Hiring Employees in Lieu of Finding Partners

For several reasons, you might consider retaining employees rather than entering into partnerships. In such a case, you need to be aware that Japanese Labor laws are not favorable for venture companies.

Working hours shall be in principle, 8 hours per day, 40 hour per week under Article 40[1] of the Labor Standards Act. Annual paid holidays shall also be granted to workers under Article 39[2].

Please note that employers shall also provide health insurance. If start-up companies comply with such laws, it might be difficult to continue to manage such activities because there are huge gaps between the reality and the spirit of these laws, due to limitations of human resources and scarcity of assets.

In principle, companies shall comply with every law. However, there are some priorities. Health is a very important issue for workers, for example. Employers shall give higher priority to employees rather than themselves in many aspects such as compensation, healthcare and welfare so that you can avoid many conflicts.

It might work to give stock options to employees; however it is better to not give shares to employees unless they are treated as joining founders.

It is not necessary to conclude an employment agreement with workers, however if you have concerns regarding conflicts it might be wise to conclude such an agreement in order to indicate your expectations to workers. There are minimum requirements regarding recruitment. For working conditions for which notification must be given, see Article 15[3] of the Labor Standards Act (roudou jouken tsuuchi-sho)


It is also important to consider collective agreements between employers and workers. If employers retain more than 10 workers, the said employers shall create “working rules” under Article 89 of the Labor Standards Act[4].

In order to avoid conflicts due to incompatibility between employers and workers, employers should conduct a robust recruitment regime and take their time to assess the suitability of candidates using paper examinations and other tests.

As labor regulations are complex, it is recommended that you consult with experts such as attorneys or labor and social security agents (shuroushi).

[1] Article 32 (1) Employers shall not have Workers work more than 40 hours per week, excluding rest periods.

(2) Employers shall not have Workers work more than 8 hours per day for each day of the week, excluding rest periods.

Article 40 (1) With respect to Business other than that stipulated in items (i) through (iii), (vi)and (vii) of Appended Table No. 1, in which there is a necessity in order to avoid public inconvenience or other special needs, special provisions may be established by Ordinance of the Ministry of Health, Labour and Welfare to the extent that is unavoidably necessary, regarding working hours under Articles 32 through 32-5 and rest periods under Article 34.

[2] Article 39 (1) Employers shall grant annual paid leave of 10 working days, either consecutively or divided, to Workers who have been employed continuously for 6 months from the day of their being hired and who have reported to work on at least 80 percent of the total working days.

[3] Article 15 (1) In concluding a labor contract, the Employer shall clearly indicate the Wages, working hours and other working conditions to the Worker. In this case, matters concerning Wages, working hours and other matters stipulated by Ordinance of the Ministry of Health, Labour and Welfare shall be clearly indicated in the manner prescribed by Ordinance of the Ministry of Health, Labour and Welfare.

[4] Article 89 Employers who continuously employ 10 or more Workers shall draw up rules ofemployment covering the following items and shall submit those rules of employment to therelevant government agency. In the event that the Employer alters the following items, the sameshall apply:

(i) Matters pertaining to the times at which work begins and ends, rest period, days off, leave, and matters pertaining to shifts when Workers are employed in two or more shifts;

(ii) Matters pertaining to the methods for determination, calculating and payment of Wages (excluding Special Wages and the like; hereinafter in this item the same qualification shall apply); the dates for closing accounts for Wages and for payment of Wages; and increases in Wages;

(iii) Matters pertaining to retirement (including grounds for dismissal);

(iii-ii) In the event that there are stipulations for retirement allowances, matters pertaining tothe scope of Workers covered; methods for determination, calculation , and payment ofretirement allowances; and the dates for payment of retirement allowances;

(iv) In the event that there are stipulations for Special Wages and the like (but excludingretirement allowances) and/or minimum Wages, matters pertaining thereto;

(v) In the event that there are stipulations for having Workers bear the cost of food, supplies for work, and other expenses, matters pertaining thereto;

(vi) In the event that there are stipulations concerning safety and health, matters pertaining thereto;

(vii) In the event that there are stipulations concerning vocational training, matters pertaining thereto;

(viii) In the event that there are stipulations concerning accident compensation and support forinjury or illness outside the course of employment, matters pertaining thereto;

(ix) In the event that there are stipulations concerning commendations and/or sanctions, matters pertaining to their kind and degree;

(x) In the event that there are stipulations applicable to all Workers at the workplace inaddition to those contained in the preceding items, matters pertaining thereto.

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