Extension of Wage Claims Limitation Interval underneath the Labor Requirements Act

By Last updated Mar 29, 2021

I. Entry into force of the law on partial amendment of the Labor Standards Act

The law on the partial amendment of the Labor Standards Act came into force on April 1, 2020 (the “Amendment of the Labor Standards Act 2020”) and included an extension of the limitation period for wage claims.

II. Background to the change

Before an amendment to the Civil Code, which also came into force on April 1, 2020, the limitation period for wage claims according to the Civil Code was basically 10 years from the point in time at which the right in question could be exercised. However, in order to limit future disputes by encouraging early settlement, the Civil Code also provided for a short limitation period of one year for employee claims relating to monthly wages.

On the one hand, the one-year limitation period for such claims represented a deficiency in the legal protection of employees, since the right to wage claims forms the basis for the employees’ livelihood. On the other hand, a 10 year statute of limitations would place undue burdens on employers and would have a major impact on their ability to do business without fear of future claims. Therefore, the Labor Standards Act provided as a special provision, in addition to the one-year limitation period under the Civil Code, a two-year limitation period for the right to assert claims of any kind.

The Civil Code was changed with the intention of standardizing and simplifying the limitation period by abolishing the one-year limitation period and maintaining the usual period of “10 years from the date of exercising the right” a new limitation period of “5 years from the date at which the creditor becomes aware that he can pursue the claim. ” The amendments to the Civil Code also stipulated that the limitation period expires after an earlier period.

In view of these changes to the Civil Code, the limitation period under the Labor Standards Act has been further examined, and the following changes have been made through the amendment to the Labor Standards Act 2020.

III. Content of the change

(a) Extension of the limitation period for wage claims

The limitation period for wage claims has been extended from two to five years; However, since the effects of the change need to be carefully assessed for the time being, a temporary statute of limitations of three years has been introduced to mitigate the drastic change.

(b) Extension of Record Retention Period

Previously, employers had to keep important records of work matters such as payrolls for three years. In principle, this obligation has been extended to five years so that employers can keep records that may be relevant for future wages. Notwithstanding the foregoing, the period for the retention of important labor law records has remained unchanged for the time being in order to reflect the currently applicable provisional limitation period.

If an employer does not pay additional wages or the like in violation of certain obligations under the Labor Standards Act, the court has the power to order the employer at the request of the employee to make an additional payment to the employee as a sanction. The period during which the court can order the employer to make such additional payments (the “Claim Period”) was previously set in connection with the statute of limitations for wage claims at two years. In accordance with the changes to the limitation period for wage claims, the application period has also been extended to five years, provided that a provisional reduction measure provides for a period of three years, which corresponds to the above limitation period.

IV. Transitional measures

The new limitation period for wage claims applies to wages that are due on or after April 1, 2020. In addition, there is an obligation of an employer to keep important labor law records so that the necessary records must be kept until the expiry of the relevant statute of limitations period relating to an employee’s right to claim wages. Finally, the new application deadline applies to violations of the relevant obligations under the Labor Standards Act that occur on or after April 1, 2020.

V. Conclusion

Despite the fundamental changes to the statute of limitations regarding the filing of a wage claim against an employer, employees will have to wait until after April 2022 to pursue wage claims that were made more than two years earlier. Only after April 2023 can an employee claim unpaid wages up to three years beforehand. In this sense, there are no immediate adverse effects on the part of the employer. However, any employer currently assuming future liability for unpaid wage entitlements should take steps to improve their business to prevent the possibility of an increase in the amount of unpaid wage entitlements after April 2022 (i.e. when an employer’s liability in this regard could vary from two years to three years of unpaid wages). In addition, in transactions involving the acquisition of a Japanese company, obligations related to unpaid wages may affect the purchase price as a potential liability, and it should be noted that liability for unpaid wages will be 1.5 times as of April 2023 of unpaid wages may be before March 2022.