Labor & Employment Law

Navigating Fixed-Term Contracts and Permanent Employment Conversion in Japan: Recent Supreme Court Insights

Japanese Attorney at Law - Bengoshi L.L.

• 8 min read
Slide summary: Supreme Court Hagoromo case—10-year conversion rule, diverse-personnel requirement, compliance tips for fixed-term faculty
TL;DR: Japan’s Supreme Court (Hagoromo Gakuen, 2024) upheld a university’s use of the 10-year conversion rule for fixed-term faculty, relaxing the interpretation of “positions requiring diverse personnel.” Employers can rely on the longer threshold—but only with documented justification tied to Ninkihō Article 4.

Table of Contents

  1. Introduction: The “5-Year Rule” and its Exceptions
  2. The Legal Framework: Balancing Stability and Flexibility
  3. The Hagoromo Gakuen Case (Sup. Ct., Oct 31 2024)
  4. Implications for Employers
  5. Conclusion: Clarifying the Balance

Introduction: The "5-Year Rule" and its Exceptions

Japan's Labor Contract Act (労働契約法 - Rōdō Keiyaku Hō, LCA) provides a significant protection for employees working under fixed-term contracts. Commonly known as the "5-year rule," Article 18 of the LCA generally grants fixed-term employees the right to convert their employment status to permanent (indefinite-term) upon request, provided their contract has been renewed repeatedly for a total duration exceeding five years. This rule aims to prevent employers from circumventing permanent employment protections through the perpetual renewal of short-term contracts and to provide greater job security for long-serving fixed-term staff.

However, this general rule is subject to important exceptions. One notable exception, crucial for universities, research institutions, and potentially companies with significant R&D functions, is found in the Act on Term of Office of University Teachers, etc. (大学の教員等の任期に関する法律 - Daigaku no Kyōin tō no Ninki ni Kansuru Hōritsu, commonly referred to as the "Ninkihō"). Article 7 of the Ninkihō extends the threshold for permanent conversion from five years to ten years for certain categories of university teachers and researchers employed on fixed terms under specific conditions outlined in the Act.

The interplay between the general 5-year rule of LCA Article 18 and the 10-year exception under Ninkihō Article 7 has been a source of legal uncertainty and disputes. A key point of contention revolves around interpreting the criteria within the Ninkihō (specifically Article 4) that define which positions qualify for this extended term limit. A recent decision by the Supreme Court of Japan in the School Corporation Hagoromo Gakuen case (Sup. Ct., First Petty Bench, October 31, Reiwa 6 [2024]) has provided significant clarification on this issue, with important implications for employers managing fixed-term academic and research staff in Japan.

Understanding the Hagoromo Gakuen decision requires grasping the relationship between the two key laws:

1. Labor Contract Act (LCA) Article 18: The 5-Year Conversion Rule

  • Core Provision: If a fixed-term labor contract has been renewed one or more times, and the total contract period (from the start of the initial contract) exceeds five years, the employee can apply to convert the contract into one without a fixed term (i.e., permanent).
  • Application Timing: The employee must make this application before their current fixed-term contract expires.
  • Employer's Obligation: Upon receiving such an application, the employer is deemed to have accepted it, unless rejecting the application has objectively reasonable grounds and is considered socially acceptable (effectively requiring grounds similar to those needed for dismissing a permanent employee).
  • Purpose: To curb the abuse of fixed-term contracts for roles that are essentially ongoing and to offer a pathway to stable employment for long-term fixed-term workers.

2. Act on Term of Office of University Teachers, etc. (Ninkihō) Article 7: The 10-Year Exception

  • The Exception: Article 7, Paragraph 1 of the Ninkihō explicitly states that LCA Article 18 does not apply to fixed-term labor contracts for university teachers or certain researchers (as defined elsewhere in the Ninkihō) if their fixed term was set based on the provisions of the Ninkihō (specifically citing Ninkihō Article 5, Paragraph 1).
  • The 10-Year Threshold: Instead, for these specific Ninkihō-based fixed-term contracts, the right to apply for permanent conversion under LCA Article 18 arises only when the total contract period exceeds ten years.
  • Underlying Conditions (Ninkihō Arts. 4 & 5): For the 10-year exception under Article 7 to apply, the fixed-term contract must have been established according to Ninkihō Article 5, Paragraph 1. This provision, in turn, requires that the position held by the teacher/researcher falls into one of the categories listed in Ninkihō Article 4, Paragraph 1.

3. The Crucial Qualifier: Ninkihō Article 4, Paragraph 1

Article 4, Paragraph 1 lists the types of university/research positions for which fixed terms can be set under the Ninkihō framework (thus potentially triggering the 10-year LCA exception). The key category relevant to the Hagoromo Gakuen case is Item 1:

  • Ninkihō Art. 4, Para. 1, Item 1: Positions within educational or research organizations "where securing diverse human resources is particularly required" (多様な人材の確保が特に求められる教育研究組織の職 - tayō na jinzai no kakuho ga tokuni motomerareru kyōiku kenkyū soshiki no shoku).

The interpretation of this phrase – specifically, what constitutes a position where securing diverse personnel is "particularly required" – became the central issue before the Supreme Court. Does it require objective proof that constant turnover is essential, or does it allow universities more discretion based on their educational goals?

The Hagoromo Gakuen Case (Sup. Ct., Oct 31, 2024)

Case Background

  • The Employee: A lecturer (講師 - kōshi) at a private university, employed as a full-time faculty member (sen'nin kyōin) specializing in training care workers (介護福祉士 - kaigo fukushishi).
  • Contracts: Initially hired on a 3-year contract starting April 1, Heisei 25 (2013), renewed once for another 3 years. The university's internal rules explicitly stated that lecturer positions were subject to fixed terms under Ninkihō Article 5, Paragraph 1.
  • The Claim: Before the second contract expired (after a total of 6 years), the lecturer applied for conversion to an indefinite-term contract under LCA Article 18 (the 5-year rule).
  • The Dispute: The university (Hagoromo Gakuen) rejected the application, arguing that the lecturer's position fell under Ninkihō Article 4, Para. 1, Item 1 (requiring diverse personnel/expertise), meaning the 10-year exception of Ninkihō Article 7 applied, and the conversion right had not yet accrued.

Lower Court Rulings

  • District Court (Osaka Dist. Ct., Jan 31, Reiwa 4 [2022]): Ruled in favor of the university, finding the lecturer's position did fall under Art. 4, Para. 1, Item 1, and thus the 10-year exception applied.
  • High Court (Osaka High Ct., Jan 18, Reiwa 5 [2023]): Reversed the District Court's decision. The High Court adopted a stricter interpretation, stating that for a position to qualify under Item 1, it must be objectively judged based on concrete facts that securing diverse personnel is particularly required. It found that while practical experience was needed for the role, there wasn't sufficient objective evidence that regular turnover of personnel was essential for the specific courses taught (which included practical training but also national exam preparation with less research focus). Therefore, the High Court concluded the position did not meet the Item 1 criteria, the 10-year exception did not apply, and the lecturer was entitled to permanent conversion under the 5-year rule.

The Supreme Court's Decision

The Supreme Court overturned the High Court's ruling, ultimately siding with the university's position that the 10-year rule was applicable. Its reasoning focused on the interpretation and purpose of the Ninkihō:

  1. Purpose of Ninkihō Art. 4: The Court emphasized that the Ninkihō's provisions allowing fixed terms (in Article 4) were intended to respect the autonomy of universities in determining their personnel policies based on their specific circumstances and educational/research goals. The law aimed to facilitate the intake of diverse talent to advance education and research (Ninkihō Art. 1).
  2. No Change in Purpose: The Court noted that when the 10-year exception (Ninkihō Art. 7) was added to accommodate the LCA's 5-year rule, the underlying provisions of Article 4 were not amended. The Court saw no indication that the fundamental purpose of Article 4 – allowing flexibility based on institutional judgment – had been altered.
  3. Interpretation of "Particularly Required" (Art. 4, Para. 1, Item 1): Given the above purpose, the Court concluded that the criteria in Article 4, including Item 1's requirement for securing diverse personnel, should "not be interpreted overly strictly" (kotosara genkaku ni kaisuru no wa sōtō denai).
  4. Application to the Facts: The Court observed that the lecturer's role involved practical training courses (like care work practicums and recreation fieldwork) where incorporating the latest practical experience and knowledge through faculty mobility could be "desirable" (nozomashii). It viewed this educational characteristic as sufficient grounds to consider the position one where securing diverse knowledge or experience was particularly sought after.
  5. Conclusion: Based on this less restrictive interpretation, the Court found that the lecturer's position did fall under Ninkihō Article 4, Para. 1, Item 1. Consequently, the fixed-term contract was validly based on the Ninkihō framework, triggering the 10-year exception under Ninkihō Article 7. The lecturer's application for permanent conversion after only 6 years was therefore premature and invalid.

The case was remanded to the High Court for further proceedings consistent with this interpretation (likely regarding other aspects of the claim not central to the conversion issue).

Implications for Employers

The Hagoromo Gakuen decision has significant practical implications for universities, research institutions, and potentially companies employing researchers under similar fixed-term structures in Japan:

  1. Broader Scope for the 10-Year Exception: The Supreme Court's rejection of an "overly strict" interpretation of the "diverse human resources" requirement in Ninkihō Art. 4, Para. 1, Item 1 provides institutions with greater latitude. They may find it easier to justify applying the 10-year conversion threshold to positions where bringing in fresh perspectives, up-to-date practical skills, or specialized expertise through fixed-term appointments is arguably beneficial to their educational or research mission, even if constant turnover isn't objectively essential for every task.
  2. Focus Shifts to Justification: While the standard is less strict, institutions still need a rational basis linked to the nature of the position and educational/research goals to invoke Item 1. Simply designating all fixed-term faculty positions under this category without justification would likely be insufficient. The key seems to be articulating why faculty fluidity or diverse/current expertise is particularly desirable or beneficial for that specific role or field (e.g., rapidly evolving practical fields, project-based research needing specific temporary expertise).
  3. Importance of Internal Rules and Contracts: The Hagoromo Gakuen case involved a university whose internal regulations explicitly linked the lecturer position's fixed term to the Ninkihō. This likely strengthened the university's argument. Employers intending to utilize the 10-year exception should ensure their internal rules and individual employment contracts clearly state that the fixed term is based on the Ninkihō (specifically Art. 5, relying on Art. 4) and ideally document the rationale linking the position to the criteria in Art. 4 (e.g., the need for diverse/current expertise).
  4. Risk of Misclassification: Incorrectly applying the 10-year exception to a position that doesn't genuinely meet the (albeit less strict) criteria of Art. 4 carries the risk of a successful permanent conversion claim by the employee after 5 years. Careful assessment of each position's characteristics against the Supreme Court's reasoning is necessary.
  5. Relevance for Foreign Entities: Foreign universities operating campuses in Japan, or multinational companies with Japanese R&D centers employing researchers or specialized technical staff on fixed-term contracts, must heed this ruling. If fixed-term contracts for academic or research staff are based on the Ninkihō framework, the 10-year rule may apply, but the justification for invoking the "diverse human resources" clause needs careful consideration in light of this decision.

Conclusion: Clarifying the Balance

The Supreme Court's decision in the Hagoromo Gakuen case provides vital clarification on the scope of the 10-year permanent conversion exception for fixed-term university and research staff in Japan. By rejecting an "overly strict" interpretation of the Ninkihō's criteria regarding positions requiring diverse personnel, the Court has affirmed a degree of institutional autonomy for universities in managing their academic workforce through fixed-term appointments when justified by educational or research needs.

However, this flexibility is not unlimited. Employers must still connect the application of the 10-year rule to the specific characteristics and goals of the position. For businesses and institutions employing fixed-term academic or research personnel in Japan, this ruling necessitates a careful review of their contract management practices. They must ensure that any reliance on the 10-year exception is appropriately justified and documented, balancing the need for flexibility with the fundamental worker protections enshrined in the Labor Contract Act. Navigating this balance correctly is key to managing employment relationships effectively and avoiding potential legal disputes in Japan's academic and research sectors.