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HOME 5 HR Law 5 Re-Employment after Retirement Age
Re-Employment after Retirement Age
Category: HR Law | Newsletter | Newsletter-2021

Japan is one of the world’s most rapidly ageing societies. Along with the
traditionally high life expectancy, the country’s fertility rate is at a
continuously low level. According to the Japanese Ministry of Internal Affairs
and Communications, as of September 2020, nearly 30% of Japanese are already 65
years or older. The effects of this demographic change are noticeable. Along
with the increasing competition for qualified junior employees, the ageing
workforce poses new challenges for employers.

The Japanese Government reacted to this development in 2013 by passing an
amendment of the Act on Stabilization of Employment of Elderly Persons which
aims to facilitate employment of elderly employees at least until the age of 65.
Now, starting from 1 April 2021, an additional amendment will come into effect
which seeks to promote further employment of elderly employees until the age of
70 (the “Amended Act”). This newsletter summarizes the current legal framework,
the new amendments coming into effect on 1 April 2021 and its practical
implications for employers in Japan.

1. Re-employment of elderly employees until the age of 65

Japanese law permits, but does not require, employers to set a mandatory
retirement age, i.e. an age limit where employees are automatically deemed to be
retired from the company and the employment agreement expires. The retirement
age can be generally determined freely by the employer as long as it is not set
lower than 60 years old. However, employers are required to continue employing
their elderly employees, if desired by them, until the age of 65 even after they
have reached the company retirement age.

For this purpose, employers can choose between three options: (i) abolishing the
company retirement age, (ii) raising the company retirement age to 65 years, or
(iii) maintaining the company retirement age whilst introducing a re-employment
system for retiring employees until the age of 65. Given that neither the fact
that an employee is entitled to pension payments nor that the employee’s “age”
itself constitutes a valid ground for terminating the employment relationship
with an elderly employee, option (i) is usually the least favorable option for
the company as it leads to a high risk exposure due to the unlimited term of
employment. Even if, at first glance, options (ii) and (iii) seem to lead to the
same results, option (iii) – i.e. maintaining the company retirement age, which
is e.g. set at 60 years old, whilst introducing a re-employment system until the
age of 65 – has one key advantage: By choosing this option, the employer can
offer to the employee new terms for the period of re-employment after the
retirement age, e.g. part-time work with a reduced salary. The newly offered
terms of employment must be however “reasonable”. Whether the new employment
conditions are deemed reasonable depends on all circumstances of the individual
case, such as the former terms and position of the employee concerned as well as
the operational capacities of the employer. It is generally recommendable to
provide the re-employment contract on a one year fixed-term basis in order to
limit the risk exposure in case of dispute scenarios.

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