Japan has no statutory severance — the “taishokukin” (retirement allowance) is entirely a matter of company work rules. Vietnam is the opposite: the law mandates two compulsory schemes — severance allowance (0.5 month’s wage per year) and job-loss allowance (1 month’s wage per year, minimum 2 months). When downsizing, firms in Vietnam face a certain statutory cost; in Japan, the cost sits in work rules and the litigation risk of abusive dismissal.
Japan: no statutory severance
Japan’s Labor Standards Act does not prescribe any minimum severance on termination. The sum a worker receives on leaving — taishokukin — is set by each company’s work rules or collective agreement, usually formula-based on tenure and reason for leaving (voluntary vs involuntary).
What actually “squeezes” downsizing in Japan is not severance but: (1) Article 20 LSA — at least 30 days’ advance notice or 30 days’ average wages in lieu; (2) the abuse-of-rights doctrine — a dismissal without objectively reasonable, proportionate grounds will be ruled void, with reinstatement plus wages for the dispute period. In practice, many Japanese downsizing exercises end in voluntary resignation agreements with packages above the work-rules formula — because firms want to avoid litigation.
The cost consequence: downsizing in Japan has no “list price” — cost equals taishokukin under work rules plus voluntary package (if any) plus litigation risk if challenged. For long-tenured staff, the real agreed package is often far above the work-rules formula.
Vietnam: two compulsory schemes — do not confuse them
The Labour Code 2019 provides two different schemes, and confusing them is the most common mistake:
Severance allowance (Article 46): on termination under Article 34 (expiry, mutual agreement, retirement age and the like), provided the worker has worked regularly for 12 months or more. Rate: 0.5 month’s wage per year. The key point: time covered by unemployment insurance (UI) is excluded — UI already pays out. In practice today, most workers are fully UI-covered, so this usually covers only probation, apprenticeship or pre-UI periods.
Job-loss allowance (Article 47): on structural/technological change or economic reasons, division/merger of the enterprise — exactly the “downsizing” case. Rate: 1 month’s wage per year, minimum 2 months’ wages — with no deduction for UI-covered time. This is the expensive one in mass layoffs.
Wage base (both schemes): average of the 6 consecutive months before termination. Workers eligible for pension are excluded from both (Article 48).
Side by side: “list price” or “negotiated price”?
Predictability: Vietnam wins — a clear statutory formula lets firms compute exactly what cutting 100 people costs. Japan: cost depends on each company’s work rules and voluntary-negotiation outcomes — hard to budget centrally from headquarters.
Real cost: for 10 years’ tenure, Vietnam: job-loss allowance equals 10 months’ wages (minimum 2). Japan: taishokukin under work rules (commonly 1–2 months’ wages per year of tenure, i.e. 10–20 months for 10 years) plus voluntary package. Japan is usually pricier in practice — but “pricey” from negotiation and litigation risk, not from statute.
Legal risk: high in both, different in nature. Japan: void dismissal means reinstatement plus wages for the dispute period (potentially years). Vietnam: underpaid allowances mean administrative penalties plus back-pay orders plus collective labour disputes.
UI’s role: Vietnam’s particularity — UI-covered time is excluded from severance allowance (Article 46) but not from job-loss allowance (Article 47). In economic-reason layoffs, firms must pay the full 1 month/year across all tenure, including UI-covered periods.
Practical recommendations
First, in Vietnam, identify the correct termination ground to apply the right scheme — economic-reason cuts use Article 47 (1 month/year, minimum 2 months), not Article 46. Misapplication is a violation. Second, in Japan, do not assume “no statutory severance means cheap” — read the taishokukin work rules carefully and budget for the voluntary package plus litigation risk. Third, have every downsizing plan reviewed by local counsel in both countries before announcement — once announced, it is very hard to walk back.
Frequently asked questions
Does Japan have statutory severance?
No. The Labor Standards Act prescribes no minimum severance. Taishokukin is set by company work rules or collective agreements. The law only requires 30 days’ notice (or 30 days’ wages in lieu) under Article 20 and bans abusive dismissal.
How do Vietnam’s severance and job-loss allowances differ?
Severance allowance (Article 46): 0.5 month’s wage/year, on ordinary termination, excluding UI-covered time. Job-loss allowance (Article 47): 1 month’s wage/year (minimum 2 months), on structural/technological change or economic reasons — no UI deduction. Economic downsizing uses Article 47.
Does UI-covered time count toward severance allowance?
No — Article 46 of the Labour Code 2019 excludes unemployment-insurance-covered time from severance computation. But that time fully counts for job-loss allowance (Article 47).
What does cutting 10 years’ tenure cost in Vietnam?
For economic reasons (Article 47): 10 months’ wages (1 month/year x 10 years), on the average of the 6 consecutive months before termination. For ordinary termination (Article 46): 0.5 month/year x non-UI-covered years — usually far less.
Why is downsizing in Japan expensive in practice?
Three cost layers: taishokukin under work rules (commonly 1–2 months’ wages per year of tenure), the voluntary-resignation package (firms pay extra to avoid suits), and the risk of void dismissal (reinstatement plus dispute-period wages). No statutory “ceiling”, but no guaranteed “cheap” either.
For detailed advice on workforce reductions and compliance in Japan or Vietnam, companies may contact FLAT Law Firm.
This article has been quality-reviewed by the FLAW AI Legal Council. Content was prepared by the FLAT Law Firm AI Legal Council and has not been reviewed by a human lawyer.
