Global Compliance Desk – Japan

Japan: Amendment to the Regulation on Discretionary Work System

Effective April 1, 2024, Japan will introduce new amendments to the  Ordinance for Enforcement of the Labor Standards Act (“LSA Ordinance“) for governing the discretionary work system.

What is the Discretionary Work System?

The discretionary work system (DWS) is a deemed working system under the Labor Standards Act (LSA) wherein the working hours of employees engaged in certain duties can be predetermined rather than calculated based on their actual working time. DWS applies to specific roles where the nature of the work and employee autonomy are high. For eg: IT, media, and research and development industry, etc.

Under this system, a predetermined number of working hours is agreed upon between the employer and employee beforehand. This agreed-upon duration of working hours serves as the basis for salary, regardless of actual hours worked. Overtime pay is typically not included. There are two types of discretionary work systems as follows:

• Discretionary Work System for Specialized Duties (Tokutei Kōdo Senmon Jigyō Jūji-sha Seido): Applies to highly specialized tasks, like research or engineering. Employer consent is not required for the application of the DWS, provided the system is documented in a labor-management agreement.
• Discretionary Work System for Planning Duties (Kikaku Jigyō Jūji-sha Seido): This applies to administrative and indirect planning and strategy roles, such as accounting or sales planning. Employer consent is mandatory for the application of the DWS and must be obtained in writing before implementation.

Key Changes: Amendments to the Discretionary Work System for Specialized Duties

Expansion of Scope for Specialized Duties – The amendment increases the scope to include additional activities to the list of the Discretionary Work System for Specialized Duties.

The Mergers & Acquisitions advisory services (M&A) is added to the list increasing the total number of eligible specialized duties from 19 to 20. 

M&A Advisory Services consists of duties related to researching and analyzing mergers and acquisitions for clients, as well as devising and advising on such mergers and acquisitions for banks and securities companies.

The Specialized duties apply to the following types of work:

• • • • Research and development of new products and new technologies
      • Information system analysis and design
      • Newspaper, publishing, and broadcast reporting and editing
      • New design ideas for clothing, industrial products, advertising, etc.
      • Producer, Director’s work
      • Copywriter’s work
      • System consultant’s work
      • Interior coordinator’s work
      • Game software creation work
      • Securities analyst’s work
      • Financial product development work using knowledge such as financial engineering
      • University Professor’s research work
      • Research or analysis of customer mergers and acquisitions at banks or securities companies, and based on this, ideas and advice regarding mergers and acquisitions 
      • Certified public accountant’s work
      • Lawyer’s work
      • Architect (first class architect), Second Class Architects, and Wooden Architects)
      • Real Estate Appraisers
      • Patent Attorneys
      • Tax Accountants
      • Small and Medium Enterprise Consultants.

Mandatory Employee Consent for Specialized Duties: Currently, the application of the Discretionary Work System for Specialized Duties is without employee consent.”

Effective April 1, 2024, employees’ consent will be mandatory for all workplaces for the application of the Discretionary Work System including newly implemented or existing workplaces with the Specialized Work System. 

An employer shall :

• • • Obtain the consent of each employee for the application of the system. 
    • Ensure that the employees are not treated disadvantageously if they do not consent to the application of the system; 
    • Have procedures for withdrawing consent regarding the application of the system; and ensuring the consent of each employee. A labor-management agreement shall include methods for withdrawal of records and reporting them to the Labor Standards Inspection Office.

Currently, employers are required to maintain the records of the labor-management agreement consisting of employee’s consent and withdrawal of consent records for 3 years.

Effective April 1, 2024, employers will be required to keep records of each employee’s consent and withdrawal of consent during the period of the labor-management agreement and for 5 years after its expiration. 

Key Changes: Amendments to the Discretionary Work System for Planning Duties

Enhanced Requirements for Planning Duties

Effective April 1, 2024, the following requirements will be implemented for passing a resolution of the labor-management committee:

• • • Clear procedures for employees to withdraw their consent from the program.
    • Maintenance of employee consent withdrawal records for five years after the resolution’s expiration.
    • A comprehensive explanation of any changes to wage and evaluation systems impacting covered employees.

Additional measures for  health and welfare for both Specialized and Planning Duties

Effective April 1, 2024, additional measures are added to safeguard the health and well-being of all employees. The measures are:

• • • Ensuring intervals between shifts
    • Limiting the number of late-night shifts
    • Limiting working hours (cancellation of application of the system if working hours exceed a certain level)
    • Physician interview guidance for eligible employees who exceed certain working hours.

Take Away – These amendments to the Discretionary Work System (DWS) aim to improve transparency, employee autonomy, and work-life balance within the DWS framework. While the changes primarily strengthen employee rights, employers must review their agreement,  understand the terms, including predetermined work hours and expectations for overtime, and adapt their practices to comply with the amended regulations.