Contracts, Markets, and Laws in the US and Japan
Edited by Zenichi Shishido
Chapter 2: Complementarity among the abusive dismissal rule, company community norms, and an illiquid external labor market: transformation of directors’ fiduciary duty under Japanese corporate law
Decisions on whether to dismiss employees involve not only negotiations between management and employees but also, to a large extent, negotiations between management and shareholders. When a company experiences a downturn in earnings, its management often faces a choice about whether to pay dividends to shareholders by laying off employees or place precedence on maintaining employment at the cost of reducing dividends to shareholders. Even companies with strong earnings may lay off workers in conjunction with proactive restructuring undertaken at the behest of shareholders. When companies make such business decisions, on what norms do they base their decisions? This chapter discusses from a comparative law standpoint differences in Japanese and US norms underlying management decision-making vis-a-vis these issues. As a rule, employers in the US can freely dismiss employees based on business necessity in accordance with the employment-at-will doctrine. In Japan, employee dismissal is substantially restricted by case law dating back to the 1970s.
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