Opinion by Sho Maruyama: Is Overtime Illegal? How Dangerous Is It Not to Have a '36 Agreement' in Japan?

As Taiwanese companies continue to increase investments in Japan, establishing subsidiaries and business offices, ensuring local labor compliance has become an unavoidable priority for international operators. Among labor regulations in Japan, the '36 Agreement' (Saboroku Kyotei), based on Article 36 of Japan's Labor Standards Act, is the most frequently mentioned—and most commonly violated—regulation for Taiwanese businesses operating in Japan. This agreement is not merely a statutory administrative filing; it serves as a 'legal shield' that protects companies from criminal liability when arranging employee overtime. Without a proper understanding of its legal nature and practical requirements, companies risk inadvertently crossing legal boundaries and facing significant legal consequences. Debunking the Myth: 'Paying Overtime Means It’s Legal' Article 32 of Japan's Labor Standards Act clearly stipulates that the statutory working hours are a maximum of '8 hours per day and 40 hours per week.' Therefore, any overtime or work on holidays exceeding these statutory hours is explicitly prohibited by law. However, to provide operational flexibility, Article 36 of the Act allows a legal exception: employers must conclude a written labor-management agreement with representatives elected by a majority of workers and file it with the local 'Labor Standards Inspection Office' under their jurisdiction. Many employers mistakenly believe that paying overtime wages (premium pay) makes overtime legal. However, this only fulfills the employer's legal obligation to compensate workers. The 36 Agreement, on the other hand, is what exempts employers from criminal liability. If employers schedule overtime without legally filing a 36 Agreement—even for just one minute—it constitutes a violation of mandatory regulations, and the employer may face criminal penalties of up to six months in prison or a fine of up to 300,000 yen. (Worse, paying overtime without filing the agreement may serve as concrete evidence that the employer forced employees to work overtime.) Practical Considerations: File First, by Workplace, No Automatic Renewal In practice, many startups and new businesses fall into compliance blind spots due to confusion with other labor regulations. The primary rule is 'file first, then take effect.' The 36 Agreement has no retroactive effect; companies must complete the filing before the agreement’s intended effective date. Any overtime work during a gap period is illegal. Second, the 36 Agreement has strict time limits: its maximum validity is one year, and automatic renewal clauses are not permitted by law. Companies must repeat the entire process of representative election, negotiation, and filing every year. Additionally, the agreement must be filed on a 'workplace' basis (i.e., individual branches, offices, or factories), not on a corporate legal entity basis. If a company has its headquarters in Tokyo and branches in Osaka and Nagoya, each location must independently conclude and file its own agreement with the local Labor Standards Inspection Office. Furthermore, this requirement applies regardless of company size or employment type. Business owners often mistakenly apply the flexibility of 'exemption from filing employment rules for companies with fewer than 10 employees' to the 36 Agreement. In reality, any company employing one or more workers—whether full-time, part-time, or temporary—who may work overtime must legally file a 36 Agreement. How to Elect Worker Representatives? Critical Eligibility and Formal Requirements Worker representatives must be democratically elected through voting, raising hands, or open nomination. Employers or management cannot directly appoint trusted individuals or executives as representatives. Additionally, individuals classified as 'management supervisors' (e.g., managers, plant supervisors) are not eligible to serve as worker signatories. However, in practice, while management supervisors cannot be elected, they still retain voting rights in the election process and must be included in the total employee count when calculating majority representation. Overtime Hours Also Have Limits! Differences Between 'Standard' and 'Special' Clauses Filing a 36 Agreement does not mean companies can require unlimited overtime. The law still sets standard limits: monthly overtime must not exceed 45 hours, and annual overtime must not exceed 360 hours (referred to as the 'standard clause'). If a company faces unexpected, sudden peaks in workload, it may invoke a 'special clause' (tokubetsu joukou) to increase these limits. However, when activating the special clause, the company must specify a concrete and reasonable justification (not merely 'busy period'), and strictly adhere to the following four absolute red lines: Annual Total: Total overtime hours per year must not exceed 720 hours. Monthly Maximum: The combined total of overtime and holiday work in any single month must be less than 100 hours. Rolling Average: The average monthly overtime over any 2- to 6-month period must remain under 80 hours. Frequency Limit: Exceeding the standard monthly limit (45 hours) can occur no more than six times per year. From Passive Compliance to Proactive Working Hours Management In a Japanese society highly aware of 'karoshi' (death from overwork) and corporate responsibility, excessive working hours are closely linked to employee mental and physical health risks. Practical research shows that when average monthly overtime exceeds 80 hours, the risk of employee health impairment increases sharply, as does the risk of labor-related accidents. Therefore, for companies investing in Japan, the 36 Agreement should not be seen merely as an 'administrative document' to pass labor inspections. It should instead be positioned as a tool for 'proactive working hours management.' Companies should establish robust daily attendance tracking systems that automatically issue warnings when employee hours approach limits, enabling immediate adjustments to workload distribution. Implementing compliance not only protects companies from criminal penalties and labor disputes but also serves as a sustainable foundation for building a strong employer brand and attracting top local talent in overseas markets. *Author is a Japanese certified social insurance and labor lawyer (Shakuryoshi) and administrative scrivener (Gyoseishoshi).