 1 April 2023 onwards, this is set to change. The rate of 150% for overtime work exceeding 60 hours per month shall apply to all companies, including small and medium-size companies. Violation can result in a fine of JPY 300,000 or less.
2. New Employee Classification and Importance of Getting it Right Generally
It is one of the classic problems in Japanese labor practice that many companies misclassify some employees as “managerial or supervisory employees” (“Exempted Managers”), who are exempted from overtime and holiday work allowance pursuant to Article 41 of the Labor Standards Act.
Some companies classify some employees as Exempted Managers even though, considering their actual situations, these employees cannot be properly classified as Exempted Managers and then get into trouble.
The labor authorities have pointed out the problem and instructed the employers to correct the misclassifications and the misclassified employees to demand payment of their unpaid overtime allowances.
The Labor Standards Act does not define the term “supervisory or managerial employee” in detail. However, some court cases and the Ministry of Health, Labor and Welfare’s guideline provide clues regarding whether an employee can be classified as an Exempted Manager. The key factors that companies should consider are:
i. whether the employee is in a position which is not suitable for being bound by fixed working hours considering the authorities and responsibilities of the employee and how the employee’s working hours are managed by the employer;
ii. whether the employee has duties, responsibilities and authorities which are related to important business decisions and/or personnel/labor management; and
iii. whether the employee is compensated at a rate appropriate for manager-level employees given the employee’s salary and other compensation.
Companies should confirm whether there is any misclassified managers in their organizations and try to fix the situations. It is challenging for companies to redress the misclassifications because the misclassified managers may demand payment of their unpaid overtime and holiday allowances for up to the last two years (which is the statute of limitations for unpaid salary claim) from the date the companies approach them to change their classifications.
However, to avoid potential disputes with employees in the future, it is recommended for companies to proactively confirm their employee classifications and to fix any misclassification before the issues are raised by the employees.
3. Conversion of Fixed Term Employees to Permanent Employees
Fixed-term employment agreements have been commonly used in Japan because generally speaking, it is easier for employers to end employment relationship with employees with fixed-term employment agreements than with employees with non-fixed term employment agreements.
Employers can end employment relationship with the former by rejecting to renew the fixed-term employment agreements following the expiration of the term.
However, after April 1 2013, the amended Labor Contract Act provides that when an employee has worked under a fixed-term employment agreement for more than 5 years in total with one or more renewal(s), the employment relationship must be converted into a non-fixed employment relationship if the employee so requests.
From April 1, 2018, some fixed-term employees have been converted into non-fixed term employees.
Some companies try to avoid this rule by rejecting to renew the fixed-term employment agreements right before the total employment term exceeds 5 years, but it is not easy. Labour authorities consider it to be unreasonable to avoid this rule by rejecting to renew fixed-term employment agreements and they give instructions to companies to avoid such rejection.
Therefore, if employers want to reject to renew employment agreements with problematic employees, they should set clear criteria/factors to decide whether an employment agreement shall be renewed or not and clearly communicate with such employees that their agreement is not guaranteed to be renewed.
Many companies implement new work rules for non-fixed term employees who are converted from fixed term employees. Companies used to have separate sets of work rules for “regular employees”, who were hired as non-fixed term employees from the outset, and fixed-term employees (usually called “contract employees”).
However, if fixed-term employees are converted to be non-fixed term employees, they may argue that they should be covered by the work rules for regular employees, which usually are more beneficial to the employees than those for fixed term employees. Therefore, many companies choose to proactively set out new work rules to prevent potential disputes with non-fixed term employees converted from fixed-term employment status.