Labor & Employment Law

Japan’s Article 18 Fixed-Term Conversion Rule: Five-Year vs 10-Year Contracts Explained

Japanese Attorney at Law - Bengoshi L.L.

• 9 min read
Clock face morphing into an employment contract — symbolising the 5-year conversion rule

TL;DR
• After five consecutive years on fixed-term contracts, most Japanese employees may demand conversion to an indefinite-term deal (LCA Art 18).
• A 10-year exception exists for narrowly-defined university researchers & faculty.
• Osaka High Court (18 Jan 2023) applied this exception strictly—job titles alone do not count.
• Employers must verify the actual duties before refusing renewal or risk automatic indefinite status.

Table of Contents

  1. What Article 18 of the Labor Contracts Act Says
  2. When the Five-Year Clock Starts
  3. The 10-Year “Special Rule” for Researchers & Teachers
  4. Osaka High Court 2023: Lecturer X v. University A
  5. Compliance Checklist for Employers (2024+)

Japan's Labor Contracts Act (労働契約法 - Roudou Keiyaku Hou, hereinafter "LCA") contains a pivotal provision regarding fixed-term employment contracts: the "indefinite term conversion rule" (無期転換ルール - muki tenkan ruuru). Enshrined in Article 18, this rule generally allows employees on repeatedly renewed fixed-term contracts to gain the right to request conversion to an indefinite-term contract after five years of continuous employment. However, specific exceptions exist, notably a 10-year special rule (10年特例 - juunen tokurei) primarily applicable to researchers and university faculty. A recent Osaka High Court decision highlights the stringent interpretation of this exception, emphasizing the importance for employers, including foreign companies operating in Japan, to understand the nuances of these rules to manage their workforce effectively and avoid legal pitfalls.

The "Indefinite Term Conversion Rule" (LCA Article 18)

Article 18 of the LCA was introduced in 2012 (effective April 1, 2013) to address concerns surrounding the precariousness of long-term fixed-term employment. The core principle is straightforward:

  • Eligibility: An employee working under a fixed-term contract with the same employer.
  • Condition: The total cumulative contract term (under one or more renewed contracts) exceeds five years.
  • Right: The employee gains the right to apply for conversion to an indefinite-term labor contract.
  • Employer Obligation: Upon receiving such an application, the employer is deemed to have accepted it, and the contract converts to an indefinite term starting from the day after the current fixed-term contract expires. The employer cannot refuse this conversion.

This rule applies broadly, irrespective of job title (e.g., "contract worker," "part-timer," "arubaito"), as long as the conditions are met. The "five-year clock" generally starts from April 1, 2013, or the commencement date of the first fixed-term contract after that date. This led to what was dubbed the "2018 Problem," as the first wave of employees potentially became eligible for conversion from April 1, 2018.

It's important to note that conversion to an indefinite-term contract does not automatically mean conversion to "regular employee" (正社員 - seishain) status with identical benefits and conditions, unless otherwise specified in employment rules or agreements. Working conditions (duties, work location, wages, hours) generally carry over from the fixed-term contract, unless stipulated otherwise.

Exceptions: The 10-Year Special Rule

Recognizing that certain sectors require more flexibility and workforce mobility, the government introduced exceptions to the five-year rule, effective April 1, 2014. The most prominent is the 10-year special rule applicable to specific categories of researchers and university/college teaching staff. This rule primarily stems from two laws:

  1. 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 Kyouin tou no Ninki ni Kansuru Houritsu, hereinafter "University Teachers Act"): This law allows universities and colleges to employ certain academic staff on fixed terms. Article 7 of this Act stipulates that for teachers employed under specific conditions outlined in Article 4, Paragraph 1, the five-year threshold in LCA Article 18 is extended to ten years.
  2. Act on Activation of Science, Technology and Innovation Creation (科学技術・イノベーション創出の活性化に関する法律 - Kagaku Gijutsu Innovation Soshutsu no Kasseika ni Kansuru Houritsu): This act provides a similar 10-year exception for certain researchers and R&D managers employed by universities or public/private research institutes engaged in specific projects.

The rationale behind these exceptions is often linked to the project-based nature of much research and the need to foster innovation and personnel exchange without being overly constrained by the five-year conversion rule. The arrival of the 10-year mark for many potentially eligible employees from April 1, 2023, created the so-called "2023 Problem," bringing renewed focus to the application of these special rules.

Conditions under the University Teachers Act (Article 4, Paragraph 1):

For the 10-year rule under the University Teachers Act to apply, the fixed-term position must fall into one of the categories specified in Article 4, Paragraph 1. These include, most relevantly for the subsequent case discussion:

  • Item 1: Positions within educational/research organizations where, considering the characteristics of the field or method of education/research, securing diverse human resources is particularly necessary (多様な人材の確保が特に求められる教育研究組織の職 - tayou na jinzai no kakuho ga tokuni motomerareru kyouiku kenkyuu soshiki no shoku). Examples given include positions involved in cutting-edge, interdisciplinary, or comprehensive education/research.
  • Item 2: Positions of Assistant Professor (助教 - jokyou).
  • Item 3: Positions involving education/research conducted for a fixed period based on a specific plan determined by or participated in by the university (e.g., specific time-limited projects).

Crucially, simply holding a title like "Lecturer" or "Researcher" does not automatically qualify an employee for the 10-year special rule. The specific nature of the position and its alignment with these legal criteria are paramount. Furthermore, universities intending to utilize fixed terms under this act must establish internal regulations regarding faculty terms (Article 5, Paragraph 2).

Narrow Interpretation: Osaka High Court, January 18, 2023 (Reiwa 5)

A key decision by the Osaka High Court significantly clarified the application of the 10-year special rule under the University Teachers Act, adopting a notably strict interpretation.

Case Background (Generalized):

The plaintiff ("Lecturer X") was employed by a private university ("University A"). Initially hired as a part-time lecturer, Lecturer X was later promoted to a full-time lecturer (sen'nin koushi) position under a 3-year fixed-term contract. This contract was renewed once for another 3 years. Following this, the university informed Lecturer X that the contract would not be renewed upon its expiration. By this time, the total cumulative contract period (including the initial part-time period) had reached 9 years.

Lecturer X argued that having exceeded the 5-year threshold stipulated in LCA Article 18, they had acquired the right to convert to an indefinite-term contract and exercised this right. University A countered that Lecturer X's position fell under the category described in Article 4, Paragraph 1, Item 1 of the University Teachers Act (a position requiring diverse talent), making the 10-year special rule applicable. Since the total contract term was less than 10 years, University A argued that Lecturer X had not yet acquired the right to request indefinite conversion, and thus the non-renewal was valid.

Lower Court Decision:

The Osaka District Court initially sided with the university, finding that Lecturer X's position as a full-time lecturer, given its level of specialization and scope of duties, qualified under Article 4, Paragraph 1, Item 1 of the University Teachers Act, thus validating the application of the 10-year rule.

Osaka High Court Judgment:

The Osaka High Court overturned the District Court's decision, ruling in favor of Lecturer X and affirming the conversion to an indefinite-term contract. The High Court's reasoning focused on a strict, substantive interpretation of the criteria for the 10-year exception:

  1. Focus on Actual Duties, Not Just Title: The court meticulously examined the actual content of Lecturer X's work. It found that the majority of Lecturer X's teaching responsibilities were within a certified care worker training curriculum, involving instruction in basic knowledge and skills, practical training guidance, and national exam preparation. While acknowledging the practical education aspect, the court found the "research" component of the role to be minimal (研究という側面は乏しい - kenkyuu toiu sokumen wa toboshii).
  2. Strict Interpretation of "Securing Diverse Human Resources": The court interpreted Article 4, Paragraph 1, Item 1 narrowly. It stated that for this exception to apply, the position must objectively require the securing of diverse human resources due to the specific nature of the education or research field/method, akin to cutting-edge or interdisciplinary fields. Based on Lecturer X's actual duties (primarily practical vocational training), the court concluded it could not be said that there was a constant need to secure talent from outside the university or that it was a position where securing diverse human resources was "particularly necessary."
  3. Legislative Intent: The court noted that if the legislature had intended for all lecturer positions, regardless of specific duties, to fall under Item 1, it could have simply listed "Lecturer" as a qualifying position, similar to how "Assistant Professor" is explicitly listed in Item 2. The detailed requirement in Item 1 ("securing diverse human resources is particularly necessary") indicated a more specific, limited application.
  4. Exclusion of Item 3: The court also briefly considered and rejected the application of Item 3 (specific project-based research), finding that this typically refers to time-limited research projects, not positions based solely on university management plans.

Therefore, the High Court concluded that the 10-year special rule did not apply to Lecturer X's contract. Since the cumulative term exceeded five years, Lecturer X had validly exercised the right under LCA Article 18, and the employment relationship had already converted to an indefinite term before the purported non-renewal.

Consistency with Recent Trends:

This Osaka High Court decision aligns with a recent trend towards a stricter interpretation of the 10-year exceptions. Legal commentary accompanying the case report noted a similar ruling by the Tokyo High Court (Senshu University case, July 6, Reiwa 4; Labor Judgments No. 1273, p. 19). In that case, involving a part-time German language instructor seeking indefinite conversion under the Science, Technology and Innovation Act's 10-year rule, the court differentiated between academic staff performing both education and research (akin to professors/associate professors, potentially eligible for the special rule) and those solely engaged in education (not eligible). The Osaka High Court's emphasis on the lack of a significant research component in Lecturer X's role echoes this distinction.

These recent rulings contrast with some earlier lower court decisions that had applied the 10-year rule more broadly based on job titles like "special appointment associate professor" or "full-time lecturer." The shift suggests courts are increasingly focusing on the substantive realities of the job duties rather than relying solely on titles or broad interpretations of the exceptions, particularly in light of the importance and mandatory nature of the indefinite conversion rule established by the LCA.

Implications for Employers in Japan

The Osaka High Court's decision serves as a critical reminder for employers in Japan, especially universities, research institutions, and companies employing specialized personnel on fixed-term contracts:

  1. Substance Over Form: Relying on job titles ("Lecturer," "Researcher," etc.) to automatically apply the 10-year special rule is risky. The applicability depends heavily on whether the actual duties and nature of the position meet the specific, narrow criteria laid out in the relevant laws (University Teachers Act or Science, Technology and Innovation Act). Roles focused primarily on practical training or standard educational duties, without a significant, demonstrable component of cutting-edge/interdisciplinary research or a specific need for diverse external talent pipelines, may not qualify.
  2. Thorough Assessment Required: Employers intending to utilize the 10-year exception must carefully assess each relevant position against the precise legal requirements. This involves analyzing the actual work performed, the strategic necessity for fixed-term employment beyond five years in that specific role (e.g., genuine project limitations, need for specific external expertise flow), and documenting the justification.
  3. Risk of Misapplication: Incorrectly applying the 10-year rule carries significant risk. If a court later determines the exception was not applicable, an employee whose contract term exceeded five years might be deemed to have already acquired the right to indefinite conversion. Subsequent non-renewal based on the contract's fixed term could then be invalidated, potentially leading to claims for reinstatement and back pay.
  4. The "2023 Problem" Context: As many fixed-term contracts potentially covered by the 10-year rules reached the 10-year mark starting in April 2023, scrutiny over the correct application of these exceptions intensified. Employers who chose non-renewal around this time based on the 10-year rule, without a solid legal basis for applying the exception, face potential legal challenges.
  5. Importance of Clear Communication: When employing individuals under contracts potentially subject to the 10-year rule, employers should clearly communicate the basis for applying the special rule and the term limitations from the outset, ideally in writing, as recommended by government guidelines.

Conclusion

Japan's indefinite term conversion rule (LCA Article 18) provides significant protection for employees on long-term fixed-term contracts. While exceptions like the 10-year special rule exist for specific academic and research roles, recent court decisions, exemplified by the Osaka High Court ruling of January 18, 2023, emphasize their narrow scope. Employers cannot rely on job titles alone; a substantive analysis of the actual duties and whether the position genuinely meets the strict legal criteria for the exception is required. Failure to apply these rules correctly can lead to unintended indefinite employment status and legal liability. For companies operating in Japan, particularly those in academia, research, or employing specialized fixed-term staff, a proactive and careful review of fixed-term employment contracts and the specific applicability of any special rules is essential for compliant and effective workforce management.