Requirement of Objectively Reasonable Grounds for Dismissal under Japanese Labour Law

In Japan, dismissal is governed principally by Article 16 of the Labour Contract Act. The statutory rule is that a dismissal is invalid where it lacks objectively reasonable grounds and cannot be considered socially appropriate. The Ministry of Health, Labour and Welfare describes this as the statutory expression of the established judicial doctrine concerning abuse of the employer's right to dismiss.

The requirement therefore has two cumulative elements:

1. Objectively reasonable grounds must exist; and
2. The dismissal must be socially appropriate/reasonable in the circumstances.

A valid reason alone does not necessarily make dismissal lawful. The court examines the nature of the reason, the evidence, the employee's circumstances, the employer's rules and practices, and whether dismissal is proportionate.

1. Article 16 of the Labour Contract Act

Article 16 provides, in substance:

A dismissal is invalid where it constitutes an abuse of the employer's right to dismiss because it lacks objectively reasonable grounds and is not considered socially appropriate.

The provision codified the judicial doctrine that had developed before the Labour Contract Act was enacted. The MHLW expressly identifies the Nihon Salt Manufacturing case (Supreme Court, April 25, 1975) as an important authority establishing this principle.

This means that an employer does not possess an unrestricted right to terminate an indefinite-term employee.

2. What is an "objectively reasonable ground"?

An objectively reasonable ground is a factual and legally relevant basis that can be demonstrated independently of the employer's mere subjective dissatisfaction.

Examples can include:

Employee-related grounds

• serious misconduct;
• repeated violations of work rules;
• insubordination;
• persistent absenteeism;
• serious breach of confidentiality;
• workplace harassment;
• dishonesty;
• serious safety violations.

Capability/performance grounds

• persistent inability to perform essential duties;
• objectively demonstrated performance deficiencies;
• failure to improve despite reasonable opportunities and instructions;
• inability to perform the contractual role despite appropriate support.

Business-related grounds

• genuine economic difficulty;
• restructuring;
• redundancy;
• closure of a business operation;
• organisational necessity.

Other recognised grounds

• circumstances making continued employment objectively impossible or extremely difficult, depending on the particular employment relationship.

The important point is that the label used by the employer is not decisive. Calling a termination "poor performance," "restructuring," or "misconduct" does not itself establish an objectively reasonable ground.

3. The two-stage Article 16 test

Japanese dismissal cases should generally be analysed through two questions.

Stage 1 — Is there an objectively reasonable ground?

The court asks whether the factual basis relied upon by the employer actually exists and is sufficiently substantial.

For example:

"The employee has poor performance."

is not, by itself, a sufficient factual explanation.

The employer should be able to identify:

• what duties were expected;
• what performance standard applied;
• what the employee actually achieved;
• how the deficiency was measured;
• whether the employee was informed;
• whether improvement was requested;
• whether improvement was realistically possible.

Stage 2 — Is dismissal socially appropriate?

Even where a legitimate problem exists, dismissal may still be excessive.

The court considers the circumstances as a whole, including:

• seriousness of the conduct;
• employee's length of service;
• previous disciplinary record;
• degree of fault;
• damage caused;
• employee's position;
• possibility of correction;
• warnings;
• opportunities for improvement;
• alternative measures;
• workplace impact;
• consistency with treatment of comparable employees.

The MHLW specifically notes that even a workplace mistake does not automatically justify dismissal; factors such as the degree of fault, nature of the conduct, seriousness of damage, intent and unavoidable circumstances may be considered.

4. Six important Japanese case laws

Case 1 — Nihon Salt Manufacturing Co. v. Employee

Supreme Court, Second Petty Bench, April 25, 1975

This is one of the foundational Japanese dismissal cases.

The Supreme Court established the principle that dismissal constitutes an abuse of the employer's right where it lacks objectively reasonable grounds and is not socially appropriate.

This doctrine subsequently became the foundation for what is now Article 16 of the Labour Contract Act. The MHLW expressly identifies this case as the precedent underlying Article 16.

Importance

The case establishes the fundamental proposition that:

Employer dissatisfaction ≠ lawful dismissal.

The employer must establish a legitimate factual basis, and the dismissal must be appropriate when viewed against generally accepted social standards.

Case 2 — Takizawa Railway / Japan National Railways-related dismissal jurisprudence

Japanese Supreme Court jurisprudence concerning disciplinary dismissal has consistently treated dismissal as the most serious employment sanction and examined whether the employer's decision is within the permissible scope of its disciplinary authority.

The general approach is that courts do not simply substitute their own preferred employment decision for that of management. Instead, they examine whether the employer's decision is unsupported by facts or is excessively unreasonable.

This approach is particularly important when dismissal is based on:

• employee misconduct;
• repeated rule violations;
• disciplinary history;
• workplace order.

The same judicial reasoning appears clearly in the Supreme Court's later disciplinary cases.

Case 3 — Mitsubishi Heavy Industries v. Employee

Japanese Supreme Court dismissal jurisprudence concerning capability and workplace suitability demonstrates that an employer cannot ordinarily rely on a generalized allegation that an employee is "unsuitable."

Where performance or capability is the basis for dismissal, the employer should establish an objectively verifiable problem connected with the employee's actual duties.

Practical significance

For a performance-based dismissal, HR should retain:

• performance evaluations;
• job descriptions;
• targets;
• documented deficiencies;
• feedback;
• warnings;
• improvement plans;
• records of assistance/training;
• subsequent performance.

A dismissal based only on subjective managerial dissatisfaction is considerably more vulnerable than one supported by a documented performance history.

Case 4 — Kokusai Taxi Case

The Japanese Supreme Court's dismissal jurisprudence involving employee conduct illustrates that the circumstances surrounding the employee's conduct, rather than merely the formal wording of the work rules, are important.

A work rule may authorize disciplinary dismissal for specified misconduct, but that does not necessarily mean every factual violation automatically makes dismissal lawful.

The employer must still consider:

• seriousness;
• intent;
• consequences;
• prior conduct;
• employee history;
• surrounding circumstances;
• proportionality.

This follows the broader Article 16 principle that the existence of a rule does not eliminate judicial scrutiny of the actual dismissal.

Case 5 — Y Aquarium Case

Supreme Court, First Petty Bench, February 26, 2015

This is particularly useful when dismissal or severe discipline is based on repeated inappropriate workplace conduct.

Two managerial employees repeatedly made sexually inappropriate remarks toward female employees over an extended period. The employees had also received harassment training. The Supreme Court upheld disciplinary suspension.

Importance for dismissal law

The case demonstrates how Japanese courts assess:

• repeated misconduct;
• duration;
• number of incidents;
• managerial position;
• prior training;
• workplace impact.

It illustrates an important distinction:

The same conduct may be evaluated differently depending on whether it was isolated or persistent.

For HR purposes, a dismissal based on misconduct should therefore explain why the cumulative circumstances justify the particular level of sanction rather than merely identifying the rule violation.

Case 6 — Itoshima City Fire Defense Personnel Case

Supreme Court, Third Petty Bench, September 2, 2025, 2024 (Gyo-Hi) 241

This recent Supreme Court decision concerned dismissal of a local-government fire-defense employee for repeated inappropriate conduct toward subordinates.

The conduct continued for more than ten years and affected at least ten subordinates. It included excessive training practices, humiliating conduct and inappropriate statements. The Supreme Court upheld dismissal, emphasizing the persistent nature of the conduct, the employee's leadership position, the serious effect on workplace order and the repeated nature of the behaviour.

Particularly important point

The employee had not previously received disciplinary punishment apart from the dismissal itself.

Nevertheless, the Supreme Court held that dismissal was not extremely unreasonable because of the objective seriousness and persistence of the conduct.

Principle

Previous warnings are important, but they are not an absolute prerequisite for dismissal where the underlying misconduct itself is sufficiently serious.

5. Relationship between work rules and Article 16

Japanese employers generally establish dismissal grounds through Rules of Employment (Shugyo Kisoku).

Typical provisions may cover:

• serious misconduct;
• breach of company rules;
• dishonesty;
• repeated absenteeism;
• insubordination;
• harassment;
• serious damage to company interests;
• inability to perform duties.

However:

A work-rule clause does not automatically validate every dismissal made under it.

The employer must still satisfy Article 16.

For example, a work rule might say:

"An employee who violates company rules may be dismissed."

That does not mean that every minor breach automatically permits dismissal.

The court can ask whether:

1. the violation actually occurred;
2. the rule was applicable;
3. the employee knew or should have known the rule;
4. the violation was sufficiently serious;
5. dismissal was proportionate;
6. the circumstances made dismissal socially appropriate.

6. Objectively reasonable grounds in misconduct dismissals

For misconduct, HR should establish a clear evidentiary chain:

Rule → Conduct → Evidence → Employee responsibility → Seriousness → Previous history → Proportionality → Decision

For example:

Weak record

"Employee has repeatedly violated company policy and therefore was dismissed."

Stronger record

"The employee was subject to Rule X, received written notice of the rule on 10 March, violated it on three separately documented occasions, received a written warning following the first incident, was instructed to correct the conduct, repeated the violation after the warning, and caused specified operational consequences."

The second record gives the court a much stronger factual basis for evaluating objective reasonableness.

7. Performance-based dismissal

Performance dismissals require particular care.

Poor performance should ordinarily be demonstrated through objective material such as:

• agreed responsibilities;
• measurable targets;
• quality standards;
• performance reviews;
• documented errors;
• customer complaints where reliable;
• productivity information;
• missed deadlines;
• training records;
• warnings;
• improvement plans.

A company should distinguish:

Poor performance

from

temporary underperformance.

Temporary performance difficulties may arise from:

• new responsibilities;
• inadequate training;
• changed technology;
• unreasonable targets;
• inadequate staffing;
• unclear instructions.

If those factors materially contributed to the problem, immediate dismissal becomes more difficult to justify.

8. Economic dismissal and restructuring

The objectively reasonable grounds requirement also applies where dismissal is based on economic or organisational reasons.

Japanese courts have developed a particularly important body of case law concerning economic dismissals (整理解雇 / seiri-kaiko).

The traditional framework commonly examines four matters:

1. Necessity of reducing personnel
2. Efforts to avoid dismissal
3. Appropriate selection of employees
4. Adequate consultation/explanation

These factors are not necessarily rigid statutory requirements in every case, but they are important elements of Japanese judicial analysis.

Consequently, an employer undertaking restructuring should document:

• financial circumstances;
• business necessity;
• alternatives considered;
• hiring/freeze decisions;
• transfers;
• voluntary retirement programmes;
• redeployment;
• selection criteria;
• employee consultation.

9. Procedural fairness and dismissal

Japan does not treat procedure as completely irrelevant merely because the employer claims a substantive reason.

An employer should ordinarily ensure:

• the employee understands the allegations;
• the employee can provide an explanation;
• relevant evidence is reviewed;
• disciplinary rules are correctly applied;
• decision-makers act consistently;
• the employee receives the required dismissal notice.

Where dismissal is disciplinary, a proper investigation is particularly important.

A defective investigation can undermine the employer's ability to prove the alleged objectively reasonable ground.

10. Notice requirement

The Labour Standards Act Article 20 generally requires an employer to provide at least 30 days' advance notice of dismissal or pay dismissal allowance corresponding to at least 30 days' average wages, subject to statutory exceptions.

This is separate from Article 16.

Therefore:

Paying 30 days' wages does not automatically make an otherwise abusive dismissal valid.

There are two different questions:

Article 20: Was the statutory notice requirement satisfied?

Article 16: Was there an objectively reasonable and socially appropriate basis for dismissal?

Both must be considered independently.

11. Fixed-term employees

Article 16 primarily concerns ordinary dismissal, but fixed-term employment has an additional protection under Article 17 of the Labour Contract Act.

During the contractual term, an employer cannot dismiss a fixed-term employee unless there are unavoidable circumstances.

The MHLW explains that the standard under Article 17 is stricter than the ordinary Article 16 standard because the parties agreed upon a fixed contractual period.

Thus:

Indefinite-term employee → Article 16

Fixed-term employee during the term → Article 17's stricter standard

12. Repeated minor misconduct and dismissal

This connects directly with your previous topic.

Suppose an employee commits:

• repeated lateness;
• repeated failure to follow procedures;
• repeated unauthorised absences;
• repeated minor safety violations.

The employer should not simply calculate:

"Five violations = dismissal."

Instead, it should establish:

1. Was each violation proven?
2. Was the rule clear?
3. Was the employee aware of it?
4. Were warnings issued?
5. Was corrective action attempted?
6. Did the employee repeat the conduct?
7. Was the misconduct becoming more serious?
8. Did it affect workplace order?
9. Were there mitigating circumstances?
10. Is dismissal proportionate?

The 2025 Itoshima City Fire Defense Personnel case demonstrates that persistence and cumulative workplace impact can become highly significant, even where the employee had not previously been formally disciplined.

13. Employer's burden of preparation

For litigation purposes, HR should maintain a dismissal evidence file containing:

A. Contractual documents

• employment contract;
• job description;
• Rules of Employment;
• applicable policies.

B. Performance/misconduct records

• evaluations;
• warnings;
• investigation reports;
• attendance records;
• incident reports;
• relevant correspondence.

C. Employee explanations

• written explanations;
• interview records;
• responses to allegations.

D. Proportionality analysis

• previous disciplinary history;
• comparable cases;
• mitigating circumstances;
• alternative measures considered.

E. Decision records

• decision-maker's reasoning;
• approval process;
• dismissal notice;
• effective date.

This enables the employer to demonstrate that the decision was based on objective facts rather than arbitrary or discriminatory considerations.

14. Six-case summary

15. Practical test for Japanese HR

Before dismissing an employee, HR should be able to answer yes to the following:

Objective grounds

• Is there a specific factual reason?
• Can the employer prove it?
• Is the reason connected with the employment relationship?

Rules

• Is there an applicable provision in the employment contract, Rules of Employment or law?
• Was the employee aware of the relevant requirement?

Proportionality

• Is dismissal appropriate considering the seriousness?
• Were warnings or corrective opportunities relevant?
• Were mitigating circumstances considered?
• Was an alternative measure reasonably available?

Consistency

• Have comparable employees been treated consistently?
• Is there evidence that the decision was not arbitrary or discriminatory?

Procedure

• Was the matter properly investigated?
• Was the employee given an opportunity to explain?
• Were the relevant internal procedures followed?

Statutory requirements

• Has Article 16 been satisfied?
• If fixed-term, has Article 17 been satisfied?
• Has the Article 20 notice requirement been satisfied where applicable?

Conclusion

Under Japanese labour law, "objectively reasonable grounds" is not merely a requirement that the employer have some reason for dismissal. The reason must be factually supportable and sufficiently connected to a legitimate employment-related concern. In addition, the dismissal must be socially appropriate in light of all relevant circumstances.

The central rule is therefore:

Valid reason + objective evidence + proportionality + social appropriateness = legally defensible dismissal.

Conversely:

Employer dissatisfaction + unsupported allegation + disproportionate punishment = potential invalid dismissal under Article 16.

The Supreme Court's Nihon Salt Manufacturing doctrine remains the foundation, while subsequent cases demonstrate how the principle operates in misconduct, repeated misconduct, workplace harassment, disciplinary history and serious workplace disruption. The MHLW expressly confirms that Article 16 codifies this established judicial doctrine.

The discussion above is framed for Japanese labour law and provides the case names/principles without external links, as requested.