Q&A: The Reality of Labour Contracts in Japan

In Japan labour contracts mainly fall into several categories:

• permanent employment (正社員, seishain)
• contract employment (契約社員, keiyaku shain)
• temporary dispatch (派遣社員, haken shain)
• outsourcing (業務委託契約, gyoumu itaku)

When signing a contract, it is vital to understand the differences between them, and what crucial factors you should watch out for so you don’t put yourself at a disadvantage.

To gain more insight, I spoke to Tomohiko Narai, a nationally-certified social insurance and labour consultant (社会保険労務士, shakai hoken roumushi), who is knowledgeable about employment contracts and the actual state of labour. In this interview, he addressed real-world situations that go beyond textbook definitions of Japanese labour contracts, including:

• The legal and practical difference between regular employees and contract employees
• Common dispatch contract problems and how to approach them
• How to avoid “false outsourcing”
• Why you should always read the “Notification of Work Conditions”

Permanent employees vs. contract employees

Narai-san, there are several working styles in Japan, and the contract types can be confusing. Could you start by explaining the main types of labour contracts?

The main contract types for providing labour to Japanese companies are: 1) employment (such as seishain for permanent employment or keiyaku shain for contract employees), 2) dispatch (haken), and 3) outsourcing (gyoumu itaku).

First, “employment” is a form of work in which you sign an employment contract with a company as an employee. By definition, you perform your duties under the direct command and orders of the company. Social insurance is enrolled through the company, and premiums are split equally between the company and the employee.

I believe “employment” includes permanent and contract employees. Many people are interested in the differences between the two, so could you explain them in more detail?

There are various employment contracts: permanent employees as seishain, contract employees as keiyaku shain, and part-time workers (fixed-term and indefinite-term).

Here, let’s focus on the difference between permanent and contract employees. It’s worth noting that there is no legal definition of “employee.” Each company generally defines the distinction between a permanent employee and a contract employee based on factors such as the contract period, wage structure, level of responsibility, benefits, and other aspects of treatment.

Could you elaborate on what those defining factors involve?

The employment contract period can be either indefinite (permanent) or fixed. While permanent employees typically have an indefinite term, some contract employees may also have contracts with no fixed term.

There are also differences in the type of work, such as whether it is core or auxiliary, or whether it is project work (see the table below).

It’s surprising to hear that there are no legal definitions for “permanent employees” and “contract employees.”

Although there are no strict legal definitions, the points mentioned above generally describe what is considered a contract employee in Japan.

I see . . . though I must admit, it’s still a bit hard to wrap my head around it.

Originally, the contract employee system was often intended for project-based work, allowing companies to bring in specialists for a fixed period.

However, in practice, we sometimes see companies using this system for their own convenience. For example, there are cases where people are hired as contract employees simply to reduce labour costs, even though they perform the same duties as regular permanent employees. In extreme cases, permanent employees may be eligible for bonuses and retirement pay, while contract employees are excluded from such benefits.

However, such cases are gradually decreasing due to the government’s “Equal Pay for Equal Work” policy (同一賃金同一労働, Douitsu-chingin, Douitsu-roudou). That said, there are still companies that misunderstand the rules—or choose to ignore them—and continue to treat contract employees differently despite them performing the same duties [as permanent employees]. Technically, there should be no disparity in treatment, but in reality, many companies still create gaps. They often make up excuses, such as differences in the level of responsibility or the absence of job transfers. Unfortunately, this is not uncommon.

In addition, some companies use a fixed-term contract as a trial period when they are hesitant to hire someone as a permanent employee right away.

Could you provide more details on the Japanese government’s “Equal Pay for Equal Work” policy and what it means for employees?

Historically, Japan has had a system where treatment differed between permanent and contract employees, even when their job duties were identical. Since this was seen as a problem, the “Equal Pay for Equal Work” concept was introduced. However, it is important to note that it is more of a “guiding principle” rather than a law with strict penalties.

Companies have often justified these disparities using factors that are difficult to quantify, such as “differences in the level of responsibility.” For example, a company might claim that permanent employees are subject to potential job transfers while contract employees are not—even if such transfers rarely actually happen in practice.

That said, we are seeing changes; for instance, more contract employees are now becoming eligible for bonuses.

When a company offers a contract employee position, what are the red flags that suggest they might be taking advantage of you? At what point should you reject such an offer?

The time to act is before you sign the contract.

A major issue with contract employment is that many business owners mistakenly believe they can easily terminate these contracts. In reality, you cannot simply let a contract employee go just because the term has ended if there is an expectation of renewal.

Furthermore, if you are told to leave mid-contract because “there is no more work,” you have the legal right to demand your salary for the remainder of the contract term (e.g., the full year’s pay).

Contract employees are often treated as “employment adjustment valves”—hired for specific projects, or simply because the employer wants a “trial run” to see if the person is competent.

While job-hopping is common abroad, lifetime employment is still a deeply-rooted concept in Japan. Given this background, if you are offered a contract position, ask for the reason. They will likely give you some vague excuse, but honestly, as an expert, I find it hard to explain the actual distinction for why “permanent status” exists in such cases.

For foreigners, some employers might say things like, “Well, you won’t be in Japan forever, right?” That is nothing more than an excuse and should be considered a major red flag.

“Recruiting for a permanent position but then offering a contract instead”—this happens occasionally, but you should walk away from this, too. They are using the permanent status as bait to recruit you, only to trap you in a contract instead.

What about opportunities for career advancement? It feels as though being a permanent employee makes it easier to envision a long-term career plan and expect opportunities for promotions.

In reality, it varies significantly from company to company. Career development in terms of professional skills is often left to the individual. Even when a company provides support, it tends to focus on knowledge and skills immediately applicable to the current job, rather than long-term growth. It depends less on whether the company is large and more on whether they have a solid human resources policy.

Dispatch contracts

Could you also explain dispatch work?

Dispatch [haken] is a form of employment in which you sign a contract with a staffing agency that is your employer, but work at a client company. While your employment contract is with the staffing agency, the authority to direct and supervise your daily work lies with the client company.

The basis for your work is the staffing agreement between the agency and the client. Social insurance is managed through the staffing agency, with premiums split equally between the agency and the employee.

Under the law, if you have been employed under a staffing contract for five years, you have the right to request the staffing agency to convert your contract into an indefinite-term permanent employment contract.

What should one be careful about when signing a dispatch work contract? It seems likely that work outside the scope specified in the contract might occur. Also, aren’t there broader social considerations, such as the view that temporary work has lower social status than permanent employment, which could affect mortgage applications?

With dispatch work, the possibility of being asked to do tasks not listed in the contract is not zero. For example, women were sometimes expected to serve tea. If that happens, you may comply in the moment, but it is best to report it to your staffing agency so they can address it. Please remember that while the client company has the authority to direct your daily work, you should not protest to them directly. Instead, contact your staffing agency immediately and have them handle the situation on your behalf.

In general, dispatch work is categorized as “non-regular employment” and is perceived as unstable. Along with that image, there can indeed be various social repercussions.

Additionally, we sometimes see cases where companies claim that temporary staffing is a path to permanent employment. Is this actually true? Is there a way to evaluate whether a company is being sincere about this?

I haven’t heard of that happening very often. There is a specific system called “temp-to-perm” (紹介予定派遣, shoukai yotei haken), which is intended for hiring from the start, almost like a trial period. However, in my experience, even these types of arrangements are not that common.

If a company tells you that the position is “with the intent of permanent hire,” you should verify the details very carefully.

What are the benefits for job seekers who accept a staffing contract?

The main benefit of temporary staffing is that it allows you to manage your time more freely. For instance, someone working under an Engineer/Specialist in Humanities/International Services visa might consider taking on staffing work during their spare time. However, you must consult an immigration lawyer before moving forward to ensure you remain in legal compliance.

Business outsourcing contracts

Could you also tell me about outsourcing contracts? These are not employment contracts, correct?

That’s correct: outsourcing contracts [gyoumu itaku] are not employment contracts. Under this arrangement, you work as a sole proprietor (個人事業主, kojin-jigyounushi) and contract directly with the client company.

You do not take direct orders or supervision from the client; instead, you perform the work using your own discretion and under your own responsibility. In this case, you are responsible for paying the full amount of your social insurance premiums yourself.

What should one be careful about regarding outsourcing contracts?

When a company exercises the right to direct and supervise your work even though you have signed an outsourcing contract, it is called “false outsourcing” (偽装請負, gisou ukeoi). This is because, if the company has the right to command you, the relationship is effectively an employment contract.

Some companies try to use outsourcing contracts despite this because they can avoid paying overtime, terminate the contract relatively easily, and avoid contributing to social insurance costs. False outsourcing is a complex issue, so I’d like to discuss it in more detail on another occasion.

Examine the Notification of Working Conditions carefully

What are the absolute minimum requirements an employee should verify in the Notification of Working Conditions? I understand it might be too much to cover in a single article, but are there common violations or areas where companies tend to be vague?

Working hours, wages, and holidays—everything listed in the notification is essential. Specifically, check the section on overtime work. Even if the “Yes” box is checked for overtime, it is wise to gently ask for more details about how much overtime is typical.

It may sound obvious, but first and foremost, you must thoroughly confirm the contents of the contract. To do this, please ensure that you are presented with a “Notification of Working Conditions” (労働条件通知書, roudou jouken tsuuchisho) before finalising any employment agreement.

What specific points should be checked in the Notification of Working Conditions?

You must check whether it satisfies the “Statutory Requirements.” The following items are legally required to be stated in writing:

1. Matters concerning the period of the employment contract.
2. Matters concerning the criteria for renewing a fixed-term employment contract.
3. Matters concerning the place of work and the duties to be performed.
4. Matters concerning the start and end times, and the presence of overtime work, rest periods, holidays, leave, and shift changes (if applicable).
5. Matters concerning the determination, calculation, and method of payment of wages; the closing date and payment date of wages; and pay raises.
6. Matters concerning retirement and resignation (including grounds for dismissal).

Note that, regarding pay raises mentioned in item 5, verbal explanation is legally permitted.

Could you provide a more detailed explanation regarding the Notification? Foreign workers often lack foundational knowledge of what is considered “standard” in Japan, particularly regarding overtime pay and contract renewal conditions.

Technically, overtime can only be enforced when an order is given, but in Japan, many employees work overtime on their own. Strictly speaking, this is not allowed. It’s what Japanese people call kuuki (空気)—the unspoken pressure of the “atmosphere.”

For instance, if you work late just because those around you are doing so, you are legally entitled to claim overtime pay. Even without a direct order, it can be interpreted as “’implied consent” from the employer.

To legally require overtime, a company must meet minimum requirements, such as having a “Labour-Management Agreement” (known as the “Article 36 Agreement,” a legal document filed with the government that grants a company the right to ask employees to work overtime) or stating it in the Work Rules (就業規則, shuugyou kisoku). Without these, they cannot force you to work overtime.

The fundamental principle is that overtime should be used only for unavoidable reasons. Anything that can be done tomorrow should be done tomorrow. Unfortunately, there is a bad habit of people working late just to earn more overtime pay, and quite a large percentage of cases fall into this category.

The most significant cause, however, is simply that people don’t leave because their peers or bosses are still there. Some people stay because they have nothing else to do, often working on tasks that don’t need to be finished today. This is what we call unnecessary overtime.

There are so many important items to check!

For fixed-term contracts, always verify the renewal conditions. Also, be careful as overtime pay may sometimes be included in the base salary. Since commuting allowances are optional for companies in Japan, you should confirm that as well.

In malicious cases, a contract might even contain clauses that violate the law, so it is best to have an expert review it. Additionally, confirming the availability of social insurance is crucial.

Be wary if the recruiter’s verbal explanation differs from what is written in the Notification of Working Conditions. Later, they might claim, “But we explained that to you verbally, didn’t we?” In some cases, the hiring manager may simply be uninformed.

These are definitely important points, but as a job seeker, I’m afraid that asking too many questions might make me seem “difficult” and hurt my chances of being hired.

You should avoid asking questions that can be easily answered by looking at the job posting or the company website. If you haven’t researched the company, they may judge your motivation as being low. While questions about benefits (wages, holidays, overtime, etc.) are essential, they can be difficult to ask. A good strategy is to pair them with positive, work-related questions.

Can you give some advice on how foreign workers can find experts to review their contracts? In my experience, immigration lawyers (administrative scriveners) who handle visas are often very empathetic to the situation of foreign nationals.

That’s true. They often have networks with other professionals, so they can refer you to the right specialist.

In that case, as a potential candidate, would it be possible for you, Narai-san, to provide labour consultations for foreign employees?

Yes, I can certainly consult with employees about their situation. Negotiating directly with the company on behalf of an employee requires a special qualification, which I don’t have, but if negotiations are necessary I can put them in touch with specialists like lawyers.

Alternatively, you could tell the company, “There seems to be an issue regarding this matter, so could you please consult with the company’s social insurance and labour consultant first?” This approach can minimize friction.

One thing to be careful of is that bringing in an expert can sometimes make the candidate’s position awkward, if it is before you sign the contract. The company might decide not to hire you at all. It’s important to be mindful of these cultural differences.

During an interview, we often tend to become passive because we’re so focused on getting the job. However, it might be better to have the mental breathing room to “interview” several companies yourself, rather than simply following whatever they say. In other words, it’s about finding a partner you’re truly compatible with.

Thank you so much for sharing your valuable insights.