New labor reform laws were enacted in Japan in April 2019, setting limits on overtime. Even in extremely busy or emergency situations, companies forcing more than 100 hours overtime in a month will be fined.

“Society has become quite a bit more sensitive to compliance when it comes to labor, and the risk of damage to the firm’s reputation is much higher. Excessive overtime or overwork-related death can make it very hard to hire new employees, scare off customers, and have significant impact on the corporation,” explains Yuri Sugano, partner and attorney-at-law at Nishimura & Asahi, an expert in labor issues.

Companies are hurrying to not only comply with laws and regulations and avoid possible reputational risk, but also to develop a more efficient organization. As Japan’s labor force shrinks, firms will be unable to maintain competitiveness unless they can boost productivity.

Institutional investors referencing corporate Environment, Society, and Governance (ESG) performance for investment decisions are also extremely interested in personnel strategies, including labor reform. According to Takashi Miyao, senior ESG specialist, Responsible Investment Dept. at Nomura Asset Management Co., Ltd., “It is difficult to make a evaluation of the society component of ESG because its scope is broad, but human resources are clearly a major factor.”

As a result, there is an upsurge in the adoption of new styles of work, including flextime with no core time, at-home work, and teleworking.

Labor reform is expected to have beneficial effect by reducing environmental impact, too. If the number of people working overtime late every night drops, so will electricity consumption for lighting, air conditioning, and computers, which will result in reduced greenhouse gas emissions.

Itochu Corp. is one company achieving visible improvement. The firm has relatively few employees for a general trading company of its size, making labor reform a key management concern. The introduction of the Morning-Focused Working System in October 2013 has attracted considerable attention in this regard. In principle, overtime is prohibited after 20:00, and in its place the firm pays the same late-night overtime rates for work from 05:00–08:00 in the morning.

Early morning work is slowly expanding, and employees seem to like it. One 30-something woman in accounting department explains “Some people used to come in about nine or ten in the morning, pushing back our work for the whole day. Now many employees come in earlier than before, making it possible to get discussions out of the way earlier, and get work done sooner.”

Itochu provides free snacks to employees who come into work before official working hours
Itochu provides free snacks to employees who come into work before official working hours

Results for FY2017 showed that only about 5% of employees stayed in the office after 20:00, about only one-sixth of the level of FY2012, while about 44% more employees came into work before 08:00 in the morning. Overall overtime dropped by about 11%, electricity consumption by about 7%, and taxi fees paid for employees returning home late at night by about 40%. Taking the train home instead of a taxi would also have contributed to reducing greenhouse gas emissions.

One alternative to focusing on overtime is telework, which allows employees to work from home, a coffee shop, or other site outside the office. Telework is also expected to reduce environmental impact due to reductions in travel.

Labor reform is under way outside Japan as well, such as in France, where telework is being actively introduced with the objectives of reducing automobile use, traffic congestion, and air pollution. “Stationmaster’s offices in about a hundred SNCF national railway stations have been opened up as co-working areas in a nationwide initiative,” explains Hiromi Murata, head of Global Centre, Recruit Works Institute, Recruit Co., Ltd.

Reductions in greenhouse gas emissions are lagging in office buildings housing large numbers of employees. For Japan, which has established a 2030 target of slashing emissions by 26% from 2013 levels, office buildings are a priority as great as housing.

Some companies, such as beer and soft drink manufacturer Asahi Group Holdings Ltd., are improving personnel and labor management operations through the introduction of advanced technologies including artificial intelligence (AI) and robotic process automation (RPA). Possible future reforms are becoming clearer through approaches reducing both working hours and environmental impact.