WHY JAPAN IS DIFFERENT
Why you can't reset a Japanese organization, and what investors should do instead
IN SHORT
- Japanese law makes dismissal very difficult. Under Article 16 of the Labor Contracts Act, a dismissal without objectively reasonable grounds is invalid.
- So a Japanese organization cannot be reset by layoffs. Every hiring and promotion decision compounds for years.
- The organizational walls that growth companies hit are predictable. In Japan, anticipating them is the only reliable strategy.
How are Japanese organizations different?
Japanese companies use the same org charts, KPIs and OKRs as anywhere else, but they run on different rules. Long-term employment is the default, managers are mostly developed from within, and roles are shaped around people rather than written job descriptions. The mid-career job market is growing but is still thinner than in the US or Europe.
Why is it so hard to dismiss employees in Japan?
Because Japanese law treats a dismissal as invalid unless it has objectively reasonable grounds and is appropriate in light of social norms (Labor Contracts Act, Article 16). Courts apply this strictly. For a redundancy dismissal (seiri kaiko), courts look at four factors:
- Was the reduction in headcount truly necessary?
- Did the company make real efforts to avoid dismissals?
- Were the people selected on objective, reasonable criteria?
- Did the company explain and consult properly?
A dismissal ruled invalid means reinstatement and back pay, not a severance check. A system to settle invalid dismissals with money has been debated since the early 2000s, but it has not been enacted.
What does this mean for investors and global HR leaders?
In many markets, a struggling organization is reset: cut a layer, replace managers, rehire. In Japan, that reset button barely exists. When global playbooks land in Japan, the same mistakes repeat.
| Global playbook | What happens in Japan |
|---|---|
| Hire ahead of the plan; cut if growth slows | The cost cannot be undone. The people hired in a growth push stay for years. |
| Promote top performers into management fast | Without real authority they burn out and leave, or stay on in a role that doesn't fit them. |
| Performance management that assumes low performers will leave | Low performers usually stay. The system creates friction without creating movement. |
Can these problems be predicted?
Yes. Organizational problems always surface later than business problems, and they cluster at the same points: around 30, 50, 100 and 300 employees, regardless of industry. If you cannot reset, you have to anticipate. ASHR's stage guides set out which HR moves to make at each stage, before the wall arrives.
Who wrote this guide?
Yoichiro Mori founded ASHR Inc., a strategic HR firm in Tokyo. At Recruit he worked on HR framework design and on HR due diligence and post-merger integration in M&A. At SMS, a Tokyo-listed healthcare information company, he spent three years in Singapore as Head of Global HR for MIMS, a drug information company acquired by SMS in 2015, with entities across Asia-Pacific, the Middle East and Europe, running acquisitions and post-merger integration every year. He later became CHRO of Asoview.
He has worked on both sides of the line: integrating overseas companies as a Japanese owner, and building organizations inside Japanese growth companies. He is the author of a Japanese book on anticipatory HR strategy for growing organizations (JMAM, 2026; view on Amazon Japan).
Frequently asked questions
Can you fire an employee in Japan?
Yes, but only with objectively reasonable grounds that are appropriate in light of social norms (Labor Contracts Act, Article 16). Courts review dismissals strictly, and an invalid dismissal leads to reinstatement and back pay. In practice, many companies negotiate a voluntary departure instead.
What are the four requirements for redundancy dismissal in Japan?
Japanese courts assess a redundancy dismissal (seiri kaiko) on four factors: the necessity of reducing headcount, the employer's efforts to avoid dismissal, the reasonableness of how employees were selected, and whether the employer explained and consulted properly.
Does Japan allow unfair dismissals to be settled with money?
Not as a general system. A mechanism that would end employment in exchange for a court-set payment has been debated since the early 2000s, and a government expert panel reported on its legal design in 2022, but it has not become law.
What HR mistakes do foreign investors make in Japan?
Three patterns repeat: hiring ahead of the plan and being unable to reverse it, promoting top performers into management without authority, and importing performance systems that assume low performers will leave. Each assumes the organization can be reset later, which Japan does not allow.
At what size do Japanese startups hit organizational walls?
Problems cluster around 30, 50, 100 and 300 employees. Headcount is only a guide. The real trigger is a change in structure: the CEO can no longer see everyone, first-time managers are appointed, or culture spreads thinner than hiring grows.
Sources
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