Labor Law

Managerial Position Only in Name

Some companies regard a 'managerial position' only by title, which is merely a function in the office structure, as a 'managerial supervisor,' and do not pay for overtime work, which has led to raise controversy over 'managerial position only in name.' Also, there have been an increasing number of cases on trial, in which these titled employees are not recognized as managers and consequently employers have been ordered to pay for overtime work retroactively.

1. Legal basis for managerial position only in name

Article 41 (Exclusion from Application of Provision on Working Hours, Rest Periods and Days Off) of the Labor Standard Law states that "it is not illegal not to pay employees in managerial position for overtime."
The legal provisions are as follows:

(Exclusion from Application of Provisions on Working Hours, etc.)
Article 41
The provisions regarding working hours, rest periods and days off set forth in this Chapter, Chapter VI and Chapter VI-II shall not apply to workers coming under one of the following items:
(i) Persons engaged in enterprises stipulated in item (vi) (excluding forestry) or item (vii) of Annexed Table No. 1;
(ii) Persons in positions of supervision or management or persons handling confidential matters, regardless of the type of enterprise;
(iii) Persons engaged in monitoring or in intermittent labor, with respect to which the employer has obtained permission from the relevant government agency.

The problem is whether 'managerial position only in name' shall come under (ii) "persons in positions of supervision or management."
Also, "provisions regarding working hours, rest periods and days off set forth in Chapter IV, Chapter VI and Chapter VI-II" refers to various provisions on working hours. The important provisions here are Article 32 (Working Hours) and Article 36 (Overtime Work and Work on Days Off).

(Working Hours)
Article 32
An employer shall not have a worker work more than 40 hours per week, excluding rest periods.
(2)An employer shall not have a worker work more than 8 hours per day for each day of the week, excluding rest periods.

(Overtime Work and Work on Days Off)
Article 36
In the event that the employer has entered into a written agreement either with a labor union organized by a majority of the workers at the workplace (in the case that such labor union is organized) or with a person representing a majority of the workers (in the case that such labor union is not organized) and has notified the relevant government agency of such agreement , the employer may, notwithstanding the provisions with respect to working hours stipulated in Articles 32 through 32-5 or Article 40 (hereinafter in this Article referred to as "working hours")or the provisions with respect to days off stipulated in the preceding Article(hereinafter in this paragraph referred to as "days off"), extend the working hours or have workers work on days off in accordance with the provisions of the said agreement; provided, however, that the extension of working hours for belowground labor and other work especially harmful to health as stipulated in the Ordinance of the Ministry of Health, Labor and Welfare shall not exceed 2 hours per day.

Summarizing the above, "although the employer shall not order the workers to work longer than 8 hours per day or 40 hours per week, if the employer is pressed by a heavy workload that may not be completed within these hours, the employer shall have the workers work as an exception, by submitting 36 Agreement."
In other words, a person in positions of supervision, management, etc. shall not be subject to those provisions, and being exempt from 36 Agreement, he/she may work in excess of 8 hours per day or 40 hours per week.
This provision alone, however, shall not provide the basis for the claim that "a person in a managerial position shall not be paid for overtime work" and furthermore, Article 37 (Increased Wages) of the Labor Standard Law stipulates as follows:

(Increased Wages for Overtime Work, Work on Days Off and Night Work)
Article 37
In the event that an employer extends the working hours or has a worker work on a day off pursuant to the provisions of Article 33 or paragraph (1) of the preceding Article, the employer shall pay increased wages for work during such hours or on such days at a rate no less than the rate stipulated by cabinet order within the range of no less than 25 percent and no more than 50 percent over the normal wage per working hour or working day.
(3)In the event that an employer has a worker work during the period between 10 p.m. and 5 a.m. (or the period between 11 p.m. and 6 a.m., in case that the Minister of Health, Labor and Welfare admits the necessity of the application of those hours for a certain area or time of the year), the employer shall pay increased wages for work during such hours at a rate no less than 25 percent over the normal wage per working hour.

In other words, it is not illegal even if a person in a managerial position is not paid for his/her overtime work, since he/she shall be excluded from Article 36.1. Employers, however, shall note that for night work, a person in a managerial position shall also be paid an additional 25 percent increased wages.

2. Definition of a person in positions of supervision or management

Eventually, problems with managerial positions only in name seem to arise when an employer fails to check whether the employer's definition of a person in a managerial position is compatible with the definition stipulated in the Labor Standard Law.
(It's true that it is difficult to clearly understand the definition because we know that some major corporations contest the definition by law.)

Criteria for a person in a position of management or supervision defined in the administrative official notice are as follows:

  1. Generally, such person is in a position involved with the management in making decisions on working conditions or other kinds of personnel management, and is defined not by name but by actual responsibilities.
  2. Such person must hold duties and responsibilities that are so important that he/she has no choice but to act outside the framework of regulations concerning working hours, rest periods, days off, etc. and that his/her working mode is not compatible with those regulations.
  3. Such person is given treatment that is appropriate for the position including payment of a basic wage of regular salary and allowances for the managerial positions, and receives benefits that are preferential compared with non-managerial employees in terms of payments such as the rate of the pay of bonuses and basic wages for calculation thereof.

Based on the above, the following cases have a potential risk leading to the 'managerial position only in name.'

  1. A person who has no differences in job contents after being promoted to a managerial position.
  2. A person who has no direct subordinate working under him/her.
  3. A person who works daily under the instructions of his/her direct superior.
  4. A person who has almost no knowledge of company secrets.
  5. A person who is not invited to attend executive meetings.
  6. A person who is not allowed to work overtime or on days off at his/her discretion.
  7. A person who has deduction in wages for being late or leaving early.
  8. A person who is not allowed to leave the office for private matters.
  9. A person who is required to punch a time card when arriving at or departing from the office.
  10. A person who is not provided with an allowance for the managerial position.
  11. A person who has an allowance for a managerial position less than the overtime payment when he/she was in the previous position.
  12. A person who has no authority to assign work to a subordinate.
  13. A person who has no authority to evaluate a subordinate.
  14. A person who has no authority to hire or dismiss a subordinate.
  15. A person who has a basic wage equivalent to that of non-managerial employees.
  16. A person who has a bonus whose ratio is equivalent to that of non-managerial employees.

Recording of Worker's Time of Coming to and Leaving from Work

  1. The employer is required to enter in the payroll book the number of working days, the number of working hours, the number of overtime working hours, the number of holiday working hours and the number of midnight working hours for each of workers pursuant to Section 54 of the Enforcement Regulations of the Labor Standards Law under Section 108 of the Labor Standards Law.

    Even for those in the post of administration or supervision who are excluded from this requirement, the employer is also obligated to make proper control of their working hours in view of the need for midnight working payments and annual paid leaves to them.
  2. However, problems are apt to occur for workers such as non-payment of extra wage or excessively long work due to the employer's failure to make proper control of their working hours. Therefore, the Ministry of Health, Labor and Welfare laid down "Standards for Measures Taken by Employers" under the Circular Notice No. Kihatsu 339 dated April 6, 2001, excerpts from which are as follows:

    (1) Confirmation and recording of starting time and closing time of work

    The employer is to confirm and record the starting time and closing time of work for each of working days of workers in order to make proper control of their working hours.

    (2) Method in principle of confirmation and recording of starting time and closing time of work

    In principle, any of the following methods is to be used by the employer for confirmation and recording of the worker's starting time and closing time of work.

    (a) The employer is to confirm and record the worker's working hours in person.

    (b) The employer is to confirm and record the worker's starting time and closing time of work on the basis of any objective recorded data by means of the time card, IC card, ID card or personal computer.

    (c) When the worker's self-declaration system of working hours is adopted, the employer is to investigate whether the declared working hours are conformed to the actual working hours.

    (d) The employer should not take the step to set the upper limit of the overtime working hours.
  3. For the workers engaged in their discretionary work of professional service, the employer is required to use the following method as "Measures to Secure Health and Welfare of Workers" under the Labor Standards Law as amended on January 1, 2004.

    The method to determine working conditions of workers is to be based on the record of their time of coming to and leaving from the work or the record of their time of coming in and leaving from the office which may clearly indicate how many hours in any time zone they are staying in the company so that they are able to offer their professional service.

    The Ministry of Health, Labor and Welfare is taking "Perfect Execution of Proper Control of Working Hours" as its priority policy again in fiscal 2004. This policy is taken because of the dispute arising as a social problem whether the worker's death caused by strain due to excessive overwork is covered by the workmen's compensation insurance as an on-the-job accident or not as an accident while off duty. Recently this problem is stirring up a big social attention not only as a matter of eligibility for the workmen's compensation insurance, because there was a case where the family of a worker so died brought an action against the employer for damages by reason of the employer's violation of obligation to secure the worker's safety or the employer's liability for tort committed to the worker and the employer was ordered by the court to pay damages in a huge amount exceeding \100 million. There was also a case where the employer's responsible person was arrested on a charge of violation of the Labor Standards Law in connection with the case of the so-called service overtime work (overtime work without compensation). In order to avoid such risks and also as the first step to enhance the corporate compliance, the company must endeavor to determine working hours of workers correctly.

*The contents of Core Issues should not be construed as legal advice. Individual problems for information should be referred to legal counsel .

General descriptions on Discretionary Working Hour System

Principles of discretionary work hour system are prescribed in Article 38-3 of the Japanese Labor Standards Law.
Since it has become increasingly difficult for employers to give instructions regarding work process and time management to some of their employees in certain job categories (listed below), when some specific requirements are met, discretionary work hour system is permitted to be installed as exception to the basic rules of work hour regulations in the Labor Standards Law.

Applicable job categories (professional categories)

  1. R&D researchers
  2. Analysts for information processing system
  3. Writers or editors for newspapers or magazines
  4. Industrial designers, art designers
  5. Producers and directors for TV shows or movies
  6. Copywriters
  7. IT system consultants
  8. Interior designers and coordinators
  9. PC and console game software producers, creators
  10. Stock analysts, bond analysts
  11. Financial engineers
  12. College Professors in research fields
  13. CPAs
  14. Lawyers
  15. Certified architects
  16. Real estate surveyors
  17. Patent lawyers
  18. Tax accountants
  19. Certified management consultants for small and medium size firms

General requirements

A. Agreement between the employer and the representative of the majority of the employees regarding application of the discretionary work hour system

B. Revisions to the work rules and employment contracts

C. Filing to the local Labor Standards Regulations Office