Selection Criteria for Redundancy under Japanese Labour Law

In Japan, selection criteria for redundancy (整理解雇 / seiri kaiko) are an important part of the judicial assessment of an economic dismissal. Japanese law does not prescribe a single statutory “last in, first out” rule or a mandatory point system for deciding which employees must be dismissed. Instead, courts examine whether the employer used objective and reasonable criteria and applied them fairly, as part of the broader rules governing dismissal under Article 16 of the Labour Contract Act.

The four established considerations for economic dismissal are generally:

1. Necessity of workforce reduction
2. Efforts to avoid dismissal
3. Reasonableness and fairness of employee selection
4. Adequacy of the dismissal procedure and consultation

The third factor is the particular focus when analysing selection criteria.

1. Meaning of selection criteria for redundancy

Selection criteria are the standards an employer uses to determine which employees will be retained and which employees will be subject to redundancy dismissal.

Examples can include:

• skills and qualifications;
• ability to perform remaining jobs;
• performance;
• disciplinary record;
• attendance record, subject to legally protected absences;
• adaptability to organisational changes;
• length of service;
• age;
• employment status;
• family responsibilities;
• redundancy of a particular position or function;
• difficulty of reassignment;
• contribution to remaining business operations.

Japanese law does not establish a universal statutory priority such as “last hired, first dismissed.” The employer therefore has some discretion, but the criteria must be capable of being objectively justified and fairly applied.

2. Article 16 of the Labour Contract Act

Article 16 provides the fundamental Japanese dismissal standard:

A dismissal is invalid where it lacks objectively reasonable grounds and cannot be considered reasonable under socially accepted norms.

Economic redundancy is therefore not automatically lawful merely because the company has suffered financial difficulties.

The employer must demonstrate that the redundancy dismissal satisfies the judicial standards developed around Article 16. The Japanese Ministry of Health, Labour and Welfare expressly identifies “reasonableness of selection” as one of the matters considered in determining the validity of an economic dismissal.

3. Objective and reasonable criteria

The employer should be able to answer:

Why were these particular employees selected rather than other employees who could also have been dismissed?

A defensible selection system should therefore have:

• predetermined criteria;
• a legitimate connection with the restructuring objective;
• measurable or verifiable factors;
• consistent application;
• appropriate documentation;
• review mechanisms; and
• safeguards against discriminatory or retaliatory selection.

For example, if a company closes a particular production line, selecting employees whose positions genuinely disappear can be easier to justify than selecting employees based on an unexplained subjective assessment of “loyalty.”

4. Common permissible selection factors

A. Redundancy of the position

Where an entire function or department is genuinely eliminated, employees occupying positions that no longer exist may form an identifiable selection group.

However, the employer should examine whether affected employees can reasonably be transferred to other available positions.

B. Skills and qualifications

Employers may consider:

• technical qualifications;
• professional licences;
• specialised skills;
• ability to operate remaining systems;
• language skills where genuinely required;
• ability to perform redesigned roles.

The criterion should relate to the future business structure, rather than merely being a convenient justification for removing particular employees.

C. Performance

Performance may be relevant where the employer can demonstrate:

• established appraisal standards;
• consistent evaluation;
• objective evidence;
• comparable treatment among employees; and
• a genuine connection between performance and the restructuring.

A newly created performance score immediately before dismissal is much more vulnerable to challenge than a documented performance system applied consistently over several years.

D. Disciplinary record

Past misconduct can sometimes be considered, but redundancy should not be converted into a disguised disciplinary dismissal.

If an employee is actually being dismissed because of misconduct, the employer should normally address the matter through the appropriate disciplinary framework.

E. Attendance

Attendance can potentially be relevant, and Japanese cases have considered attendance-related factors. However, employers must distinguish ordinary attendance problems from legally protected absences, such as statutory leave or absences connected with protected rights.

F. Length of service

Seniority can be considered, but Japanese law does not automatically require either “last in, first out” or “first in, first out.”

Length of service may be relevant as one factor in a broader selection methodology.

G. Family or economic circumstances

Japanese redundancy jurisprudence has recognised that the social consequences for employees can be relevant to selection. Factors such as whether an employee has dependants may therefore appear in some historical cases.

But employers should be cautious about using personal circumstances as a mechanical scoring system.

5. Criteria must be connected to the restructuring objective

A key distinction is between:

legitimate restructuring criteria

and

personal reasons disguised as restructuring criteria.

For example:

“Employees whose positions disappear as a result of the closure of Department A.”

has an obvious connection with restructuring.

By contrast:

“Employees who management considers insufficiently cooperative.”

requires much greater scrutiny because it can resemble an individual disciplinary or performance assessment rather than a genuine workforce-reduction criterion.

6. Fair application of the criteria

Even a reasonable criterion can become problematic if it is applied selectively.

Suppose the employer establishes:

• 40% performance;
• 30% skills;
• 20% attendance;
• 10% length of service.

The employer should then apply the same methodology to employees within the relevant comparison group.

It should not:

1. establish the criteria;
2. identify preferred employees;
3. manipulate scores to reach the desired result.

The process used to apply the criteria is therefore as important as the criteria themselves.

The Ministry of Health, Labour and Welfare specifically refers to the requirement that the selection criteria be objective and reasonable and that their application be fair.

7. No general Japanese statutory “LIFO” rule

Unlike jurisdictions where legislation may prescribe priority rules, Japan does not impose a general statutory requirement that employers select employees according to:

• last-in-first-out;
• age;
• seniority;
• family status; or
• a prescribed social-point system.

The ILO's current country information likewise notes that there is no statutory rule requiring particular priority criteria for economic collective dismissals. Instead, established case law requires reasonable and objective selection criteria.

This gives employers flexibility, but it also means that the employer must be prepared to explain why its particular criteria were reasonable.

8. Protected characteristics and discriminatory selection

Selection criteria must also be consistent with Japanese anti-discrimination and employment-protection legislation.

Particular care should be taken where redundancy disproportionately targets employees because of:

• sex;
• pregnancy or childbirth;
• childcare leave;
• family-care leave;
• union activity;
• legally protected complaints;
• exercise of statutory labour rights.

A redundancy programme should therefore be independently reviewed for discriminatory or retaliatory patterns.

9. Relationship with work rules

Japanese employers should examine:

• employment contracts;
• rules of employment;
• collective bargaining agreements;
• personnel regulations;
• redundancy policies;
• appraisal policies;
• seniority rules; and
• established employment practices.

If a collective agreement contains consultation or selection requirements, the employer should comply with those provisions.

A selection system that contradicts an applicable collective agreement or established employment rule creates additional litigation risk.

10. Six important Japanese case laws

1. Omura Nogami Co. Case

Nagasaki District Court, Omura Branch, 24 December 1975

This is one of the foundational Japanese economic-dismissal cases.

The employer selected workers using criteria including:

• attendance;
• work ability;
• cooperation;
• whether the worker had another household income.

The court scrutinised the necessity for the workforce reduction, the employer's failure to explore alternatives, consultation, and the selection methodology.

The case is particularly important because it illustrates the principle that selection criteria must be objective and reasonable rather than simply reflecting management preference.

Principle: A redundancy selection system must form part of a rational restructuring process.

2. Nissan Motor Co. Case

The Nissan Motor litigation is an important example of Japanese economic-dismissal jurisprudence concerning workforce reduction and selection criteria.

The employer developed specific personnel-reduction standards, including factors relating to:

• workplace discipline;
• cooperation;
• work performance;
• skill;
• absence;
• attendance;
• reassignment difficulty; and
• availability of suitable work following business contraction.

The case illustrates that a relatively detailed selection matrix can be considered where the criteria have a rational connection with the employer's restructuring needs.

Principle: Selection criteria can legitimately include multiple factors, provided they are rationally connected to the workforce-reduction objective.

3. Asahi Nursery School Case

Supreme Court, 27 October 1983

The Asahi Nursery School case is frequently cited in Japanese labour-law materials concerning economic dismissal.

It is associated with the broader four-factor framework requiring examination of:

• necessity;
• avoidance efforts;
• reasonable employee selection; and
• procedural fairness.

Japanese labour authorities identify Asahi Nursery School among the important precedents supporting the four requirements for economic dismissal.

Principle: Employee selection cannot be considered independently from the employer's overall restructuring process.

4. Nakamoto v. Nissan Motor Co.

Tokyo High Court, 12 March 1979

This case is included in Japanese empirical studies of economic-dismissal judgments and illustrates judicial scrutiny of workforce-adjustment decisions.

It is useful for understanding that a redundancy decision is not insulated from judicial review simply because management asserts a business restructuring rationale.

Principle: The employer's stated restructuring rationale and the actual implementation of selection can both be examined.

5. Abe v. British Airways

Tokyo District Court, 29 November 1979

This case is another reported example in the body of Japanese adjustment-dismissal jurisprudence. It is particularly useful when studying how Japanese courts assessed economic dismissals during the development of the four-factor framework.

Principle: The legality of redundancy must be assessed through the concrete circumstances surrounding the workforce reduction, including the employer's selection process.

6. Shimazaki v. Toyo Oxygen

Tokyo District Court, 29 October 1979

This case is also identified in research examining Japanese judicial decisions on adjustment dismissals during the development of the modern redundancy doctrine.

Principle: Courts examine the employer's actual restructuring circumstances and the manner in which the dismissal decision was implemented rather than accepting the employer's description of the redundancy at face value.

11. Four-factor framework and selection

The selection criterion cannot be isolated from the other three requirements.

Japanese government guidance expressly describes these four areas when assessing restructuring dismissals.

12. Recommended redundancy selection matrix

A Japanese employer could use a matrix such as:

The weighting should be established before individual employees are selected, where possible.

13. Documentation is critical

The employer should preserve:

• board/management restructuring decisions;
• financial and operational evidence;
• organisational charts before and after restructuring;
• number of positions to be eliminated;
• selection criteria;
• scoring methodology;
• employee scores;
• comparator information;
• reassignment analysis;
• voluntary-retirement results;
• consultation records;
• union communications;
• employee explanations; and
• final decision records.

This is especially important because, in dismissal disputes, the employer bears the evidentiary burden concerning the justification for dismissal.

14. Criteria that create significant risk

Employers should be cautious with criteria such as:

• “employee is not liked by management”;
• “poor cultural fit” without objective definition;
• “insufficient loyalty”;
• “likely to resign anyway”;
• “high salary” as the sole criterion;
• age as an automatic selection rule;
• pregnancy or family responsibilities;
• union membership or activity;
• having complained about workplace misconduct;
• having exercised statutory leave;
• subjective “attitude” scores without supporting evidence.

These criteria can make it difficult to demonstrate objective, rational and fair selection.

15. Practical example

Suppose a Japanese company needs to eliminate 20 positions from a department containing 60 employees.

A defensible process might be:

Step 1: Identify the 20 positions that genuinely disappear.

Step 2: Determine whether affected employees can be reassigned.

Step 3: Establish selection criteria before final individual decisions.

Step 4: Use objective evidence concerning skills, future-role requirements, performance and reassignment possibilities.

Step 5: Exclude legally protected characteristics and protected absences from inappropriate use as selection factors.

Step 6: Apply the criteria consistently.

Step 7: Conduct a discrimination/retaliation review.

Step 8: Document the reasons for each selection.

Step 9: Consult the relevant union or employees as required.

Step 10: Reconsider the selections if the consultation reveals factual errors or inconsistent application.

Conclusion

Under Japanese labour law, selection criteria for redundancy must be objective, reasonable and fairly applied. There is no general statutory rule requiring “last in, first out,” and employers have some discretion in designing selection criteria. However, that discretion operates within the broader Article 16 dismissal standard and the established four-factor framework for economic dismissals.

The strongest approach is therefore to:

1. define the restructuring objective first;
2. identify the relevant employee comparison group;
3. establish objective criteria before selecting individuals;
4. connect each criterion to the future business structure;
5. apply the same criteria consistently;
6. exclude discriminatory or retaliatory considerations;
7. document the evidence supporting each selection; and
8. consult employees or unions appropriately.

Most importantly, Japanese courts do not treat the employer's selection criteria as valid merely because they have been written into an internal policy. The criteria, their rational connection to the restructuring, and their actual application can all be scrutinised.