#11. Nagoya Automobile School Case

Nagoya District Court Ruling Oct. 28, 2020 judgment (P.5, Rodo-hanrei #1233)

  In this case, two employees, Xs, who were re-employed after reaching the mandatory retirement age, claimed the same treatment and compensation as permanent employees from Company Y because their treatment was poor and they were unreasonably discriminated against compared to permanent employees, and the court approved part of their claims.

1. Article 20 of the Old Labor Contract Law
(Prohibition of Unreasonable Working Conditions Due to Provision of Term)
Article 20
  "If the working conditions in the employment agreement of a worker who has concluded a fixed-term employment agreement differ from the working conditions in the employment agreement of a worker who has concluded an employment agreement with the same employer for an indefinite term due to the existence of a fixed-term employment agreement, such difference in working conditions will not be deemed unreasonable considering (1) contents of business of the worker and the degree of liability associated with the work ("Job Description" in this Article), (2) scope of the change, and (3) other circumstances of the Job Description and assignment."  (Numbers are added by the author)
  Generally, (1) the term, "contents of business of workers and the degree of liability associated with the work" is shortened to "Job Description"; (2) the term, "scope of change of the contents of business and arrangement" is shortened to "Scope of Change"; and the whole of (3) "other circumstances" is shortened to (4) "Job Description, etc.” ((4) =(1) + (2) + (3)).
  This decision uses the same terminology.

2. Position of judicial precedents
  On October 15, about two weeks before the decision in the case at hand, five Supreme Court precedents on "equal pay for equal work" were issued.  These are three Japan Post cases, the Osaka Medical and Pharmaceutical University case, and the Metro Commerce case.   Since this judgment relates to the terms and conditions of employment of post-retirement re-employed persons, the Nagasawa Transportation case regarding post-retirement re-employment will also be helpful.
  Like the first five precedents, this judgment adopts a method of judgment on individual working conditions to be examined.  In doing so, this judgment adopts a framework of judgment in which the nature and objective of each condition is confirmed and whether it is reasonable considering the nature and objective of the condition is determined in regard to (4) Job Description, etc. It can be appreciated that the method of making judgments individually, rather than making judgments in terms of the total amount, has become firmly established as a rule in the precedent.
  In addition, the judgment concluded that with respect to the part that was judged to be unreasonable as a result, the treatment of the fixed-term contract employee is not the same as that of full-time employees, but that a claim for compensation for the difference between the amount and the reasonable amount would be allowed, and this point can be regarded as having become firmly established as a rule.
  In conclusion, the court accepted claims for damages for not paying basic salaries, bonuses, full-time work allowances, and sales awards as unreasonable.  Among these, the basic salary and bonus were deemed unreasonable as being less than 60% of full-time employees, and compensation for damages was granted not in whole but in part. There seems to be no Supreme Court case that recognizes unreasonableness for a part, but some lower court judgments have already made such a decision.  There is some criticism, such as that it is unclear on what grounds to determine the unreasonableness of part of them, but we will omit the consideration of this point.

3. Basic salary and bonuses
  Basic salaries and bonuses are the core elements of a company's personnel policy.
  The Osaka Medical and Pharmaceutical University case and the Metro Commerce case recognized the reasonableness of the goal of "recruiting and maintaining full-time employee human resources" and acknowledged relatively broadly the discretion of a company, and regarded the retirement allowances and bonuses as reasonable without paying them to fixed-term employees.
  However, this decision found the base salary and bonus as being unreasonable (to the extent of less than 60% of full-time employees).  This will narrow the scope of discretion of a company's personnel policy, and the direction of the decision is opposite to that of these two cases.  Why did the court make such a decision? Let us consider several possible reasons.
  The first problem is (1) to (3) above.
  In other words, this judgment specifically compares the terms of employment of full-time employees and fixed-term contract employees and finds (1) Job Description and (2) Scope of Change to be identical. So, the court considered re-employment after retirement as an important fact of (3) "other circumstances."  This means that reasonableness must be explained as being only due to re-employment after retirement. Specifically, it has been pointed out that it is advantageous for the company that the Xs have obtained retirement allowances, are receiving old-age welfare pensions, do not plan long-term employment, and are not expected to become executives.  However, even if these circumstances were taken into consideration, it was evaluated the total amount of wages being about 60% could not be found to be reasonable.
  Thus, if (1) and (2) are evaluated as the same, it is necessary to explain reasonableness only in (3), and obviously the hurdle is higher.
  The second relates to Article 9 of the Part-time Employment Act.
  The Part-time Employment Act is a law formally called “the Act on Improvement of Personnel Management and Conversion of Employment Status for Part-Time Workers and Fixed-Term Workers” in its long form.  Article 9 of the Part-time Employment Act stipulates that if (1) Job Description and (2) Scope of Change are the same, they are regarded as fixed-term contract employees that should be regarded as equal to ordinary workers, and that "no discriminatory treatment will be made with respect to each of the basic salary, bonuses, and other compensation because they are short-term and fixed-term employees."
  This provision does not apply to this judgment because the Act was not in effect before this decision, but this provision was introduced to replace Article 20 of the Old Labor Contract Act (this judgment will apply this article) along with the abolition of such article together with Article 8 of the same Act.  "Equal pay for equal work" is said to contain "equal" and "equilibrium."  When job descriptions are the same, the working conditions must be the same (i.e., equal), and when job descriptions differ, the working conditions must be appropriate (i.e., equilibrium).
  Article 9 of the Part-time Employment Act is said to be a rule concerning "equal."
  In other words, it is stipulated that if you have full-time employees do the same work as in (1) and (2), you must make "the basic salary, bonuses, and other compensation" the same.
  From this viewpoint, it can be regarded that it is in consideration of the provisions of Article 9 of the Part-time Employment Act that this judgment determined that it was unreasonable to treat the basic salary and bonus of a fixed-term contract employee who is the same as (1) and (2) differently.  The third is the need to "recruit and maintain full-time employees".
  The Osaka Medical and Pharmaceutical University case and the Metro Commerce case point to "purpose of recruiting and maintaining full-time employees" as one of the rational grounds for not paying retirement allowances and bonuses to fixed-term contract employees.
  However, even if full-time employees' treatment is better than that of post-retirement re-employed personnel, it seems that no one will be motivated to find employment. Rather, considering what will happen after retirement, if treatment is significantly lower even if employees are re-employed after retirement, they will be less motivated to join the company as full-time employees.  Nonetheless, this is even more so because you can get the same work done as for (1) and (2).
  “Purpose of recruiting and maintaining full-time employees” works when the responsibilities for work are great and the treatment is good, unlike the fixed-term contract employee who performs auxiliary work. In other words, it works when the duties and responsibilities and treatment differ between different persons, but when the treatment differs between different situations of a same person, it does not work.
  The fourth is the low salary level.
  Citing the basic survey on wage structure, the court concluded that even before the mandatory retirement age, wage levels are lower than those for post-retirement re-employment, and that these levels are lower than those for employees who have recently joined the company (they are kept low under the seniority-based system and they are less capable, because they are young).  Therefore, the court concluded that they are "at a level that cannot be overlooked from the viewpoint of welfare."  In addition, the court declared that it is "based on the perspective of ensuring workers' livelihoods" and acknowledges its unreasonableness.
  Indeed, "equal pay for equal work" addresses the difference in treatment between lifetime contract employees and fixed-term contract employees (relative assessment).  However, for example, it is not possible to allow illegal treatment that falls below the Minimum Wage Act.  Therefore, it is inevitable that the reasonableness of treatment of fixed-term contract employees per se is also affected to some extent (absolute assessment).
  Consequently, the court can be regarded as incorporating the function of livelihood security into equal pay for equal work.

4. All-work allowance, sales award, and family allowance
  The argument that the full-time work allowance and the sales awards are allowances aimed at encouraging attendance at work, which apply to both full-time contract employees and fixed-term contract employees, has been adopted in many cases and is not particularly novel.
  Family allowances are of particular note.
  There are some cases in which it is unreasonable not to pay family allowances to fixed-term contract employees because the existence of dependents is the same for both full-time employees and fixed-term contract employees.
  However, this judgment found it reasonable not to pay family allowances to retired reemployed employees after acknowledging the family allowances have "the purpose of welfare and livelihood security for employees."  The fact that employees receive old-age welfare pensions, which were not taken into account in terms of salaries and bonuses, is also pointed out in this context to be advantageous to the company. In addition, the court implied that those who are reemployed at the mandatory retirement age are paid enough during their full-time employee period.
  Does the court mean they have enough chance to support their family while working as full-time employees?
  In the case of regular fixed-term contracts and post-retirement reemployment, it is likely that discussions will take place in the future regarding the difference in the assessment of the purpose and reasonableness of the system.

5. Practical points
  Regarding the basic salary and bonus, since this judgment has awareness of Article 9 of the Part-time Employment Act, the framework and judgment of this judgment will also be useful in relation to Article 9 of the Part-time Employment Act.
  Therefore, the following two points will be taken as the interpretation of Article 9 of the Part-time Employment Act.
  The first point is that if (1) Contents of Operation and (2) Scope of Change are the same, (3) "Other circumstances" is taken into account, even though the clause does not mention (3).
  Second, words of "discriminatory treatment" would be interpreted as that, rationally, some difference is permissible, such as a 60% difference, rather than perfect equality is required. This can be regarded as an indication that the "equal" principle, which has been mentioned in the past, does not necessarily require exactly the same treatment, but in that sense, is interpreted in a flexible manner.
  In cases where Article 9 of the Part-time Employment Act will be actually applied after it became effective, it is noteworthy how the court will decide.

※ Pointer (original and only for English version)
<Equal pay for equal work>
  The basic approach to protecting workers under Japanese labor laws was to protect them with absolute standards.  For example, restrictions on working hours concern the length of actual working hours for each worker.
  On the other hand, protecting workers under U.S. labor laws is based on relative criteria.
  The anti-discrimination law has developed in a variety of fields, and the protection of workers is promoted by rules such as the illegality of not hiring women, for example.
   In contrast, equal pay for equal work introduces worker protection through relative criteria, so that rule is very distinct in a regime which was centered on absolute standards.  Of particular importance is the rule to restrict treatment differences between indefinite-term contract employees, such as full-time employees, and fixed-term contract employees, such as part-time employees.
It includes two rules:.
  The first is the "equality rule" (Article 9 of the Part-time Employment Act). This means that if the content of work is the same, it must "have the same treatment."
  Nevertheless, the meaning of "have the same treatment" is not clear, and the content will become more concrete through judicial precedents.
  The second is the "equilibrium rule" (Article 8 of the Part-time Employment Act).  This means that even if the work contents are not the same, treatment should be balanced according to the degree of similarity.  The scope of application is broader than that of equality rules.  However, due to the fact that the content of the rules is not clear, many judgments have been issued.
In short, it is a question of balance.  As can be seen from the above explanation, the framework and criteria for judgment have been gradually clarified through the accumulation of case laws.
  In the future, both the protection of workers by absolute standards and the protection of workers by relative criteria will need to be taken into account, and the structure and operation of the company's personnel system will become more complicated.   You should ensure that you have the support of a HR law specialist who is familiar with your company's business.

※　日本語原文

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