In the current situation, many companies are considering HR-related measures to cope with the economic challenges they are facing. Such measures may range from requesting employees to take part of their annual paid leave to outright salary cuts or redundancy. This newsflash addresses some legal issues to be considered by the employer from a labor law perspective.
Q1: Can employees be requested to use up their accrued annual paid leave in periods with little workload?
In principle, no. Whether or when to take annual paid leave is generally at the discretion of the employee. Employers are therefore generally obliged to grant annual paid vacation to the employees in accordance with their vacation requests, unless such vacation interferes with the company’s “normal operation”. The term “interference with normal operation” is interpreted very narrowly, and the employer is only in limited cases entitled to deny the requested vacation. However, the employer can in principle not unilaterally designate the timing of paid vacation without a specific vacation request.
An exception to this principle is the so-called “planned paid vacation system”. Under such system, it is feasible to designate the dates on which the annual paid vacation of the employees shall be taken, provided that at least five (5) days per year must remain at the free disposition of each employee. The vacation days designated in the planned paid vacation schedule will be automatically deducted from the annual paid vacation of the employee. As long as the five days limit is respected, the vacation plan may also include paid vacation days carried over from the last year. The scope of the vacation plan may (i) pertain to the entire business, (ii) establish a shift system in which certain groups or sections take vacation on a rotation basis, or (iii) designate vacation days for individual employees. For the implementation of the planned paid vacation system, the conclusion of a labor- management agreement between the company and the employee representative (or union representative, if applicable) is required.
Encouraging employees to take their annual paid leave during specific time on a voluntary basis is legally feasible. It should be noted though that in case of a later dispute an employee may challenge the voluntariness of his consent. To this end, due implementation and communication are important.
Q2: Can employees be requested to use up their accrued overtime?
Under Japanese labor law, overtime needs in principle to be compensated in cash in the month following the month in which the overtime was rendered. An exception applies under the so-called flexible working hour system, which requires the prior establishment in a labor-management agreement between the company and the employee representative. Under the flexible working hour system, the regular working hours can be balanced over a specified reference period. The maximum reference period is three months. While an employer may encourage employees to schedule their working time in accordance with the actual workload, the allocation of working hours within a flexible working hour system is generally at the discretion of the employee. To this end, also with a flexible working hour system, the employer may not oblige employees to use up accrued overtime, but may only encourage them to allocate their working time in alignment with the business situation.
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