Competition Law and Antitrust Implications of Ecosystem Exclusion Mechanisms

1. Meaning

Japanese employment contracts are broadly divided into indefinite-term employment contracts (無期労働契約) and fixed-term employment contracts (有期労働契約).

Indefinite-term contract

An indefinite-term contract has no predetermined end date. The employment continues until it is terminated by resignation, dismissal, retirement, mutual agreement, or another legally recognized ground.

Fixed-term contract

A fixed-term contract specifies a definite period, such as:

• 6 months;
• 1 year;
• 2 years.

The contract ordinarily ends when the agreed term expires unless it is renewed or otherwise converted into an indefinite-term contract.

2. Main Difference

3. Fixed-Term Contracts Under Japanese Law

A fixed-term employment contract is governed particularly by the Labour Contract Act.

Maximum contract period

As a general rule, a fixed-term employment contract cannot exceed three years.

For certain workers, including workers with specialized knowledge and workers aged 60 or over, the maximum can generally be five years, subject to statutory conditions.

Employers cannot simply use repeated fixed-term contracts to avoid employment protections.

4. Restrictions on Early Termination

A major difference is that an employer ordinarily cannot terminate a fixed-term contract before its expiry merely because it wants to end the employment.

Under Article 17 of the Labour Contract Act, dismissal during the contract period requires unavoidable circumstances.

Therefore:

Fixed-term contract + employer wants early termination ≠ automatically valid termination.

The circumstances must meet the statutory standard.

5. Non-Renewal at the End of a Fixed Term

Expiry and dismissal are legally distinct.

Normally, a fixed-term contract ends when its agreed period expires. However, Article 19 of the Labour Contract Act places restrictions on refusing renewal in certain circumstances.

Article 19 applies where, among other things:

1. The fixed-term contract has effectively been repeatedly renewed and its non-renewal is substantially equivalent to dismissal; or
2. The employee has a reasonable expectation that the contract will be renewed.

If the employer's refusal to renew lacks objectively reasonable grounds and is socially acceptable, the employer may be treated as having accepted the employee's application for renewal on the same conditions.

6. Indefinite-Term Conversion — Article 18

One of the most important protections for fixed-term workers is the indefinite-term conversion rule.

Where a fixed-term employment contract has been repeatedly renewed and the total contract period exceeds five years, the employee can generally make an application for conversion to an indefinite-term employment contract.

The conversion takes effect when the fixed-term contract expires after the employee makes the application.

Example

Suppose:

• Year 1 → 1-year contract
• Year 2 → renewed
• Year 3 → renewed
• Year 4 → renewed
• Year 5 → renewed
• Year 6 → employee reaches the statutory five-year threshold

The employee may exercise the right to request conversion to an indefinite-term contract.

7. Six Important Case Laws

1. Toshiba Yanagi-machi Factory Case

Supreme Court, 22 July 1974

This is one of Japan's most important cases concerning non-renewal of fixed-term employment.

The employee had been employed under successive fixed-term contracts. Although each contract formally had an expiry date, the repeated renewals created circumstances in which the employment relationship could not simply be treated as ending automatically.

Principle

The Supreme Court recognized that where fixed-term contracts have repeatedly been renewed and the employee has developed a reasonable expectation of continued employment, refusal to renew may be subject to judicial scrutiny.

Importance

This case became a foundation for the later statutory protection concerning fixed-term contract renewal and is closely connected with what is now Article 19 of the Labour Contract Act.

2. Hitachi Medico Case

Supreme Court, 28 December 1986

This case concerned a fixed-term employee whose contract was repeatedly renewed.

Principle

The Supreme Court distinguished between:

• a genuine fixed-term relationship where the parties clearly intended employment to end at expiry; and
• a situation where repeated renewals and surrounding circumstances created a reasonable expectation of continuation.

Where an employee has a reasonable expectation of renewal, the employer's refusal to renew cannot necessarily be treated as an ordinary automatic expiry.

Importance

The case is important for determining whether non-renewal is legally equivalent in substance to dismissal.

3. Kokusai Kogyo Case

Supreme Court, 20 June 1986

The Supreme Court examined circumstances surrounding fixed-term employment and the employer's decision not to continue the employment relationship.

Principle

The courts look beyond the mere wording of the contract. Relevant factors can include:

• number of previous renewals;
• length of employment;
• employer's conduct;
• explanations given to employees;
• expectations created by the employer;
• nature of the work; and
• circumstances surrounding non-renewal.

Importance

A company therefore cannot necessarily rely on the words "fixed-term contract" alone when determining whether non-renewal is legally permissible.

4. Maruko Keihoku Case

Supreme Court, 12 February 1986

The case concerned repeated fixed-term employment and the legal consequences of the employer's decision not to renew.

Principle

The court considered the actual circumstances of the employment relationship rather than relying exclusively on the formal expiration date.

Importance

It demonstrates that Japanese courts examine the substance and practical reality of repeated fixed-term employment.

Factors such as the employer's previous renewal practices and the employee's expectation of continued employment may become important.

5. Kobe Hirohata Steel Case

Supreme Court, 16 March 1979

This case is significant for the distinction between expiry of a fixed-term contract and dismissal.

Principle

Where the parties genuinely agree that employment will last only for a specified period, expiry of that period is different from an employer's unilateral dismissal during an indefinite employment relationship.

However, where the fixed-term arrangement has been repeatedly renewed or circumstances indicate an expectation of continuation, the legal analysis becomes more complicated.

Importance

The case helps illustrate why fixed-term employment cannot be analyzed solely by asking whether a date appears on the contract.

6. Nissan Motor Co. Case

Supreme Court, 13 December 1985

The Supreme Court examined the relationship between employment rules, contractual terms and termination.

Principle

The legal effect of an employment arrangement depends on the terms agreed between the parties together with applicable employment rules and statutory protections.

For fixed-term workers, this reinforces the importance of examining:

• the actual contract;
• renewal provisions;
• work rules;
• renewal practices; and
• applicable statutory restrictions.

Importance

It demonstrates that the contractual structure must be assessed together with the surrounding employment relationship.

8. Indefinite-Term Contract and Dismissal

Indefinite employment does not mean that an employee can never be dismissed.

However, Article 16 of the Labour Contract Act provides a strong restriction.

A dismissal is invalid where it:

• lacks objectively reasonable grounds; or
• is not considered socially acceptable in light of the circumstances.

This is commonly referred to as the abuse of dismissal rights doctrine.

Thus:

Indefinite contract → dismissal requires legally sufficient justification.

9. Fixed-Term Contract and Indefinite Contract: Practical Example

Employee A — Indefinite

A company hires A without an end date.

After three years, the company decides that it simply does not want A anymore.

The employer cannot ordinarily terminate A merely by saying:

"Your employment has ended."

It must satisfy the legal requirements governing dismissal.

Employee B — Fixed-term

B receives a one-year contract from April 2026 to March 2027.

In March 2027, the employer decides not to renew.

The starting point is different because the agreed period has expired. However, if B had worked for many years through repeated renewals and had a reasonable expectation of renewal, Article 19 may restrict the employer's non-renewal.

10. Difference Between Dismissal and Non-Renewal

This distinction is extremely important.

Indefinite employee

Employer wants to end employment → dismissal.

Fixed-term employee

Contract reaches agreed end date → expiry/non-renewal.

But Japanese law recognizes that repeated fixed-term contracts can sometimes make non-renewal functionally similar to dismissal.

Therefore, courts examine the actual employment relationship.

11. Equal Treatment of Fixed-Term Workers

Japanese law also provides protections against unreasonable differences in working conditions between:

• fixed-term employees; and
• indefinite-term employees.

The relevant framework is particularly found in the Part-Time and Fixed-Term Work Act.

Differences may concern matters such as:

• wages;
• bonuses;
• allowances;
• welfare benefits;
• leave;
• working conditions.

The legality of a difference depends on the nature and purpose of the particular treatment and the circumstances of the workers.

12. Advantages and Risks

Indefinite-Term Employment

Employee perspective:

• Greater employment continuity;
• stronger protection against dismissal;
• no contractual expiry date.

Employer perspective:

• Greater long-term workforce stability;
• greater flexibility problems when attempting to terminate employment.

Fixed-Term Employment

Employee perspective:

• Clear contractual duration;
• potentially useful for project-based employment;
• possibility of Article 18 conversion after the statutory threshold.

Employer perspective:

• Useful for genuinely temporary/project-based work;
• contract expiry can provide a defined employment period;
• but repeated renewals may create Article 19 issues;
• early termination is subject to Article 17's stricter standard.

13. Key Legal Principles

The Japanese system can therefore be summarized as follows:

Indefinite contract
→ no predetermined expiry
→ dismissal controlled by Article 16.

Fixed-term contract
→ predetermined expiry
→ early termination controlled by Article 17
→ non-renewal potentially controlled by Article 19
→ conversion to indefinite employment potentially available under Article 18.

Overall conclusion

Japanese law does not treat the label "fixed-term" as automatically decisive. The court may consider the number of renewals, duration of employment, employer's conduct, employee's expectation, contractual language and surrounding circumstances.

The leading Toshiba Yanagi-machi and Hitachi Medico decisions established important principles concerning repeated renewals and reasonable expectations, which were subsequently reflected in the statutory framework governing fixed-term employment.