Selection Criteria in Redundancies under Japanese Labour Law

In Japan, selection criteria for redundancy (整理解雇における人選基準) are a central part of the judicial review of an economic dismissal. Japanese law does not generally permit an employer simply to choose whichever employees it prefers when reducing headcount. Under Article 16 of the Labour Contract Act, a dismissal lacking objectively reasonable grounds and social appropriateness is treated as an abuse of the right to dismiss and is invalid. For redundancies, courts traditionally examine four interconnected matters, including the reasonableness of the selection of employees.

The four areas are:

1. necessity for workforce reduction;
2. efforts to avoid dismissal;
3. reasonable selection of employees; and
4. appropriateness of the procedure, including explanation and consultation.

The Japanese Ministry of Health, Labour and Welfare specifically describes the selection criterion as needing to be objective and reasonable, with fair application of the criterion.

1. Meaning of "selection criteria"

Selection criteria are the predetermined standards used to decide which employees will actually be dismissed after the employer determines that a workforce reduction is necessary.

Examples may include:

• redundancy of a particular position;
• closure of a particular department;
• skills required for the continuing business;
• employee qualifications;
• objective performance records;
• attendance records, where appropriately constructed;
• length of service;
• age, in circumstances where its use is legally defensible;
• employment costs;
• ability to perform remaining work;
• disciplinary or work records, where genuinely relevant; and
• voluntary-selection criteria.

The crucial issue is not simply whether a criterion can be written down. The employer must be able to demonstrate that the criterion has a reasonable relationship with the restructuring objective and has been applied consistently.

2. The criterion must be objective

A redundancy criterion should be capable of being verified using evidence.

For example:

"Employees who have poor attitudes will be selected."

is problematic because "poor attitude" can be subjective and susceptible to manipulation.

By contrast:

"Positions that will disappear following closure of Department X will be eliminated."

has a much clearer connection with the restructuring decision.

Similarly, an objective scoring system may consider documented:

• qualifications;
• skills;
• experience;
• performance;
• attendance;
• role requirements; and
• business necessity.

The more subjective the criterion, the greater the risk that a court will examine whether it was genuinely applied or was merely a mechanism for targeting particular employees.

3. The criterion must be connected to the restructuring objective

The employer should be able to explain why the criterion assists the business restructuring.

For example, if a company is eliminating a specialised technology function, it may reasonably need to retain employees possessing skills necessary for the remaining functions.

However, if an employer says it needs to reduce labour costs but selects employees using an unrelated personal characteristic, the connection between the criterion and the restructuring objective becomes difficult to establish.

4. Selection based on job abolition

One of the clearest situations arises when a particular business function or position is genuinely abolished.

For example:

• Department A is closed;
• ten positions disappear;
• employees working exclusively in those positions are identified for potential redundancy.

This can provide a stronger rational basis than simply selecting ten employees across the company without explaining why those particular employees were chosen.

However, job abolition does not automatically make dismissal valid. Courts can still examine whether employees could reasonably have been transferred or redeployed elsewhere and whether the selection process was genuine. The classic Toyo Sanso litigation demonstrates the importance of considering alternative employment and objective selection.

5. Performance as a selection criterion

Performance can potentially be used, but it should be supported by reliable evidence.

An employer should preferably have:

• documented performance evaluations;
• consistent evaluation standards;
• records predating the restructuring;
• comparable assessments among employees;
• evidence explaining the scoring; and
• safeguards against discriminatory or retaliatory selection.

A sudden performance downgrade immediately before redundancy may attract judicial scrutiny.

This is particularly important because economic redundancy and performance dismissal are legally distinct concepts. The employer should not disguise a performance-based dismissal as an economic redundancy simply to avoid the standards applicable to ordinary dismissal.

6. Length of service

Seniority or length of service can constitute a potentially objective selection factor.

For example, an employer might use a transparent seniority-based system when reducing positions.

But seniority should not be treated as universally mandatory. Japanese courts examine the overall reasonableness of the selection methodology and its relationship to the restructuring.

A company might legitimately need to retain particular technical expertise even where those employees have shorter service.

7. Age-based selection

Age can sometimes appear in redundancy criteria, but it requires considerable caution.

An employer might argue that:

• older employees have greater difficulty finding alternative employment;
• younger employees are more easily redeployed; or
• salary costs increase with seniority.

But simply selecting older workers because they are expensive can create legal and factual difficulties.

The criterion should be connected to a legitimate restructuring rationale and applied consistently. The broader Japanese framework also requires consideration of equality and employment legislation applicable to age and employment practices.

8. Attendance records

Attendance can be an objective criterion in appropriate circumstances.

For example, a company might consider documented:

• absenteeism;
• lateness;
• absence frequency; or
• attendance history.

But employers should distinguish between legitimate attendance-related information and protected absences.

Pregnancy-related leave, legally protected childcare or family-care leave, occupational injury, statutory leave and other protected circumstances should not simply be counted as ordinary negative attendance factors.

9. Family circumstances and "ease of dismissal"

Historically, Japanese redundancy cases have considered whether dismissal would cause comparatively greater economic hardship to particular employees.

A criterion such as:

"Employees with another household income source"

has appeared in Japanese case law.

However, this area must be handled carefully. Selection based on family circumstances can raise serious fairness and discrimination concerns, and employers should not assume that an employee with a spouse or secondary income can simply be treated as more disposable.

The Mitsui Lease-related litigation and other Japanese cases illustrate judicial consideration of criteria designed to balance the employee's economic impact against the company's restructuring needs. Japanese case materials recognise that criteria concerning employees' economic impact may sometimes have a rational basis, but they also caution against mechanical application that undermines the business objective.

10. "Last in, first out"

A last-in, first-out (LIFO) approach is attractive because it is easy to administer.

For example:

Employees with the shortest service are selected first.

Its advantages are:

• objective;
• easily documented;
• relatively predictable;
• easy to apply consistently.

Its disadvantages include the possibility of losing:

• specialised employees;
• employees with critical skills;
• recently recruited specialists; and
• employees essential to the continuing business.

Therefore, LIFO should not automatically be treated as the legally required Japanese rule.

11. Multi-factor scoring systems

An employer may construct a scoring matrix, for example:

The exact weighting is not prescribed by Japanese law.

The employer should nevertheless be able to explain:

1. why each criterion was selected;
2. why the weighting was chosen;
3. what evidence was used;
4. who conducted the assessment;
5. whether the same methodology was applied to everyone; and
6. whether protected characteristics or legally protected absences improperly influenced the result.

12. Consistent application is as important as the written criterion

A formally reasonable criterion can become problematic if it is applied selectively.

Suppose the written policy says:

"Employees will be selected based on documented performance."

But management:

• ignores the performance records of favoured employees;
• selectively re-evaluates other employees;
• changes scores after the redundancy decision; or
• applies different standards to different departments.

The court may question the actual rationality and fairness of the selection process.

The MHLW describes reasonable selection in terms not only of the criterion itself but also fair implementation of that criterion.

13. Discriminatory selection is particularly problematic

A redundancy programme should not be used as a mechanism for removing employees because of protected or impermissible characteristics.

High-risk approaches include selecting employees because they are:

• pregnant;
• taking maternity or childcare leave;
• exercising legally protected family-care rights;
• union members because of their union activity;
• whistleblowers or complainants;
• victims of harassment;
• disabled without appropriate legal analysis; or
• members of a protected category contrary to applicable equality law.

A supposedly neutral redundancy criterion can also be problematic if it is merely a pretext for discriminatory selection.

14. Documentation of selection

A defensible Japanese redundancy exercise should maintain a contemporaneous record of:

Business reason

Why the company needs to reduce headcount.

Population

Which employees are within the selection pool.

Criteria

The objective factors used.

Weighting

How each factor contributes to the decision.

Evidence

The documents supporting each employee's score.

Decision-makers

Who evaluated employees and their authority.

Conflict controls

Whether decision-makers had personal conflicts or grievances involving selected employees.

Review

Whether HR/legal/compliance reviewed the proposed selections.

Consultation

Whether employees and/or unions were informed and consulted as required.

Case Laws

1. Toyo Sanso Case — Tokyo High Court, 29 October 1979

Toyo Sanso Incident (東洋酸素事件)

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

The employer closed an acetylene-gas business division and dismissed the employees working there. The Tokyo High Court considered whether the closure and resulting dismissals satisfied the requirements applicable to economic dismissal.

The court stated that where a particular business division is closed, the employer must consider whether employees can reasonably be reassigned to other comparable work and whether the selection of employees for dismissal is based on an objective and reasonable standard.

Significance

The case establishes an important principle:

The fact that a business unit is being closed does not eliminate the need for rational employee selection.

2. Asahi Nursery School Case — Supreme Court, 27 October 1983

Asahi Nursery School Case (あさひ保育園事件)

The nursery school faced declining numbers of children and sought to reduce staff.

Two nursery teachers were selected for dismissal. The employer did not adequately explain the restructuring necessity to staff and did not first seek voluntary retirement.

The Supreme Court upheld the conclusion that the dismissal constituted an abuse of dismissal rights because of the manner in which the restructuring was carried out.

Significance

Although the case is particularly important for procedural fairness and dismissal-avoidance measures, it illustrates why selection cannot be considered independently from the overall redundancy process.

An employer may have a genuine staffing problem but still face invalidity if the process used to select and dismiss employees is unreasonable.

3. Yamagaki Giken Case — Kochi District Court, 31 May 1979

Yamagaki Giken Case (山崎技研事件)

The employer developed multiple criteria for selecting employees for redundancy, including matters such as:

• prolonged absence;
• technical ability;
• cooperation with colleagues;
• relationship with supervisors; and
• impact on the employee's family/livelihood.

The court accepted the criteria as having a reasonable basis in the circumstances and examined whether the selected employee was actually distinguishable from other employees under those criteria.

Significance

The case demonstrates that multiple criteria may be used, provided that they have a rational relationship to the restructuring and are actually applied.

It also shows that a selection matrix does not become lawful merely because it contains many factors; the substantive rationality of those factors matters.

4. Everette Case — Tokyo District Court, 4 August 1988

Everette Case (エヴィレット事件)

The employer faced serious business difficulties associated with the shipping industry and exchange-rate conditions.

The selection criteria included:

• employees aged 45 or older; and
• employees who would become surplus following the restructuring plan.

The court accepted the selection framework in the circumstances and considered the company's economic necessity, selection method and consultation process.

Significance

The case illustrates that age-related or restructuring-related criteria are not automatically invalid, but their justification must be examined in the context of the employer's actual restructuring programme.

5. M Company Restructuring Dismissal Case

M社整理解雇事件

The company attempted to reduce personnel costs after its financial condition deteriorated. It first sought voluntary retirements and subsequently proceeded with compulsory redundancy.

The selection criterion included the aggregate amount of lateness, early departures and absences over a specified period, subject to certain exclusions.

The court regarded this type of attendance-based criterion as falling within the category of comparatively objective and reasonable redundancy criteria in the circumstances.

Significance

This case is particularly useful for HR because it demonstrates how quantifiable historical employment data can be used in redundancy selection.

However, modern HR departments must additionally check whether any absences being counted arose from legally protected leave or other circumstances that cannot lawfully be treated as negative factors.

6. Jareco Case — Tokyo District Court, 20 October 1995

Jareco Case (ジャレコ事件)

The employer faced rapidly deteriorating business conditions and selected four employees for workforce reduction.

The employees challenged, among other matters, the rationality of the selection criteria.

The case is cited as an example of judicial scrutiny where the employer's chosen criteria were insufficiently rational or appropriately connected to the restructuring exercise.

Significance

The lesson for employers is that economic necessity alone does not determine who can be dismissed. The employer must separately justify the selection methodology.

7. Japan Airlines Case — Osaka High Court, 24 March 2016

Japan Airlines restructuring litigation

The Japan Airlines restructuring litigation concerned redundancy during company rehabilitation proceedings and included significant questions concerning the rationality of selecting employees for dismissal.

The case is specifically discussed in Japanese legal literature as an important decision concerning the rationality of employee-selection criteria during corporate rehabilitation.

Significance

The case is important for demonstrating that a major corporate restructuring or rehabilitation context does not make employee-selection criteria irrelevant. The employer still needs a rational basis for determining which employees will remain and which will be dismissed.

Comparison of the Cases

What Makes a Selection Criterion Stronger?

A redundancy criterion is generally easier to defend when it is:

Objective + documented + consistently applied + connected to business necessity + proportionate + capable of verification.

Conversely, risk increases where the criterion is:

subjective + undocumented + selectively applied + unrelated to the restructuring + discriminatory + created after the decision to dismiss.

Practical Japanese HR Redundancy Framework

Before selecting employees, an employer should create a written selection protocol:

Step 1 — Define the selection pool

Identify precisely which employees are competing for the remaining positions.

Step 2 — Define the business objective

For example:

"The company must eliminate 12 positions from the finance function following the consolidation of three regional accounting teams."

Step 3 — Establish criteria before scoring

Do not create criteria after identifying the employees to be dismissed.

Step 4 — Use objective evidence

Use existing performance records, qualifications, skills matrices, attendance records and job requirements.

Step 5 — Check protected circumstances

Exclude or appropriately treat legally protected leave and other protected activities.

Step 6 — Apply the same criteria

Employees within the same selection pool should ordinarily be assessed using the same methodology.

Step 7 — Independent review

HR/legal should test the proposed selections for consistency, discrimination and potential retaliation.

Step 8 — Document the reasons

Keep a record explaining why each employee was selected.

Step 9 — Consider redeployment

Before dismissal, consider transfer, reassignment, secondment, voluntary retirement and other alternatives.

Step 10 — Consult and explain

The restructuring rationale, scale, timing, selection methodology and consequences should be addressed appropriately with employees and, where applicable, the union.

Conclusion

Under Japanese labour law, selection criteria are one of the four central elements in reviewing an economic redundancy. The employer must demonstrate not merely that positions need to be reduced, but also that the employees selected were identified through a reasonable, objective and fairly implemented methodology. Japanese MHLW guidance expressly describes both the criteria and their application as requiring objectivity, rationality and fairness.

The safest practical approach is therefore to establish the selection pool and criteria before individual employees are chosen, document the business connection of each criterion, apply the methodology consistently, exclude impermissible discriminatory considerations, preserve the supporting evidence, and integrate the selection exercise with the employer's broader duty to attempt dismissal avoidance and conduct appropriate consultation.

This framework reflects the Japanese four-factor/ four-element redundancy doctrine, which has evolved from earlier case law into the broader Article 16 Labour Contract Act inquiry into whether dismissal has objectively reasonable grounds and is socially appropriate.