Dismissal in a Japanese Branch Office of a Foreign Company
Apr 15, 2015
Background: are foreign companies recognized in Japan?
Foreign companies are recognized in Japan under Article 35 of the Civil Code. A “foreign company” means a company that is established for commercial activities. Strictly speaking, under Article 2(ii) of the Companies Act, a “Foreign Company” means any juridical person incorporated under the law of a foreign country or similar. Foreign companies may use a “bureau” (eigyousho), as the place where the company carries out their commercial activities in Japan. Such bureaus are managed by headquarters and are not legally separate corporate entities. As such, all liabilities etc. are ultimately the responsibility of the parent foreign company.
The address of the international headquarters must be stated in the Articles of Incorporation of the company. If the location of the headquarters changes the Articles of Incorporation must also be changed accordingly. The location of both the headquarters and the branches shall be registered in the commercial registration in Japan, and if these details change, the company needs to apply for commercial registration of such changes.
The effect of establishing a bureau is for example to establish a place to complete commercial obligations (commercial code article 516), determine the jurisdiction (civil procedure code Article 4), establish a place of service for civil action (Article 103 of the Civil procedure code) and establish the jurisdiction for commercial registration.
Each branch is subordinate to the headquarters, but can operate independently. That is to say, each branch can make decisions with respect to commercial activities independently from the headquarters and can represent itself against third parties, as well as open bank accounts and lease real estate etc.
Branch managers represent the company and have authority to do so concerning legal and non-legal conduct (Companies Act Article 11). In Japan for example, the election of a manager for the bureau of a Joint Stock Company with a Board of Directors is subject to a resolution of the Board of Directors (Companies Act Article 362).
In Japanese companies, it is not necessary to appoint a manager for the headquarters and the branch (shihainin), according to Article 10 of the Companies Act. However, contrary to normal Japanese comopanies, foreign companies shall appoint a representative in Japan if the company intends to carry on commercial transactions in Japan (Companies Act Article 817). This legal representative does not necessarily need to be a representative such as the company president or bureau manager. The legal representative has authority to undertake activities in Japan concerning all litigation and other actions (Companies Act Article 817). The scope of such authority covers all of Japan even if it has more than one bureau in Japan.
Foreign companies should note that it shall appoint at least one legal representative having an address in Japan (Companies Act Article 817).
If a foreign company does not have a bureau, but has an intention to undertake transactions in Japan, a foreign company shall be registered within three weeks from the appointment of the legal representative under Article 817 above. The bureau is regarded as the branch office (Companies Act Article 933III). For your reference, bureaus established exclusively for activities undertaken prior to undertaking commercial activities (such as market research, liaising with authorities, sample demonstration and advertising), are not required to be commercially registered.
If not registered, the person who undertakes commercial activities will have joint liability with the foreign company (Companies Act Article 818).
Application of the law
It is important for foreign companies operating branches in Japan to consider the applicability of local law. One pertinent example is with respect to labor law. In this article, we specifically discuss dismissal, including for economic reasons.
According to Article 12 of the law concerning the general rule for application of law, even if people have concluded a choice of law different from the law of the location in which the labor contract is most relevant, usually the domicile of the worker, will still be applicable with regards to the compulsory articles of law. The exception to this is if the employee expressly accepts different terms. It is presumed that the location of work determines the governing labor law.
As such, compulsory articles such as those in relation to dismissal are applicable despite the intentions of the parties.
According to Article 16 of the Labor Contract law, dismissal shall be void if it considered that there are no objectively justifiable grounds for dismissal or the dismissal is otherwise not considered, from the perspective of society, to be generally appropriate. Additionally, in accordance with Article 20(1) of the Labor Standards Act, employers must give employees at least 30 days notice or the equivalent of 30 days’ pay prior to dismissal in principal.
These provisions apply also to dismissal for economic reasons.
More specifically with respect to redundancy, there is a well-established body of case law setting out the following four criteria that should be met in order to meet the “reasonable grounds” and “generally appropriate” requirements in Article 16 above:
- Necessity: the employer needs to show that the redundancies are economically necessary for the business.
- Effort to avoid dismissal: the employer needs to show that it has made reasonable efforts to avoid dismissal before making dismissals for economic reasons.
- Reasonable selection: the employer must show that it employed fair and reasonable methods to select the employees to be made redundant.
- Reasonable process: the employer must show that it carried out sufficient explanations with workers and labor unions.
According to 3-7 of the Civil Procedure code, in principle, the agreement between employee and employer for future conflict is void. For example, if there is a bureau in Japan, the employee can file action against the employer in a Japanese Court regardless of any agreement to the contrary.
Employers shall conduct dismissals in an appropriate manner and also note other laws that are applicable in addition to those mentioned above. Please consult with an expert advisor when considering dismissal for economic reasons even if your office is a foreign company.
 Toyo Sanso case, 1979, 10, 29 Tokyo High Court. Discussed in Sugeno and Yamakoshi, “Dismissals in Japan”, Japan Labor Review, vol. 11. No. 2, Spring 2014 at page 5 (http://www.jil.go.jp/english/archives/documents/201501_dismissals_in_japan.pdf)
 Such as Articles 24 and 27 of the Employment Measures Act