Is it true that managers in Japan are not entitled to overtime pay? How is a "manager in name only" identified?

Question

阿部国際法律事務所 · Accepted Answer

Only genuine supervisors or managers under Art. 41, item 2 are exempt from overtime pay, judged by actual authority, working pattern and pay, not title. Late-night premiums and paid leave still apply.

Saying "managers don't get overtime pay" is lawful only where the person is a "supervisor or manager" under the Labour Standards Act (Art. 41, item 2). Whether someone qualifies depends not on a title such as section chief or store manager, but on the reality of their duties, responsibility and authority, working pattern and pay. If they do not qualify, they are a "manager in name only", and the employer must pay premium wages for overtime and holiday work (Art. 37). Even genuine managers must receive late-night premium pay and annual paid leave in the same way as other employees.

When this becomes an issue

- Store managers or section chiefs are excluded from overtime pay as "managers", but in practice they work fixed shifts.
- You assume that paying a management allowance means overtime pay is unnecessary.
- A former manager has sent a letter claiming unpaid overtime for past years.
- A Labour Standards Inspection Office inspection has raised questions about how managers' working hours are treated.
- Employees complain that their take-home pay fell after promotion to a management post.

1. Who counts as a supervisor or manager

The Labour Standards Act provisions on working hours, rest breaks and days off do not apply to "persons in a supervisory or managerial position" (Art. 41, item 2). These are known as supervisors or managers.

A leaflet published by the Ministry of Health, Labour and Welfare (MHLW) describes them as people who stand in a position integrated with management regarding the setting of working conditions and other labour management. It says that whether someone qualifies is decided not by job title but by the reality of their duties, responsibility and authority, and working pattern.

So calling someone a "manager" inside the company does not, by itself, remove the obligation to pay overtime.

2. Criteria (MHLW guidance)

The MHLW leaflet says the decision is made by looking at the following points as a whole:

- Important duties: whether the person has important duties that require them to act beyond the limits of working-hours rules.
- Important responsibility and authority: whether management has entrusted them with significant responsibility and authority. Someone who must seek a superior's approval for many matters, or who simply passes on instructions from above, does not qualify.
- Working pattern: whether their working hours are strictly controlled.
- Treatment: whether their regular pay, bonuses and other conditions reflect their position compared with ordinary employees.

3. A court decision: the McDonald's Japan case

In a case over whether a fast-food store manager was a supervisor or manager, the Tokyo District Court held that he was not (Tokyo District Court, 28 January 2008, McDonald's Japan case).

The court said that to qualify, a person must be in a position that substantively meets the purpose of the law, not merely hold the title of store manager. Specifically, it said the question should be decided by looking at (1) how far, in light of their duties, authority and responsibility, they are involved in important matters of the business as a whole, including labour management; (2) whether their working pattern is unsuited to working-hours regulation; and (3) whether their salary and bonuses reflect the position of a supervisor or manager.

This was the judgment of one district court. The answer depends on the actual authority and working conditions at each company, so the starting point is to check the reality for each manager individually.

4. MHLW notice on store managers

For managers of chain stores, the MHLW has set out in an administrative notice the factors that point against supervisor or manager status (Notice No. 0909001 of 9 September 2008). The main factors listed in the leaflet are:

- No real responsibility or authority over hiring or dismissing part-time and casual staff.
- No real responsibility or authority over staff evaluations, drawing up shift rotas or ordering overtime.
- Being subject to pay deductions or negative evaluation for lateness or leaving early.
- Long hours that bring the hourly equivalent of their pay below that of part-time staff. Falling below the minimum wage is described as an extremely important negative factor.

The leaflet also cautions that not meeting these negative factors does not automatically make someone a supervisor or manager.

5. What still applies to genuine managers

Even where someone is a supervisor or manager, the Labour Standards Act does not stop applying altogether.

- Late-night premium: work between 10 p.m. and 5 a.m. must be paid at a premium of at least 25% (Labour Standards Act, Art. 37(4)). The MHLW leaflet also states that late-night premium pay is required for supervisors and managers.
- Annual paid leave: must be given in the same way as to ordinary employees (MHLW leaflet).
- Tracking working hours: to carry out interviews with a doctor, employers must keep track of employees' working hours (Industrial Safety and Health Act, Art. 66-8-3). This duty covers supervisors and managers too.

6. Consequences of a finding of "manager in name only"

If someone is found not to be a supervisor or manager, the employer must pay premium wages for past overtime and holiday work (Labour Standards Act, Art. 37(1)).

The minimum premium rates are 25% for overtime and 35% for holiday work (Cabinet Order setting the minimum premium rates under Art. 37(1)). Overtime beyond 60 hours in a month must be paid at a rate of at least 50% (Art. 37(1), proviso). Managers often work long hours, so the portion above 60 hours can be large.

For the time being, wage claims become time-barred three years after they could first be exercised (Labour Standards Act, Art. 115 and Supplementary Provisions Art. 143(3)). Claims from several managers for three years each can add up to a large sum.

A court may also order an "additional payment" equal to the unpaid premium wages (Art. 114). For the time being, this must be claimed within three years of the violation (Supplementary Provisions Art. 143(2)).

7. "Non-union staff" and "supervisors or managers" are different

The range of staff excluded from a labour union does not match the range of supervisors and managers under the Labour Standards Act. The MHLW leaflet explains that "workers in a supervisory position" under the Labour Union Act are different from supervisors and managers under the Labour Standards Act.

For example, senior HR staff with access to confidential information may be non-union staff under the Labour Union Act. But if they have no responsibility or authority to manage labour themselves, or their working hours are strictly controlled, they are not supervisors or managers under the Labour Standards Act.

8. Reviewing your management grades

If you may have "managers in name only", there are two broad ways forward. One is to give them the authority, discretion over working hours and pay that a genuine supervisor or manager should have. The other is to remove them from that category, manage their working hours and pay premium wages.

If you take the second route, changing the management allowance may be challenged as an adverse change to wages. Changes to work rules and pay regulations are judged by the need for the change, the reasonableness of its content and how it was explained to employees. Proceed carefully, explaining the change to those affected and keeping records.

Steps you can take now

- List everyone treated as a "manager" and identify those excluded from overtime pay.
- Check whether they actually have authority over hiring, dismissal, evaluations and shift rotas.
- Check how their attendance is managed, including treatment of lateness and whether they are on shift rotas.
- Convert their annual pay, including management allowance, into an hourly rate that reflects their overtime, and compare it with their staff.
- Check that you pay late-night premiums and give annual paid leave to supervisors and managers.
- Check that you have a system for tracking employees' working hours, including those of supervisors and managers.

When to consult a lawyer

- Many of the employees you treat as supervisors or managers work fixed shifts.
- A former or current employee has sent a letter claiming overtime pay.
- The Labour Standards Inspection Office has issued a correction recommendation or guidance about your managers.
- You want to revise your management grades or pay structure but are concerned about adverse changes to working conditions.
- You have received an application for labour tribunal proceedings or a lawsuit.

Frequently asked questions

Q. If we pay a management allowance, is overtime pay unnecessary?
Not necessarily. Whether someone is a supervisor or manager is decided by looking at the reality of their duties, responsibility and authority, working pattern and pay as a whole, not just whether they receive an allowance. If they do not qualify, premium wages must be paid (Labour Standards Act, Art. 37).

Q. Can a manager with no subordinates be a supervisor or manager?
It does not turn on subordinates alone. But because the person must be in a position integrated with management on labour matters, someone with no subordinates and little authority is unlikely to qualify.

Q. Do supervisors and managers need late-night premium pay?
Yes. The MHLW leaflet states that late-night premium pay for work between 10 p.m. and 5 a.m. must be paid even to supervisors and managers. Annual paid leave must also be given as for ordinary employees.

Q. How many years back can a "manager in name only" claim overtime?
For the time being, wage claims become time-barred three years after they could first be exercised (Labour Standards Act, Art. 115 and Supplementary Provisions Art. 143(3)). You may therefore face claims for the past three years.

Q. Are non-union managers automatically supervisors or managers?
Not necessarily. The MHLW leaflet explains that "workers in a supervisory position" under the Labour Union Act differ from supervisors and managers under the Labour Standards Act. Even non-union staff may not qualify, depending on their actual authority, working pattern and pay.

Q.Is it true that managers in Japan are not entitled to overtime pay? How is a "manager in name only" identified?

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