Japan's Constitutional "Freedom of Occupation" (Article 22): How Do Courts Scrutinize Business Regulations and Licensing?

Article 22, Section 1 of the Constitution of Japan proclaims: "Every person shall have freedom to choose his or her residence and to change it and to choose his or her occupation to the extent that it does not interfere with the public welfare." This guarantee of "freedom of occupation" (職業選択の自由, shokugyō sentaku no jiyū) forms a critical pillar of economic liberty within the Japanese constitutional order. It affects a wide range of governmental regulations, from professional licensing to market entry controls. Understanding how this freedom is interpreted by Japanese courts, the scope of permissible "public welfare" limitations, and the varying standards of judicial scrutiny applied to such regulations is essential for any entity operating or seeking to operate within Japan. The landmark Pharmaceutical Law Case serves as a crucial touchstone in this area.

The Scope and Nature of "Freedom of Occupation"

The Supreme Court of Japan has interpreted the "freedom to choose one's occupation" under Article 22(1) in a broad and meaningful way. This freedom is not confined merely to the initial act of selecting a profession.

1. Broad Interpretation: The Court has clarified that this freedom encompasses two key aspects:
   • Freedom to Choose an Occupation (Narrow Sense): This refers to the liberty of an individual to decide which occupation to pursue, to start a new business or enter a profession, to continue in an existing one, or to cease occupational activities.
   • Freedom of Business Activity (Freedom to Perform the Chosen Occupation): Crucially, the protection extends beyond the initial choice to include the freedom to actually carry out the chosen occupation or business (職業活動の自由, shokugyō katsudō no jiyū, sometimes also referred to as 営業の自由, eigyō no jiyū). This was explicitly affirmed by the Supreme Court in the Pharmaceutical Law Case. The Court reasoned that an occupation is not merely a means to earn a living but also a vital avenue through which individuals contribute to society, develop their personalities, and realize their potential, thus linking occupational freedom to individual dignity.
2. The "Public Welfare" Limitation:
   The guarantee in Article 22(1) is explicitly qualified by the phrase "to the extent that it does not interfere with the public welfare" (公共の福祉に反しない限り, kōkyō no fukushi ni hanshinai kagiri). This clause provides the constitutional basis for restricting occupational freedom. The Supreme Court has acknowledged that because occupational activities are inherently social and predominantly economic in nature, they possess significant interrelations with society at large. Consequently, they are subject to a broader scope of regulation by public authorities compared to, for example, freedoms of a purely intellectual or spiritual nature, such as freedom of thought or conscience.The primary responsibility for determining what constitutes a necessary restriction for the "public welfare" lies with the Diet (the legislature). The Court generally accords the Diet a degree of "rational discretion" (合理的裁量, gōriteki sairyō) in making these policy judgments. However, this legislative discretion is not unfettered; it is subject to judicial review to ensure that restrictions do not unduly infringe upon the constitutionally protected freedom. The Court has also noted that the breadth of this legislative discretion can vary depending on the "nature of the matter" being regulated (a concept sometimes referred to as 事の性質論, koto no seishitsu ron).

The Pivotal Pharmaceutical Law Case (1975)

The Supreme Court's judgment in the Pharmaceutical Law Case (薬事法違憲判決, Yakujihō Iken Hanketsu), delivered on April 30, 1975, is a landmark decision that profoundly shaped the jurisprudence on freedom of occupation. The case concerned provisions of the Pharmaceutical Affairs Law (Yakujihō, now the PMD Act) that restricted the issuance of licenses for new pharmacies. Among these restrictions were requirements regarding the distance between a proposed new pharmacy and existing ones. The stated legislative aim was to prevent excessive competition among pharmacies, which, it was argued, could lead to financial instability for pharmacy operators and, ultimately, compromise the safe and stable supply of medicines to the public.

The Supreme Court undertook a detailed and influential analysis:

• Reaffirmation of Broad Occupational Freedom: The Court began by reiterating its broad interpretation of Article 22(1) as encompassing both the freedom to choose an occupation and the freedom to conduct that occupational activity.
• Variable Legislative Discretion: It acknowledged the Diet's primary role and rational discretion in imposing restrictions for the public welfare but emphasized that the scope of this discretion is not uniform across all types of regulations.
• Introduction of a More Structured Scrutiny Framework: The Court implicitly introduced a framework that varied the intensity of judicial review based on the nature of the restriction and its purpose:
  • Restrictions on the Choice of Occupation (e.g., Licensing Systems): The Court characterized licensing systems (許可制, kyokasei), which control entry into an occupation, as "powerful restrictions" (強力な制限, kyōryokuna seigen) on the freedom of occupation. For such restrictions to be constitutionally permissible, the Court stated that they must, in principle, be "necessary and rational measures for an important public interest" (重要な公共の利益のために必要かつ合理的な措置, jūyōna kōkyō no rieki no tame ni hitsuyō katsu gōritekina sochi). This standard is often described as a "strict rationality test" and is considered more demanding than a simple deference to legislative judgment. This is sometimes referred to as the "Pharmaceutical Law Case First Standard."
  • Further Requirement for "Negative Purpose" Restrictions: If such a powerful restriction (like a licensing scheme) is justified by a "negative purpose" or "police purpose" (消極目的・警察的目的, shōkyoku mokuteki・keisatsu mokuteki) – meaning it aims to prevent harm to public safety, health, or order (in this case, ensuring the supply of safe medicines by preventing conditions that might lead to the circulation of substandard drugs) – then an additional requirement applies. The state must demonstrate that the legislative objective cannot be adequately achieved by less intrusive measures, such as regulations focusing on the manner of conducting the business (e.g., quality controls, operational standards for pharmacies) rather than restricting market entry itself. This element incorporates a form of the Least Restrictive Alternative (LRA) analysis. This is known as the "Pharmaceutical Law Case Second Standard."
• Application to the Pharmacy Distance Restrictions: The Supreme Court found that the primary purpose of the pharmacy distance restrictions was indeed "negative" or "police-related"—namely, to prevent danger to the life and health of citizens by ensuring a stable supply of quality pharmaceuticals. Applying its newly articulated two-pronged test, the Court then scrutinized the "legislative facts" (立法事実, rippō jijitsu) upon which the Diet had relied. The asserted causal chain – that an overconcentration of pharmacies would lead to excessive competition, which in turn would cause financial instability for pharmacies, potentially inducing them to handle substandard drugs – was found by the Court to be speculative and not supported by concrete evidence. The Court concluded that the distance restriction requirement was an overly broad and not rationally necessary means to achieve the stated public health objective, and therefore declared it unconstitutional.

The Pharmaceutical Law Case was groundbreaking. It established a more structured and, in certain contexts, more exacting standard of judicial review for restrictions on occupational freedom. It underscored the judiciary's role in examining not only the stated purpose of a regulation but also the factual basis (legislative facts) supporting the asserted link between the restriction and its objective, particularly for regulations justified on public safety grounds that significantly limit entry into an occupation.

Differentiating Regulatory Purposes: "Negative" vs. "Positive"

A key distinction that heavily influences the standard of judicial review for occupational restrictions is the purpose behind the regulation.

1. "Negative Purpose" (消極目的) / Police Regulations (警察規制, keisatsu kisei):
   • These regulations are aimed at preventing harm to the public or maintaining public order, safety, and health. Examples include licensing requirements for medical professionals, safety standards for food handling, or regulations to prevent environmental pollution.
   • As established in the Pharmaceutical Law Case, when these regulations take the form of significant restrictions on occupational choice (like licensing), they are generally subject to the stricter scrutiny standards: the measure must be necessary and rational for an important public interest, and consideration may be given to whether less restrictive means could achieve the objective.
2. "Positive Purpose" (積極目的) / Socio-Economic Policy Regulations (社会経済政策的規制, shakai keizai seisakuteki kisei):
   • These regulations are designed to achieve broader social or economic policy goals. Examples include measures to protect and nurture small and medium-sized enterprises, promote balanced regional development, manage scarce resources, or ensure fair competition in certain sectors.
   • The Supreme Court's approach to these "positive purpose" regulations is markedly different, as illustrated by the Retail Market Case (小売市場判決, Kouri Shijō Hanketsu), with a judgment on July 22, 1972 (predating the Pharmaceutical Law Case but providing a contrasting standard). This case involved distance restrictions for the establishment of new retail markets, aimed at protecting existing small retailers from excessive competition.
   • The Court in the Retail Market Case applied a highly deferential standard of review, often referred to as the "manifestly unreasonable test" (著しく不合理であることが明白である場合, ichijirushiku fugōri de aru koto ga meihaku de aru baai). It reasoned that decisions concerning socio-economic policy involve complex assessments of economic data, social impacts, and policy trade-offs, matters for which the legislature is better equipped than the judiciary. Consequently, such a regulation would be found unconstitutional only if it were clearly and obviously (manifestly) unreasonable. The restrictions on retail markets were upheld under this lenient standard.
   • The contrast between the Pharmaceutical Law Case and the Retail Market Case highlights that the perceived purpose of the regulation is a critical determinant of the intensity of judicial review. "Negative purpose" restrictions on occupational choice face more demanding scrutiny than "positive purpose" restrictions.

Further Refinements: Regulatory Methods and the German Influence

Beyond the broad distinction between negative and positive purposes, the specific method of regulation also plays a role. The Pharmaceutical Law Case itself distinguished between regulations on the choice of occupation (such as licensing, which it considered a "powerful restriction") and regulations on the manner of conducting an occupation (操業規制, sōgyō kisei), with the latter generally seen as less intrusive and thus subject to a more lenient review.

The German "Three-Stage Theory" (三段階審査論, sandankai shinsaron) of occupational freedom, while not explicitly adopted by Japanese courts, is frequently discussed in academic analyses of Japanese case law and offers a useful comparative perspective. This theory proposes escalating levels of scrutiny:

1. Regulations on the mere exercise of an occupation (e.g., rules about business hours or advertising content) are subject to the most lenient review.
2. "Subjective" requirements for entry into an occupation (e.g., qualifications, skills, personal reliability) face a stricter standard.
3. "Objective" requirements for entry into an occupation (e.g., quotas, proof of economic need for a new business, distance limitations from existing businesses) are subject to the strictest scrutiny, as they are often unrelated to the applicant's personal abilities.

The Pharmaceutical Law Case's stringent review of the "objective" distance restriction, and its ultimate finding of unconstitutionality, can be seen as analogous to the application of the highest tier of scrutiny in this German model. Conversely, the Judicial Scrivener Law Case (司法書士法事件, Shihōshoshihō Jiken), with a Supreme Court judgment on July 7, 2000, upheld qualification requirements (a "subjective" entry requirement) for judicial scriveners with a relatively straightforward rationale, suggesting a less demanding review than that applied to the objective market entry barrier in the Pharmaceutical Law Case. This indicates that the specific type of condition imposed by a licensing scheme can influence the rigor of judicial assessment.

Complexities in Regulatory Analysis

Analyzing restrictions on occupational freedom can be complex due to several factors:

1. Identifying the "Primary Purpose": Many regulations serve multiple purposes, some "negative" and some "positive." In the Pharmaceutical Law Case, for example, although arguments were made about economic stability (a positive purpose), the Court determined that the primary purpose of the distance regulation was "negative" – related to public health and safety. Accurately identifying the dominant legislative intent is crucial for selecting the appropriate standard of review.
2. Shifting Regulatory Purposes (規制目的の転換論, kisei mokuteki no tenkanron): The judicially recognized purpose of a longstanding regulation can evolve over time. For example, restrictions on the placement of public bathhouses, initially justified on "negative" grounds (public hygiene), were later viewed by some courts through the lens of "positive" purposes (economic protection of existing small businesses), leading to the application of the more deferential "manifestly unreasonable" test.
3. "Third Type" of Purpose – Fiscal Policy: Regulations might be primarily aimed at securing state revenue. The Liquor Sales Licensing Case (酒類販売免許制判決, Shurui Hanbai Menkyosei Hanketsu), with a Supreme Court judgment on April 26, 1994, dealt with a licensing system for liquor sales, justified largely by the need to ensure the efficient collection of liquor taxes. While the Court acknowledged the "important public interest" standard from the Pharmaceutical Law Case as generally applicable to licensing systems, it ultimately applied a highly deferential standard, akin to the manifest unreasonableness test. It emphasized the broad legislative discretion in matters of national finance, fiscal policy, and taxation. This suggests that regulations primarily serving fiscal purposes might constitute a distinct category inviting a particularly high degree of judicial deference.

The Significance of "Legislative Facts"

A notable feature of the Pharmaceutical Law Case was the Supreme Court's willingness to scrutinize the "legislative facts" (立法事実, rippō jijitsu) – the factual assumptions and empirical evidence upon which the legislature based the necessity of the regulation. The Court was not convinced by the asserted causal chain linking pharmacy density to the risk of substandard drugs, deeming it speculative and lacking robust evidentiary support.

This approach, involving a relatively close look at the factual underpinnings of a regulation, contrasts with the high degree of deference often accorded to legislative fact-finding in the realm of economic regulation in some other legal systems. However, such intensive scrutiny of legislative facts is not consistently applied by Japanese courts. In the Retail Market Case, which involved a "positive purpose" socio-economic regulation, the Court was far more deferential to the legislature's assessment of prevailing socio-economic conditions and policy needs.

Some scholars suggest a "legislative facts assessability approach" (立法事実把握可能性アプローチ, rippō jijitsu haaku kanōsei apurōchi) to explain this variation. According to this view, the degree of judicial scrutiny of legislative facts might depend on whether those facts are relatively straightforward and assessable by courts using common sense and readily available evidence, as opposed to facts that involve complex policy predictions, specialized economic forecasting, or intricate social dynamics, where judicial competence is more limited.

Implications for Businesses in Japan

The constitutional framework governing freedom of occupation in Japan has several practical implications for businesses operating in or considering entry into the Japanese market:

• Market Entry and Licensing: Regulations that impose licensing requirements or other significant barriers to market entry, particularly if justified by "negative" public interest concerns (such as public health, safety, or consumer protection), are, in theory, subject to stricter judicial review if challenged. The government would need to demonstrate that such restrictions are necessary, rational, and, potentially, that less restrictive alternatives are unavailable.
• Socio-Economic and Policy-Driven Regulations: Conversely, regulations primarily based on broader socio-economic policy objectives (e.g., protecting specific local industries, managing land use for balanced development, or fostering particular economic sectors) are likely to be upheld by courts unless they are found to be "manifestly unreasonable." This grants the legislature considerable leeway in these areas.
• Understanding Regulatory Justifications: For businesses assessing the regulatory environment, seeking to challenge existing regulations, or anticipating future regulatory trends, it is crucial to analyze the officially stated (and judicially perceived) purpose of any given regulation. Whether it is classified as "negative," "positive," or "fiscal" will heavily influence the likely standard of judicial review and, therefore, the regulation's legal resilience.
• Factual Basis of Regulations: While directly challenging the legislative facts underlying a regulation can be an uphill battle, the Pharmaceutical Law Case demonstrates that it is not impossible, especially if the factual basis for a restrictive "negative purpose" regulation appears particularly weak, outdated, or speculative.
• Compliance with Operational Rules: Regulations that govern the manner in which a business or occupation is conducted (e.g., operational safety standards, quality control procedures, disclosure requirements) are generally viewed as less intrusive on the core freedom of choosing an occupation. Such rules are more likely to be upheld if they are rationally related to a legitimate public purpose.

Conclusion

Article 22, Section 1 of the Japanese Constitution provides a foundational, albeit not absolute, guarantee of freedom of occupation. The Supreme Court of Japan has developed a complex and nuanced framework for reviewing governmental restrictions on this freedom. This framework is significantly influenced by the perceived purpose of the regulation – whether it is "negative" (aimed at preventing harm) or "positive" (aimed at promoting socio-economic policy) – as well as by the nature and intrusiveness of the restrictive measures themselves (e.g., market entry controls versus rules on business operations).

The Pharmaceutical Law Case stands as a critical precedent, establishing a relatively demanding standard of review for "negative purpose" licensing schemes that significantly impinge upon the choice of occupation. In contrast, decisions like the Retail Market Case and the Liquor Sales Licensing Case demonstrate a much greater degree of judicial deference when regulations are rooted in socio-economic or fiscal policy considerations.

For businesses, a clear understanding of these constitutional distinctions, the varying levels of judicial scrutiny, and the importance of regulatory purpose and legislative facts is essential for accurately assessing the regulatory landscape in Japan. This knowledge can inform strategic decisions related to market entry, compliance, and, where appropriate, engagement with the regulatory process.