Economics, Law, and Institutions in Asia Pacifi c Tatsuo Hatta · Shinya Ouchi Editors Severance Payment and Labor Mobility A Comparative Study of Taiwan and Japan 1 23 Economics, Law, and Institutions in Asia Pacific Series Editor Makoto Yano (President and Chief Research Officer, Research Institute of Economy, Trade and Industry (RIETI), Japan; Professor Emeritus, Kyoto University, Japan) Editorial Board Members Reiko Aoki (Commissioner, Japan Fair Trade Commission, Japan) Youngsub Chun (Professor of Economics, Seoul National University, Republic of Korea) Avinash K. Dixit (John J. F. Sherrerd ‘52 University Professor of Economics, Emeritus, Princeton University, United States) Masahisa Fujita (Fellow, The Japan Academy, Japan) Takashi Kamihigashi (Director and Professor, Center for Computational Social Science (CCSS), Kobe University, Japan) Masahiro Kawai (Project Professor, Graduate School of Public Policy, The University of Tokyo, Japan) Chang-fa Lo (Honourable Justice, The Constitutional Court, Taipei, Taiwan) Mitsuo Matsushita (Professor Emeritus, The University of Tokyo, Japan) Kazuo Nishimura (Professor, Research Institute for Economics and Business Administration (RIEB) and Interfaculty Initiative in the Social Sciences (IISS), Kobe University, Japan; Member, The Japan Academy, Japan) Akira Okada (Professor of Economics, Institute of Economic Research, Kyoto University, Japan) Shiro Yabushita (Professor Emeritus, Waseda University, Japan) Naoyuki Yoshino (Dean, Asian Development Bank Institute, Japan; Professor Emeritus, Keio University, Japan) The Asia Pacific region is expected to steadily enhance its economic and political presence in the world during the twenty-first century. At the same time, many serious economic and political issues remain unresolved in the region. To further academic enquiry and enhance readers’ understanding about this vibrant region, the present series, Economics, Law, and Institutions in Asia Pacific, aims to present cutting-edge research on the Asia Pacific region and its relationship with the rest of the world. For countries in this region to achieve robust economic growth, it is of foremost importance that they improve the quality of their markets, as history shows that healthy economic growth cannot be achieved without high-quality markets. High-quality markets can be established and maintained only under a well-designed set of rules and laws, without which competition will not flourish. Based on these principles, this series places a special focus on economic, business, legal, and institutional issues geared towards the healthy development of Asia Pacific markets. The series considers book proposals for scientific research, either theoretical or empirical, that is related to the theme of improving market quality and has policy implications for the Asia Pacific region. The types of books that will be considered for publication include research monographs as well as relevant proceedings. The series show-cases work by Asia-Pacific based researchers but also encourages the work of social scientists not limited to the Asia Pacific region. Each proposal and final manuscript is subject to evaluation by the editorial board and experts in the field. More information about this series at http://www.springer.com/series/13451 Tatsuo Hatta • Shinya Ouchi Editors Severance Payment and Labor Mobility A Comparative Study of Taiwan and Japan Editors Tatsuo Hatta Shinya Ouchi Asian Growth Research Institute Graduate School of Law Kitakyushu, Fukuoka, Japan Kobe University Kobe, Hyogo, Japan ISSN 2199-8620 ISSN 2199-8639 (electronic) Economics, Law, and Institutions in Asia Pacific ISBN 978-981-13-2148-1 ISBN 978-981-13-2149-8 (eBook) https://doi.org/10.1007/978-981-13-2149-8 Library of Congress Control Number: 2018959096 © Springer Nature Singapore Pte Ltd. 2018 This work is subject to copyright. All rights are reserved by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, express or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer imprint is published by the registered company Springer Nature Singapore Pte Ltd. The registered company address is: 152 Beach Road, #21-01/04 Gateway East, Singapore 189721, Singapore Preface During the 1990s, the global center of IT business shifted from Japan to Taiwan. This shift characterized a decline in relatively large companies in this industry in Japan, led by the emergence of venture business in Taiwan. Differences in labor markets in Japan and Taiwan explain part of the reason for this shift. As shown in Fig. 1, labor mobility is much higher in Taiwan than in Japan. Also, opening venture business firms in Japan is very risky for many innovators because if they fail in the venture, they will find it difficult to find mid-career reemployment by other Fig. 1 Annual labor separation rates in Japan and Taiwan. (Source: JAPAN: Ministry of Health, Labor and Welfare, Survey on Employment Trends) TAIWAN: National Statistics Bureau, Labor Separation Rates (Note) The labor separation rate in Taiwan was calculated by multiplying the average labor separa- tion rate for each month by 12 v vi Preface companies in Japan’s less mobile labor market. Conversely, an unsuccessful venture businessperson can easily find another position in Taiwan’s more flexible labor mar- ket. The present volume compares and contrasts the employment regulations of Japan and Taiwan so as to find the ways to increase labor mobility in Japan. The comparison is vital because unlike the mass production age, the fourth industrial revolution requires agile venture business. The difference in labor mobility between Japan and Taiwan results from the fact that the Taiwanese legal system permits dismissals based on clear and predictable “just causes”1 accompanied by severance payment, while the Japanese system does not. One approach to increasing labor mobility in Japan, then, is to make the just causes of dismissal predictable while introducing a severance payment system to reduce the termination cost. In this preface, we first review dismissal regulations and their effects on the Japanese labor market and those on the Taiwanese labor market and then outline the structure of the remainder of the volume. Dismissal Regulations in Japan Abusive Doctrine of Dismissal Before 2003, there was no provision for just cause of dismissal under Japanese labor law. However, in 2003, the case law rule of the abusive doctrine of dismissal was codified in the Labor Standards Act (LSA). In 2007, this rule was transferred to Article 16 of the newly enacted Labor Contract Act (LCA), as follows: Article 16 of the Labor Contract Act: “A dismissal shall, if it lacks objectively reasonable grounds and is not considered to be appropriate in general societal terms, be treated as an abuse of right and be invalid.” Given that the terms in the provision are rather vague, lower courts in Japan have formulated four factors to be considered in deciding the abusiveness of economic dismissal: 1. Was there economic necessity of reducing the workforce? 2. To what extent did the employer make efforts to avoid dismissal in attaining the reduction? 3. Was the method of selecting employees to be dismissed appropriate? 4. How and to what extent did the employer inform and consult on dismissal with trade unions or employees to be dismissed? The lack of predictability in the court’s decision on the abusiveness of a dismissal raises the costs of employment adjustments in recessions and during business restructuring. Accordingly, while Japan now has provisions for just causes of dis- missals, they are somewhat unpredictable. 1 Article 11 of Taiwan’s Labor Standards Act (LSA) specifies the five just causes. Preface vii Lack of a Severance Payment System Statutory severance payment does not exist in Japan. According to Article 16 of the LCA, a dismissal should be invalid if the court decides that it is abusive. This implies that in the process of the dismissal dispute, the employer has no option to terminate an employment relationship by making a severance payment. Thus, the employer is compelled to accept a continuation of the relationship. Consequently, the lack of a severance payment system in Japan makes the settlement cost for termination unnecessarily high. Lifetime Employment Compelled The high cost of employment adjustment in Japan practically obligates a company to retain its regular employees until retirement age. Most companies are therefore compelled to hire young people with a good general aptitude and flexibility to cope with any unexpected changes in the corporate environment. The regulation thus yields strong incentive for companies to hire most of their workers fresh out of school, rather than a more experienced mid-career person. In turn, this regulation makes it difficult for a mid-career person to find a new job. Openings for mid-career positions are scarce as dismissal is uncommon under this regulation.2 Thus, the regulation makes it difficult for regular workers to switch employers or to start a new venture company by exiting from a large company because the employee would have nowhere else to go if the new business failed. This may explain why the rate of new business in Japan is internationally low, as shown in Fig. 2. In particular, it shows the reason why there are relatively few ven- ture companies in the IT industry in Japan. By contrast, many venture companies emerged in Taiwan following successful collaboration with Silicon Valley firms during the 1980s. In addition, the regulation has virtually wiped out the opportunity for non-regular workers to find regular jobs. Naturally, labor unions for regular employees advocate the retention of this regulation. Dismissal Regulations in Taiwan Types of Dismissal As a reference model for the reform of dismissal regulations in Japan, let us review the legal sources of labor market mobility in Taiwan. There are clear statutory grounds for dismissal in Taiwan, with the LSA allowing dismissal based on just 2 Even when a position is open, a company hesitates to fill that position with someone from outside the firm with experience useful for the company’s needs because it would have to retain the employee even if the initial need disappears. viii Preface Fig. 2 New business opening rates. (Source: The Small and Medium Enterprise Agency) JAPAN: Ministry of Health, Labour and Welfare, Annual Report on Unemployment Insurance (Fiscal year base.); U.S: U.S. Small Business Administration, The Small Business Economy (2012.); U.K: Office for National Statistics, Business Demography (2011.); GERMANY: Statistisches Bundesamt, Unternehmensgründungen, schließungen: Deutschland, Jahre, Rechtsform, Wirtschaftszweige.; FRANCE: INSEE causes. While these statutory grounds are not easy to meet, they do provide a degree of predictability for employers who intend to proceed with employment termination. There are two types of dismissals: 1. Dismissals with disciplinary causes 2. Dismissals with (non-disciplinary) just causes, where a just cause involves: (a) Economic circumstances surrounding a company (b) The poor performance of the employee in question In this volume, unless stated otherwise, “dismissal” implies dismissals with a non- disciplinary cause. Preface ix Severance Payments In Taiwan, employees dismissed for just cause receive severance payments, the pay- ments for which are calculated as one-half of the Average Monthly Salary (AMS) for every year of service accrued, up to a maximum payout of 6 months of the AMS.3 Dismissal Procedure Unlike the USA, Taiwan does not follow an “employment-at-will” principle. Moreover, advance notice and layoff compensation are not sufficient legal grounds for dismissal, requiring instead (1) economic circumstances surrounding a company or (2) poor performance of the employee in question. For the grounds of poor per- formance, the company is required to demonstrate: A. Solid evidence of poor performance for a period of 6 months or longer. B. Failure in a Performance Improvement Plan (PIP) that was held for a period of 3 months or longer. C. Examination of whether the employee that has failed a PIP may be employed in another manner of employment. D. After clearing these steps, the layoff is determined. In Taiwan, unemployment insurance benefits are available to those dismissed, but not to those who resigned voluntarily or were dismissed for a disciplinary cause. Structure of the Volume The remainder of the volume is structured as follows: Part I: Dismissal Regulations in Japan • Chapter 1: Shinya Ouchi “Why Should the Monetary Compensation System Be Introduced in Japanese Dismissal Regulation?” • Chapter 2: Naohiro Yashiro “Dismissal Compensation and Labor Mobility in Japan” 3 Instead of a dismissal with severance payment, an employer could offer an Enhanced Termination Package (ETP) to incentivize employees to enter into a Mutual Termination Agreement (MTA) with the employer, whereby the employees release and waive all possible claims against the employer. This approach could shorten the time required for termination procedures because employers do not need to go through the time-consuming Performance Improvement Plan (PIP) process, etc.