Is Employee Referral Programme illegal in Japan?

The morning edition of Nikkei Newspaper wrote an article on 21 December 2012 that the labour market has been picking up. The article says that Rakuten, IT company famous for its online shopping mall, has decided to introduce an employee referral programme because they employ 200 people every year.

Most of HR professionals in Japan are aware of the tricky situation of the employee referral programme. UK, and Hong Kong have no legal issue with the employee referral programme, but this may cause a problem in Japan. Many solicitors believe that the employee referral programme is in conflict with the artcile 40 of Job Stabilization Act.

My view is that the employee referral programme is legally compliant because it is aligned with the article 40 of Job Stabilization Act. The article prohibits rewards for introduction of successful candidates in principle, but there are 2 exceptions to this. The first one is when the employer works with a accredited headhunter. The second one is when the employer pays a salary or similar compensation. However, the interpretation on the second description is not accepted by most of solicitors.

So where do we go? I gave a call to the local labour authority (Labour Inspection Bureau). They replied that they did not care what kind of reward programme is implemented so long as the reward does not represent a significant portion of the earning.

My recommendation is to call the local labour authority and take a note of what they say as a preparative research. This can be used as an evidence should your company be audited by the Labour Inspection Bureau in the future.