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Japanese Companies Must Disclose Their Gender Wage Gap from 2023

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In June 2022, the Japanese government announced its framework policy plan called the “Framework Policies” (honebuto no hoshin, the “Policies”).

The Policies require Japanese companies to increase the transparency of their gender wage gap in two ways; (a) disclosing the wage gap at companies’ websites or other relevant methods, and (b) disclosing the wage gap in annual securities reports. Japan was ranked 120th out of 156 in the 2021 edition of the Gender Gap Index, the lowest level among developed countries.

The OECD survey shows that the wage gap between men and women in Japan is 22.1% in 2021. The gap is much larger compared to 11.7%, which is the average of OECD countries in 2020. The new disclosure requirements are expected to encourage companies to increase the gender equality at workplace.

1. Wage Gap Disclosure Rules for Companies with More Than 301 Employees

From 2023, Japanese companies with more than 301 employees on a regular basis which fall within the categories of “Large Company” under the Act on Promotion of Women’s Participation and Advancement in the Workplace (the “Act”) will be required to disclose the wage gap between men and women on their websites or by other relevant methods. The Ministry of Health, Labour and Welfare expeditiously drafted the relevant revisions to the Ministerial Ordinance of the Act after the announcement of the Policies in June 2022.

According to the draft revisions to the Ministerial Ordinance of the Act, a Large Company shall disclose the wage gap calculated by dividing the average annual wage of women employees by the average annual wage of male employees. A Large Company shall disclose the wage gap in separate categories of (a) all workers, (b) regular employees (seiki koyo) who have full protections under labour law, and (c) irregular employees (hi seiki koyo) who have limited protections under labour law. The company needs to disclose its wage gap on a non-consolidated basis.

According to media report, the new rules come into force in July 2022. Therefore, a Large Company shall disclose the wage gap from the first fiscal year on or after July 2022. In Japan, most companies’ fiscal year ends at the end of March. For those companies, they need to begin disclosing the wage gap of the current fiscal year from April 2022 to March 2023 after the fiscal year ends in 2023.

2. The Wage Gap Disclosure in the Annual Reports

The Policies also require listed Japanese companies to disclose the wage gap between men and women in their annual securities reports in addition to the requirements under the Act above. The Policies identify that a wage gap has significance in companies’ mid-term and long-term growth. The details of the new rules are under discussion at the Disclosure Working Group at the Financial Services Agency’s Financial System Council (the “DWG”).

A report by DWG points out that companies should disclose the gender wage gap at the “Status of Employees” section of the annual securities reports. According to media report, the new rules may be implemented from the fiscal year 2023, beginning April 2023 at the earliest.

With the new disclosure rules, Japanese companies need to improve their gender equality to attract favourable candidates in the job market as well as more investors in the securities market.

Yoshie Midorikawa, Partner

Yoshie Midorikawa has extensive experience in complex disputes and arbitration. Having worked with leading law firms in Japan and Singapore, she has handled parallel proceedings across multiple jurisdictions as well as domestic disputes before Japanese courts. She has also served as a board member of listed companies in Japan, improving their corporate governance.

Her deep understanding of the civil law system, her working experience in international environments, including common law jurisdictions, and her knowledge of business, enable her to bring practical and nuanced legal solutions to international businesses.

She is listed among “Best Lawyers in Japan (Litigation)” in the editions of 2021, 2022, and 2023, “Best Lawyers in Japan 2021 (Corporate Governance & Compliance)” in the edition of 2023 by Best Lawyers.

The contents of publication are intended to provide general information only and do not contain or convey any legal or other advice.

Recent Developments in Class Action: A Gender Discrimination Case

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A class action, also known as a class-action lawsuit, class suit, or representative action, is a type of lawsuit where one of the parties is a group of people who are represented collectively by a member or members of that group.

1. Discrimination in University Entrance Examinations

In 2018, one of the biggest stories in the Japanese media was the news about how a medical university in Japan had been unfairly discriminating against women and examinees who took their second or further repeat attempts at the entrance examinations. This news came to light as a by-product of an investigation on a different scandal at the university. Subsequent investigations at other universities revealed that a sizable number of medical universities had continued the same kind of discrimination in the admission process for years.

Since the results of university entrance examinations have significant impact on examinees’ life chances, including their future careers, fairness in the admission process is crucially necessary. This scandal attracted huge attention in Japan because, around that time, Japan’s serious gender gap had finally become widely recognised and international buzzwords such as SDGs and ESGs had become a topic of discussion among the public.

From a legal perspective, this case also has implications for class action lawsuits in Japan. This article analyses the types of lawsuits that have been used in this discrimination case and discusses the initiatives which companies should implement to meet the higher standards expected of companies in an era of SDGs and ESGs.

2. Remedies through Individual Civil Lawsuits

The immediate reaction of the examinees who had felt betrayed by the unfair admission process was to file individual civil lawsuits against these universities. The examinees claimed damages and compensation. In May 2022, the Tokyo District Court ruled in favour of some of the examinees’ claims that the university treated these examinees unfairly based solely on their gender in their entrance examinations.

According to media reports, several universities and their examinees have already reached settlements in other lawsuits. In Japanese litigation practice, lawsuits often end by a settlement after both parties reach an agreement before the courts. In such cases, the details of the settlements are not disclosed. Therefore, the details of the settlements are not yet known for these cases, but according to media reports, these universities agreed to pay damages to the examinees who were plaintiffs in the cases.

3. Remedies through Class Action

While it is common practice to file individual civil lawsuits, as described above, when an individual wants to seek judicial remedies, the interesting point about this case is that the victims are also using a remedy based on the consumer court procedure, known as the Japanese version of class action. This procedure is based on the Act on Special Measures Concerning Civil Court Proceedings for the Collective Redress for Property Damage Incurred by Consumers (the “Act”), which came into force in 2016.

The Act adopts a two-phase court procedure. In the first phase, a Specified Qualified Consumer Organisation (the “Organisation”), which is authorised by the Prime Minister of Japan, is required to file a lawsuit on behalf of consumers, demanding a judgement to declare that a company or any other type of business entity which provides goods or services to consumers, is liable for certain damages to each consumer represented by the Organisation. In the process, the Organisation obtains a judgment confirming the illegality of the business entity, which is the defendant in the case. The second phase is called the Simplified Finalisation Procedure. In the second phase, the Organisation authorised by individual consumers shall file a proof of claim by individual consumers, and after the court confirms the claim, the business entity shall be obliged to pay the consumers the amount of the certified claim.

The consumer court procedures have been rarely used, because only limited registered organisations are qualified to be plaintiffs in the court procedure, and because the two-phase court procedure is complicated. However, in the current discrimination case, a specific qualified consumer protection organisation successfully used the court process. The organisation filed a lawsuit against one of the universities in 2019 with the Tokyo District Court seeking the declaration of the obligation to refund examination fees and other expenses, and in September 2021, the court ruled in favour of the consumer protection organisation. The court found that the university is obliged to refund examination fees to the examinees in the first phase. The consumer protection organisation was able to successfully use this process because the damages caused to each examinee were easily generalised in the form of examination fees, and other expenses associated with the entrance examinations. The consumer protection organisation, which successfully obtained the declaration judgment, announced that they had filed a proof of claim in the Simplified Finalisation Procedure, the second phase, in April 2022. If the damages recovered through the consumer court proceedings in this discrimination case are significant enough, the Japanese class action may become an effective alternative for consumer protection cases in the future.

4. Meeting the Expectations for Creating Diversity-Conscious Organisations

In this discrimination case, the concept of diversity has once again become a point of contention. However, it is not an isolated example. All kinds of organisations are now required to meet the expectations to respect or improve diversity, not only in the relationship with customers but also in various internal processes.

For example, the Corporate Governance Code of Japan, revised in 2021, requires improving the level of diversity at both the management and employee levels. Diversity in management positions is considered an urgent goal to accomplish.

The human rights issue has gained attention not only within companies or other types of organisations, but also in the supply chain and other business activities. For instance, new regulations on human rights due diligence have been introduced in the EU and its member states. In Japan, the Ministry of Economy, Trade, and Industry’s “Study Group on Guidelines for Respecting Human Rights in Supply Chains” released their draft guidelines in April 2022. The study group is expected to publish the guidelines this year. From now on, companies will need to pay more attention to human rights issues in their businesses.

With these initiatives, companies are now expected to create an organisational structure that improves diversity in various aspects of their operations, including corporate governance, human resources, and supply chain management. Adapting to these requirements will significantly change the culture of Japanese corporations in the long run.

Author

Yoshie Midorikawa (Partner, Miura & Partners)

Yoshie Midorikawa has extensive experience in complex disputes and arbitration under the rules of the ICC, SIAC, UNCITRAL, LCIA, and ICSID. Having worked with leading law firms in Japan and Singapore, she has handled parallel proceedings across multiple jurisdictions as well as domestic disputes before Japanese courts.

She has also handled investigations on corporate fraud and compliance issues.

Her recent interview on investigation practice includes Navigating the Fraud Landscape of Japan in Lawyer Monthly. She is listed in “Best Lawyers in Japan 2023 (Litigation)” and “Best Lawyers in Japan 2023 (Corporate Governance and Compliance)” by Best Lawyers. She is also a member of WWCDA (Women’s White Collar Defence Association).

New Reforms for Enforcing Mediation Settlement Agreements in Japan

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Mediation is a structured, interactive process where an impartial third party assists disputing parties in resolving conflict through the use of specialised communication and negotiation techniques. All participants in mediation are encouraged to actively participate in the process.

1. Proposals for New Legislation to Enforce Mediation Settlement Agreements

In February 2022, the Committee on the Reform of International Arbitration in Japan (the “Committee”) issued their proposals for new legislation to enforce settlement agreements concluded in mediation (the “Proposals”). This is part of a series of initiatives by the Japanese government to improve its international dispute resolution mechanism, which have been ongoing since 2017.

In 2021, the Committee submitted their proposals for reforms to the Arbitration Act of Japan to update the Act in line with the UNCITRAL model arbitration law (2006). The bills on the reforms of both arbitration and mediation are expected to be submitted to the Diet later in 2022 or in the following year.

2. Responding to the Singapore Convention on Mediation

In September 2020, the United Nations Convention on International Settlement Agreements Resulting from Mediation (the “Singapore Convention”) came into force to provide a mechanism to enforce settlement agreements concluded by international mediation. While Japan is not a signatory of the Singapore Convention as of today, mediation and arbitration have gained more attention in Japan as instruments for solving international business disputes. The Proposals recommend that the new legislation stipulate the enforcement process of settlement agreements resulting from international mediation under certain requirements before Japanese courts. The recommendation is a response to the requirements in the Singapore Convention. However, the Proposals suggest that the new legislation is applicable only when the parties of mediated settlement agreements have agreed that the enforcement process may be carried out in accordance with the Singapore Convention or its implementation act in Japan. It appears that the Proposals are based on the assumption that Japan would declare a reservation pursuant to Article 8 of the Singapore Convention when it would sign the Convention.

3. Enforcement Mechanisms for Settlement Agreements Concluded by Domestic Mediation

Domestic mediation in Japan is often used for settling relatively small disputes between individuals or between companies. Under the current mediation mechanism in Japan, the parties may not be represented by attorneys in some cases. Considering such practices, the Proposals are cautious about the scope of the mediated settlement agreements which shall be enforceable. The Proposals recommend that the Japanese courts enforce only mediated settlement agreements made in a certified alternative dispute resolution process based on a specific act.

The Proposals also suggest that the new legislation is applicable only when the parties of mediated settlement agreements have agreed that the enforcement process may be carried out in accordance with the settlement agreements.