Company A has recently promoted many workers to heads and deputy heads of departments considering their 15 years or more of service. However, this promotion has caused significant conflict between workers in lower and higher positions. The CEO of the company recognized the de-motivating aspect of this congestion of personnel as it resulted in lower chances for other workers to be promoted. To return such chances to the organization, the CEO is to introduce a seniority-based retirement age system, and is seeking to modify the Rules of Employment so that the company can dismiss heads of department if they are not promoted to higher positions after 10 years as department head, (12 years for deputy heads of departments) while still keeping the formal retirement age at 58. Will such changes result in legal disputes? If not, what are the procedures required to peacefully bring this system about?
Like Company A, many employers are concerned about congestion of personnel in higher positions, as it hinders the chances for advancement of employees in lower positions, and burdens management with the costs of a seniority-based wage system and inflexible labor regulations. To solve these problems, companies have introduced a seniority-based retirement age system. However, the system has issues of legitimacy, and is difficult to implement since Rules of Employment have to be adjusted within the law.
1) What is a seniority-based retirement age system?
A seniority-based retirement age system allows companies to discharge workers in a certain position that have not been promoted in a certain period of time. Company A’s situation is an example of an introduction of this system allowing heads and deputy heads of departments to be let go if they are not promoted to higher positions within 10 or 12 years. A job-based retirement age system is another retirement system which decides retirement age by type of job. For example, the system can set a retirement age of 60 for white-collar jobs, and 55 for blue-collar jobs.
2) Legitimacy in question for seniority-based retirement age system
The Ministry of Employment & Labor interpreted that termination of a labor contract due to a seniority-based retirement age system cannot be considered the same as termination of a labor contract due to normal retirement. Instead, it is considered a dismissal from employment. Thus, employers still need an appropriate reason, under Article 23 of the Labor Standard Act, to let go of workers. It has also explained that dismissal based only on failure to be promoted within a certain period of time is not objective nor an acceptable reason according to social norms.
Nevertheless, the interpretation from the Ministry of Employment & Labor does not preclude attempts to introduce a seniority-based retirement age system. If a company can provide an appropriate reason for introducing the system and follows the necessary procedures to modify the Rules of Employment, a seniority-based retirement age system does not inherently conflict with the Labor Standards Act.
On the other hand, a job-based retirement age system is acceptable as long as it is logical according to common notions of society. Of particular note, the Supreme Court explains that different retirement regulations can exist in the same workplace with proper standards based on working conditions such as distinct characteristics or types of job.
The legitimacy of the seniority-based retirement age system would be determined by whether the system is rational according to common sense. When we look at the cases which legitimatize the job-based retirement system (where judicial precedent has been set, or authoritative interpretations given), many of them involve people in high positions, not every position. In short, the job-based retirement system seems to be limited to workers already serving a certain number of years.
3) Conditions appropriate for introducing a seniority-based retirement age system
The retirement age will be lowered if a company with the normal retirement age system introduces a seniority-based retirement age system. This change will disadvantage employees, so the company should go through appropriate procedures to adjust the Rules of Employment in cases where the retirement age is stated in those Rules of Employment.
Company A in the example above was already following a normal retirement age system. However, some department heads and deputy heads will have to retire before the age of 58 if the company introduces a seniority-based retirement age system. Company A must follow the appropriate procedures in adjusting the Rules of Employment, as such adjustment will be disadvantageous to workers. These procedures include such things as obtaining consent from the trade union or more than half the employees.
There might be confusion when deciding who to approach for consent for a limited job-based retirement age system, when the system is only targeting particular positions such as heads and deputy heads of departments. In other words, is consent only necessary from the department heads and deputies who will be disadvantaged by the new Rules of Employment, or is consent necessary from more than half of the total employees?
One authoritative interpretation stated that disadvantageous modification of the Rules of Employment is legitimate only if the company obtains the consent of more than half the employees who would be directly disadvantaged by such a seniority-based retirement age system, and opinions of the trade union representing more than half the total employees. However, the court ruled that consent of a trade union representing more than half the total employees is enough for disadvantageous modification of the Rules of Employment.
The Supreme Court has recently suggested a clearer standard regarding the subject of consent for disadvantageous modification of Rules of Employment targeting a certain group of employees. The Court ruled that ① the consent of all employees is needed if the modification is expected to disadvantage other groups of employees in the future even though the modification only affects a certain group of employees in the present; and ② consent is needed only from the group of employees who are to be disadvantaged by the modification if it is expected that no other employees will be affected by the modification.
Company A’s modification of the Rules of Employment targets only heads and deputy heads of departments, but the company needs the consent of more than half of the total employees, or the consent of a trade union representing more than half of the total employees, if such a union exists.
4) Reinvigorate organizations through the seniority-based retirement age system
The seniority-based retirement age system is an alternative which restores motivation to those employees with fewer advancement opportunities. Also, efficient application of the wage-peak system and a seniority-based retirement age system will bring a virtuous cycle of human resources. Nevertheless, it should be emphasized that logical and objective evaluation is the prerequisite for efficient application of a seniority-based retirement age system.