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Japan Update: Revision of the “Guidelines for Promotion of Side Work”
04/02/2021Amid a growing trend to promote side work, the Ministry of Health, Labour and Welfare (“MHLW”) revised the “Guidelines for Promotion of Side Work” (the “Guidelines”) on September 1, 2020. The Guidelines describe the methods for managing working hours and the approach on overtime work for side work, and are expected to have an impact on business practices. The following is an overview of the Guidelines, focusing on how to manage working hours.
1. Current Status of Side Work and Direction to Promote Side Work in Japan
（1） Current status of side work in Japan The number of people who wish to engage in side work is increasing as those individuals aim to increase their income, expand their field, and improve their abilities. Court cases indicate that, while employees have discretion as to how to use their non-working hours, companies may reasonably restrict the use of their employees’ non-working hours if an employee’s side work: (1) would hinder an employee from providing his/her labor; (2) would result in the leakage of confidential business information; (3) would harm the company’s interests if an employee works for a competitor; or (4) would damage the reputation or trust of the company, or the trust between the company and an employee.
(2） Direction from the MHLW to promote side work
The Guidelines state that: “In the society where people may live for 100 years, it is necessary to create an environment in which people can choose the way they want to work from an early age. In addition, from the perspective of society as a whole, side work is effective as a means of promoting open innovations and start-ups, and may also contribute to revitalization of rural areas from the perspective of making use of human resources from urban areas in rural areas.” The Guidelines further state that: “It is important to develop an environment in which employees can engage in a wide range of side works according to their wishes, including those in forms other than employment, while paying attention not to cause problems, including prolonged work, hindrance to the provision of labor services to companies, or leakage of business secrets.” Thus, MHLW intends to promote side work. In addition, the Guidelines describe some points to keep in mind in order to keep employees healthy and to prevent prolonged work. This newsletter contains an overview of the Guidelines, focusing on how to manage working hours, which may have an impact on companies.
2. Actions for Companies
(1） Basic ideas on whether to allow employees to engage in side work a. Importance of communication between labor and management The Guidelines stipulate that, in principle, allowing side work is appropriate. Further, the Guidelines state that if a company prohibits side work or requires its employees to obtain company approval to engage in a side work, then that company must examine whether the side work will interfere with the company’s operations, and if not, the company would be required to consider, in principle, allowing employees to engage in a side work during their non-working hours.
The Guidelines also stipulate that communication between labor and management is important so that the employee and employer are satisfied with the approach to side work.
However, the Guidelines do not obligate companies to allow side works. It is reasonably arguable that a company can prohibit its employees from engaging in a side work or require its employees to obtain permission to engage in a side work if the company determines that the side work will hinder the company’s business.
- Coordination with an employee’s fiduciary duty of loyalty An employee and his/her employer have concomitant obligations in accordance with the good-faith principle pursuant to Article 3, Paragraph 4 of the Labor Contracts Act. In handling issues of side work, employers and employees should be mindful of the coordination with: (1) the employer’s obligation to protect its employees’ safety; (2) the employee’s confidentiality obligation; (3) the employee’s non-competition obligation; and (4) the employee’s fiduciary duty of loyalty.
（2） Necessity to manage working hours on a combined basis and introduction of a “Management Model”
- Cases in which working hours are combined
When an employee works in more than one workplace for different employers, it is understood that the working hours must be managed by both employers on a combined basis (Article 38, Paragraph 1 of the LSA (the “LSA”)). Since an employer must manage its employees’ working hours, allowing side work will be a burden, which burden will presumably be addressed in future legislation. By contrast, the work-hours regulation is not applicable to an independent contractor or a person who is working under a delegation/service contract with a third person, so the working hours of the second work would not be combined with the working hours of the primary work (e.g., where an employee engages in a second work on a freelance basis). However, if work is conducted pursuant to an independent contractor arrangement, but the actual working conditions are not different from those of employees pursuant to an employment contract (known as disguised contracting or giso-ukeoi in Japanese), the LSA and other employment and labor-related laws and regulations will apply.
In order to ensure proper labor management, including confirmation of whether the working hours must be combined, an employer should establish a notification system or other measures in its rules of employment or other internal rules under which the employer will become aware of whether an employee has a side work and the details of that side work.
- Method of calculating working hours and treatment of overtime premium If an employee works at multiple work places for different employers, an employee’s combined working hours are calculated by totaling the number of hours of work for all employers based on reports from the employee. As shown in the table below, the calculation methods differ depending on whether the employee has actually started the side work.
| Method of adding up the working hours before an employee actually performs the side work ⇒ Adding the prescribed working hours of both employers | If the sum of: (i) the working hours prescribed by the employer prior to the start of the side work (the “First-Contracted Employer”); and (ii) the working hours prescribed by the employer for the side work (the “Second-Contracted Employer”) exceeds the statutory working hours (8 hours a day/40 hours a week; the “Working Hours Exceeding a Statutory Limit”), the excess hours are deemed to be overtime hours attributable to the Second-Contracted Employer |
| Treatment of the Non-scheduled Hours Worked actually incurred by an employee by engaging in side work after adding up the prescribed working hours as described above ⇒ Adding the overtime hours exceeding the prescribed working hours in order of occurrence | In addition, if the actual overtime work hours exceed the prescribed working hours (the “Non-scheduled Hours Worked”) for one employer, and the actual Non-scheduled Hours Worked for another employer, which is calculated in order of occurrence of overtime work, exceeds the statutory working hours, any excess hours are deemed to be overtime work attributable to the employer for which the Working Hours Exceeding a Statutory Limit was completed |
Each employer must maintain the total number of hours of overtime work within the limit of the LaborManagement Agreement Regarding Overtime Work and Work on Holidays (the “36 Agreement”).
In addition, each employer must manage working hours, so that the total number of overtime hours (including the working hours at another employer’s workplace) does not exceed a total of 100 hours per month, and an average of 80 hours per several months, including hours worked on holidays (Article 36, Paragraph 6, Items 2 and 3 of the LSA).
Each employer must pay the overtime premium for overtime hours worked at the employer’s workplace if the calculation reached by combining the working hours results in overtime work.
- Introduction of a “Management Model (Kanri-Model)”
Reporting and managing working hours on a combined basis using the calculation method described above would likely be burdensome for both the employer and employee where, for example, the employee often engage in side work, or Non-scheduled Hours Worked is expected to occur in both workplaces. Therefore, the Guidelines state that a simple method for managing working hours (the “Management Model”) may be used to facilitate compliance with the LSA. Under the Management Model, prior to the start of the side work, the Working Hours Exceeding a Statutory Limit at the First-Contracted Employer and the working hours of the Second-Contracted Employer are capped within the upper limit of overtime work (which must not exceed 100 hours per month and 80 hours on average per several months (Article 36, Paragraph 6, Items 2 and 3 of the LSA)), and the overtime premium must be paid for the overtime hours by each employer. This model ensures compliance with the LSA after the start of the side work, without having to track the working hours at a second employer’s workplace. In order to manage the working hours pursuant to the Management Model, the First-Contracted Employer must request that the employee and Second-Contracted Employer (via the employee) use the Management Model, and the employee and Second-Contracted Employer must accept the request.
（3） Health management
In accordance with the Industrial Safety and Health Act, employers are required to provide health checkups, face-to-face guidance by a doctor for employees with long working hours, stress checks, and follow-up measures based on the results of those stress checks. In addition, the Guidelines state that the following measures are appropriate to maintain the health of employees:
| Employer’s involvement in second work/side work | Appropriate measures to be taken |
| If an employee engages in side work under the direction of the employer | In principle, the employer is recommended to exchange information on the employee’s working hours with the second employer, or if exchanging information is difficult, the employer is recommended to ascertain an employee’s working hours at a second employer’s workplace based on reports from the employee and to take measures to maintain the employee’s health based on his/her total working hours on a combined basis. In order to implement effective measures to maintain the employee’s health, employers are recommended to exchange information regarding the details of the work, etc., with each other and discuss the measures to be taken to maintain the employee’s health based on the exchanged information. |
| If the employer permits its employees to engage in side work. | The employer is recommended to implement measures that contribute to the maintenance of the health of employees who engage in side work through discussions between labor and management, such as instructing employees on the self-management of their health, instructing employees to receive counseling whenever they feel physically or mentally ill, and providing methods to maintain the employee’s health beyond the statutory standard when necessary in light of the status of the side work. |
3. Other Systems Related to Side Work
In accordance with the trend to promote side work, the following systems have been established with respect to labor insurance (i.e., workers’ accident compensation insurance and unemployment insurance):
Workers’ accident compensation insurance | Workers’ accident compensation insurance for employees working for more than one employer is calculated by reference to the amount of wages paid by the employer that is not responsible for the injury. The responsibility for an industrial accident involving an employee working for more than one employer must be based on a comprehensive evaluation of the workload in all of the relevant workplaces. An accident suffered by an employee while commuting to the workplace of his/her second work shall be considered to be a commuting accident and the employee is eligible for workers’ accident compensation insurance |
Unemployment insurance | From January 2022, a system will be introduced on a trial basis to provide employment insurance by totaling the hours worked for two employers by an employee who is 65 years of age or older, even if he/she would not be eligible for employment insurance with respect to the employment relationship with one employer. |
4. Impact on Business Practice
Although the Guidelines are not legally binding, there is a growing trend to promote side work, and more employees are expected to wish to have a side work. Given the relatively complex nature of labor management for side work, companies should carefully consider whether to allow side work, and if side work is permitted, companies should prepare for the change by establishing adequate internal systems.
By Kensuke Otsuki and Sho Ando, Anderson Mori Tomotsune, Japan, a Transatlantic Law International Affiliated Firm.
For further information or for any assistance please contact japanlabor@transatlanticlaw.com
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