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Today’s Labor Updates, July 31, 2018

Labor reform law nudges corporate Japan to rethink working styles.

by Su Xincheng Kyodo Jul 29, 2018

Working late, falling asleep on trains due to exhaustion and getting drunk to release tension from work might still be the typical image of the “salaryman.”

This country is notorious for a culture of overwork. Employees who stay late are still praised for hard work while others are frowned upon for leaving before their bosses do. Many even feel guilty about taking paid holidays. Karōshi, death from overwork, is a word now known worldwide.

In a bid to change long-held working behaviors, a labor reform law was introduced in late June, setting a legal cap on overtime as one of its pillars.

The new legislation limits overtime work to less than 100 hours per month and 720 per year, and companies will be punished if they exceed the limits. Some are staying ahead of the curve by introducing reforms that allow employees to work less while contributing to improvements in productivity.

“With the introduction of overtime caps under the law, more companies are expected to shed overtime hours and have their employees rest on weekends properly,” said Mikio Mizobata, a senior researcher at Daiwa Institute of Research.

The law took force at a time when the issue of karōshi was dragged back into the spotlight by the 2015 Christmas Day suicide of a 24-year-old employee who was overworked by advertising giant Dentsu Inc.

Even before the law was enacted, there were companies taking measures to reduce overtime and make it easier to take paid holidays. The new law, however, requires companies to make serious efforts to tackle the issue.

As a labor reform pioneer, major information technology service provider SCSK Corp. launched an overtime prevention campaign in fiscal 2013. As part of the campaign, it makes up for workers’ reduced overtime allowances in the form of a special bonus.

As a result, the company’s average overtime hours sank to 16.4 hours a month in fiscal 2017 ended March, down from 27.8 hours in fiscal 2011. And the average number of paid holidays taken rose to 18.8 days in fiscal 2017, up from 13 days in fiscal 2011.

“In the IT industry, people had thought working longer hours was a virtue,” said Yoshinari Kobayashi, deputy general manager of the company’s human resources group.

“But management recognized if the workers don’t stay healthy and don’t think their jobs are worth doing, it makes it difficult to provide value-added services to our customers and the company’s growth also stagnates,” he said. “That’s why we have changed our way of working.”

Kobayashi said the changes have translated into more earnings. SCSK’s operating profit for fiscal 2017 stood at ¥34.6 billion ($312 million), more than double from six years earlier.

Panasonic Corp., which introduced a five-day workweek in 1965 for the first time in Japan, now allows workers to take paid leave for child care, nursing care and other family matters on an hourly basis instead of a half-day basis. This helps them use the family support paid-leave system more flexibly.

The electronics giant is also active in other areas. On the day the reform legislation was enacted, Panasonic said it introduced a system allowing employees to work at other companies for a certain period of time to help them broaden their perspectives and gain new abilities and skills.

The rapidly aging society and declining birthrate are some of the factors behind the new law. With the decline of the working population, there is also a need to create working environments more favorable for women.

Staffing firm Pasona Group Inc., where women account for 60 percent of the payroll, is promoting measures to make it easier for working mothers to return to the workforce while raising children.

Pasona has an in-house baby-sitting facility for working mothers. The company regularly holds meetings between women who are returning to work a year or two after giving birth and veteran working mothers so they can exchange information. There is also a sales team consisting of only working moms.

Thanks to such measures, nearly 100 percent of the female employees return to their jobs after giving birth, Pasona said.

“We have been making efforts to create an environment that enables our workers to easily fulfill their potential,” said spokeswoman Yoko Morika.

The law also emphasizes “equal pay for equal work” for regular and nonregular workers, and includes the so-called white collar overtime exemption system.

However, further complications loom before the system’s actual introduction. The system was major source of contention between the ruling and opposition parties during Diet deliberations on the law.

The system exempts skilled professional workers, such as researchers, whose annual wages often top ¥10.75 million, from work-hour regulations.

The government has claimed the scheme, which evaluates workers based on results rather than hours worked, will allow for “flexible and diverse work styles.” Opposition parties, including those backed by labor unions, have countered that the system will lead to an increase in karōshi, criticizing it as a “zero overtime pay” scheme.

Apart from the overtime issue, there are also problems with low labor productivity.

Japan’s labor productivity, as measured in dollars per hour, was $46 in 2016, the lowest among the Group of Seven countries and 20th among the then-35 members of the Organization for Economic Cooperation and Development, according to data from the Japan Productivity Center.

Considering the declining labor population, improving productivity through work-style reforms is a prime objective. Some companies are trying to do so by employing advanced technologies.

SoftBank Group Corp., for example, is promoting the use of artificial intelligence, internet of things technologies and robots to improve individual productivity.

It uses AI in various departments, such as human resources, where it helps sort through entry sheets to select new recruits.

“We aim to double productivity by spending half the time so far needed,” said SoftBank spokeswoman Rika Takahashi. Workers do not worry about being replaced by AI and have more time to do innovative jobs, she added.

Daiwa Institute’s Mizobata said the introduction of the law could have negative short-term side effects as incomes are expected to fall due to a decline in overtime work.

“If labor productivity improves, income would not fall,” he said. “It would be difficult, however, to expect an immediate improvement in labor productivity. A possible income decline could have a negative impact on consumption.”

Mizobata, however, added that more companies are likely to compensate employees for their efforts to reduce overtime work through such measures as giving extra bonuses, which makes it an incentive to improve labor productivity.

“A negative impact might be bigger in the short term but positive effects are expected to eventually surpass this, having a plus impact on the overall economy,” he said.

Big Win for Refinery Contractors in California


Properly drafted collective bargaining agreements can protect construction industry employers from wage and hour class actions.  A team of attorneys at Atkinson, Andelson, Loya, Ruud & Romo led by Ron Novotny and Brian Wheeler is at the forefront in utilizing the collective bargaining exemptions to win wage and hour class actions. Recently the team won a major victory for a refinery contractor client.

Compensation for travel time in refineries is problematic.  The employees badge-in at a main gate.  Then, they either walk or are driven to their reporting location for a safety briefing.  Compensable time is normally calculated from the start of the safety briefing.

Employees frequently work a 10 or 12-hour shift.  The practice is to relieve employees from work 30 minutes before the end of the shift to clean up and exit the facility.

There is an issue as to whether the time from the badge-in to the commencement of the safety briefing is time worked.  Since employees are allowed to stop work before the end of the shift, the understanding with the unions is “in on the employee’s time and out on the company’s time.”

California and federal law require that employees be paid for all hours worked.  Under California law, employees who badge-in and are REQUIRED to take transportation to the worksite are entitled to compensation.  If the employee is given a choice between walking or taking transportation to the worksite, the time is not compensable.

When the Wage Orders were revised in 2002, the issue of travel time agreements between employers and the construction unions was addressed.  Since that time, Section 5(D) of Wage Order 16 has stated that the time spent traveling to the first place that the employee is required to report is compensable work time; and that this requirement applies to employees covered by a collective bargaining agreement unless the agreement “expressly provides otherwise.”  The language was not previously litigated before a state court.

The Carpenters 46 Northern California Counties Conference Board was very helpful in confirming the long-standing agreement between the parties that it was “in on the employee’s time and out on the company’s time.”  It signed a Letter of Understanding with the employer confirming that the time spent traveling to the first place of work was not compensable work time within the meaning of the Wage Order.

In a recent decision in Northern California, an employee in a class action case argued that employees were entitled to be paid at least the minimum wage regardless of what their union agrees to.  However, an Alameda County Superior Court judge ruled that the agreement between the employer and the union was a complete defense to the claim that employees were not properly paid from badge-in to badge-out.

If the judge had ruled that the collective bargaining exemptions did not apply, then the court would have found that the employees were not properly compensated for their time after badge-in before the start of the safety meeting.

The employer would not just be liable for the hourly wage that was not paid, but also for penalties, attorneys’ fees, interest, and waiting time penalties of up to 30 days.  In many similar wage and hour cases, the liability can exceed $100 million.

The Carpenters Union and the IBEW have introduced a bill in Sacramento that will increase protection from wage and hour class actions for union signatory employers, Assembly Bill 1654.

The California courts have held that Private Attorney General Act (“PAGA”) claims could be brought as representative actions against union signatory employers and that these claims were not subject to mandatory arbitration under the collective bargaining agreements.

The potential liability in PAGA litigation is huge.  A penalty can be up to $200 per pay period for every employee for a year.  Thus, if a mistake in complying with one provision of the California Labor Code, the employer would owe a penalty of $10,300 for each of its employees, plus interest, plus attorneys’ fees.

AB 1654 would amend PAGA to carve out employers in the construction industry with collective bargaining agreements meeting specified criteria by making the following change to the Labor Code:

2699.6. (a) This part shall not apply to an employee in the construction industry with respect to work performed under a valid collective bargaining agreement if the agreement expressly provides for the wages, hours of work, and working conditions of employees, premium wage rates for all overtime hours worked, and for the employee to receive a regular hourly pay rate of not less than 30 percent more than the state minimum wage rate, and the agreement does all of the following:

(1) Prohibits all the violations of this code that would be redressable pursuant to this part, and provides for a grievance and binding arbitration procedure to redress those violations.

(2) Expressly waives the requirements of this part in clear and unambiguous terms.

(3) Authorizes the arbitrator to award any and all remedies otherwise available under this code.

(b) For purposes of this section, “employee in the construction industry” means an employee performing work associated with construction, including work involving alteration, demolition, building, excavation, renovation, remodeling, maintenance, improvement, repair work, and any other work as described by Chapter 9 (commencing with Section 7000) of Division 3 of the Business and Professions Code, and other similar or related occupations or trades.

Two primary takeaways from this decision and other recent decisions that Ron and his team have won are:

  1. Negotiate contract language with the construction unions to protect the company from wage and hour class actions.
  2. If you get sued, hire a law firm that understands the nuances of the collective bargaining exceptions to California employment law.

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