Nara District Court ruling July 7, 2020 (p. 56, Rodo-hanrei #1231)

In this case, seven professors (plaintiffs, X1-X7), who were fired or whose employment renewal was refused due to university Y's financial difficulties and the reorganization of faculties, argued that their dismissal of employment and the refusal to renew their employment were invalid. The court invalidated the dismissal of four professors (X1-X4), who had not reached the mandatory retirement age, and the refusal to renew of one of three professors (X5), who had concluded a fixed-term agreement after reaching the mandatory retirement age. However, the refusal to renew employment of the remaining two professors (X6 and X7) was found to be valid.
Here, we will examine the issues that distinguish the judgments between X6 and X7, and X1 to X4 (1 below), and the issues that distinguish the judgments between X6 and X7, and X5 (2 below).

1.Refusal to renew fixed-term employees and dismissal due to reorganization

We pay special attention to this point because the reason for the judgement being reversed is not necessarily clear with respect to the determination of the reasonableness of the refusal of renewal of X6 and X7 (Article 19 of the Labor Contract Act, LCA) and the determination of the reasonableness of the dismissal of X1 to X4 (Article 16 of LCA).
Before getting into this subject, let us take an overview of the court's judgment about the validity of the X1-X4 dismissals considered earlier, the so-called four elements of dismissal for reorganization (①-④　below).
① With respect to the necessity of reducing the number of employees, the court found that the necessity for reducing the number of professors (the relevant faculty) was not high, taking into account the "necessity for reducing the number of professors by eliminating overstaffing of (the relevant faculty)" resulting from the abolition of the relevant faculty (end of (2) on the left side of p. 83 of the Rodo-hanrei #1231).
② With respect to efforts to avoid dismissal, of three professors who had actually been offered a transfer to another faculty, two actually moved to another school, thereby leaving room to add [staff] from among X 1-7, in addition to which no consideration was given to measures such as reduction of salaries and bonuses. Therefore, [the court found that] although the university "made efforts to avoid dismissal" such as recruitment of voluntary retirement and advice on a change of work status to office staff or primary and secondary school professors, the university cannot be regarded as having "exhausted their efforts to avoid dismissal" (end of (3) on the left of p. 84 id.).
③ Concerning the reasonableness of the selection of persons [for dismissal], the court denied the reasonableness of the selection of persons, emphasizing that although it was possible for X1 to X5 to transfer to a different faculty, they were not given such an opportunity as mentioned in ② above (end of (4) of p.84 id.).
④ Concerning the reasonableness of the procedures, as in ② above, due to the lack of consideration of measures such as reduction of salaries and bonuses during collective bargaining, the court concluded that "it may be said that [the university] was in discussions with the labor union etc.", however, "the discussions with the labor unions, etc. were not been sufficiently conducted."
If we first point out the problems in determining these four factors, we find that the difference between "reducing the number of professors by eliminating overstaffing" and "reduce professors" in ① is not clear, and that ③ and ④, are another way of approaching ②, without seeming to point out any specific facts in the end. In other words, only a very limited number of circumstances have been emphasized as the reason for the invalidation of the dismissal for reorganization (end of (5) in the lower left of p. 85).
Nevertheless, it could be argued that the decision of the court was made on the basis of limited circumstances, because Y's side should have presented facts and deepened its discussions more proactively, such as by analyzing and discussing in more detail the necessity of management rationalization and the content of management decisions to that end, but this was inadequate. In other words, there was a structural problem in that there were insufficient circumstances to fully discuss each of the four elements and deepen their respective content from the start, which could be said to be the cause of weakness in Y's arguments.
Now, let's discuss the main subject. Why was the reasonableness of the non-renewal of X6 and X7 affirmed despite these limited such circumstances, while the reasonableness of the termination of X1-X5 was denied?
Certainly, the court found that ➊X6 and X7 are fixed-term contract employees who have been rehired after retirement, and it is reasonable to treat fixed-term contract employees preferentially in the event of job cuts. ➋X6 and X7 received retirement allowances (severance pay), and had fixed-term contracts for one year, which had already been renewed once or twice. Therefore, it is difficult to say that there was a great expectation of economic damage or continued employment due to the termination (p.86, lower left, "c").
Of these, ➊ relates only to the elements mentioned in ③ above. However, since ③ overlaps with ② and ④ as mentioned above, ➊ positively affirms the reasonableness of ③ and seems to reinforce the reasonableness of ② and ④.
Next, it is not clear how ➋ relates to the four elements. As for ①, in ① the company's circumstances are mainly considered, but in ➋ the employees´ circumstances are considered. 　Rather than considering the arguments as not meshing, it could be thought of as an indication of a general decision-making framework, which comprehensively considers the circumstances of the company and the circumstances of the employees.　 The same can be said for ② and ④. It seems that the hurdle to be assessed that the procedures have been fully considered in order to avoid Xs' dismissal and refusal will be reduced by the ➋, i.e. the need to protect the employees.
From this viewpoint, I think that the decision on the dismissal for reorganization, similar to other cases of dismissal, is premised on a decision framework that balances (comprehensively judges) the circumstances of the company and the circumstances of the employees.

2.Term of a fixed-term contract

The next point is that opposite judgments were reached for X 5, on one hand, and X6 and X7, on the other hand, even though their post-retirement re-employment and fixed-term contracts were the same. Moreover, the court, after examining in detail the claim that X5 was a contract employee with an indefinite term, denied it, and came to a different conclusion from that of X6 and X7.
There are two main points:
First, for technical reasons, the contract period for X6 and X7 was deemed to be one year, whereas the contract period for X5 was deemed to be five years (as specified in the notice of employment conditions). In other words, X5's retirement was at issue during the five-year contract period, so it is not a matter of refusal to renew (Article 19 of LCA) but rather an issue of dismissal. Furthermore, since it is a fixed-term contract, it is not an issue under Article 17 rather than Article 16 of LCA, for no-term contract. Since Article 17 governs a case of dismissal which occurs in the middle of term even though the contract is a fixed-term contract, the hurdles for recognizing the validity of a dismissal is higher [under Article 17] than under Article 16 (it is not “reasonableness”, but "unavoidable reason"). In short, since the same dismissal has a higher hurdle than for the dismissal of X1-X4, it naturally follows that if the dismissal is invalid for X1-X4, then the dismissal of X5 will also be invalid (left p. 86, "1").
The second issue is the actual situation. In other words, X5 was a member of the faculty reorganization study group, specially assigned by the dean, and, unlike X6 and X7, X5 also played a more important role in Y, including receiving a special monthly allowance of JPY100,000 for post-retirement re-employment. When judging the reasonableness of the non-renewal of employment, it is possible to consider whether the work for which the employee is responsible is supplementary or essential and important, and this case took these same factors into consideration. In other words, considering the importance of the role played by X5, the need to protect X5‘s expectations is greater, and it seems that this background underlies the court's decision.

3. Practical points

There seemed to be a negative view on whether or not the four elements of dismissal for reorganization apply when there is an agreement on job category limitation, particularly on the grounds that efforts to avoid dismissal cannot be conceived of. However, it is possible to propose a job category shift even if one-sided personnel rights cannot be exercised, and therefore, even if there is an agreement on job category limitation, there would be a reasonable effort to avoid dismissal. Therefore, there are many recent cases in which the application of the four elements of "dismissal for reorganization" are allowed, but the courts consider the impact of the "occupation limitation agreement" at the stage of application (see (3) of p. 59).
By the way, X5's five-year fixed-term contract implies a structural problem in the case of post-retirement re-employment.
In many cases, a one-year fixed-term contract is concluded each year for five years after reaching the mandatory retirement age of 60 until the age of 65. While the status of employees is unstable, the Company is obliged to take measures to secure employment until the age of 65 under the Act on Stabilization of Employment of Elderly Persons, or in short, the Old Age Law, OAL, which legally raises the expectations of employees that they will be able to work until the age of 65.
The theoretical structures that reflect the high expectations are the theoretical structure in which the term of the fixed-term contract is 5 years, as shown in X5 (however, the agreement of the parties to this effect is necessary), and the theoretical structure in which the expectation of renewal under Article 19 of the LCA is, in principle, allowed for 5 years.
In this Nara Gakuen University case, the court did not mention the awareness of the issue, but it seems necessary to also consider how the necessity of measures to secure employment until the age of 65 under the Old Age Law impacts X6 and X7.

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