What are the four requirements for economic dismissal?

What the Law Says

Japanese labor law does not list 'four requirements' explicitly in a single statute, but courts and the Ministry of Health, Labour and Welfare have consistently interpreted Article 19 of the Labor Contract Act as establishing four essential conditions for a valid economic dismissal. These are derived from statutory principles of good faith and fairness in employment relationships.

First, there must be a 'genuine business necessity' — such as severe financial deterioration, restructuring due to market changes, or technological obsolescence — that makes continued employment unsustainable.

Second, the employer must make 'reasonable efforts to avoid dismissal', including reassigning workers to other positions, offering early retirement incentives, or reducing executive compensation before cutting regular staff.

Third, the 'selection of employees for dismissal' must be objective and fair — based on criteria like performance, ability, age, family status, and length of service — and not arbitrary or discriminatory.

Fourth, the employer must follow 'procedural fairness', including providing adequate explanation to affected employees, allowing opportunity for consultation, and giving at least 30 days’ notice (or payment in lieu) as required by Article 20 of the Labor Standards Act.

Statutory Text

An employer may not dismiss a worker without objectively reasonable grounds and in accordance with socially acceptable standards.

— Labor Contract Act, Art. 19 — Grounds for Dismissal

Statutory Text

An employer who intends to dismiss a worker shall give at least thirty days’ notice...

— Labor Standards Act, Art. 20 — Notice of Dismissal

What to Do

Sources