Responding to Labour Standards Inspection Office Investigations: Inspections, Correction Recommendations and Reports in Practice

Hello, I'm Noriaki Asato, Representative Attorney at LegalAgent.

In an investigation (on-site inspection) by the Labour Standards Inspection Office, inspectors rigorously verify not just the formal entries in attendance records and wage ledgers, but whether those records match the actual working environment and working conditions. Tidying up only the appearance of the books after receiving notice of an investigation will not conceal discrepancies in working hours or deficiencies such as unpaid wages.

When a company considers how to respond to an inspection, it must distinguish between responding to the investigation itself, which is an exercise of public authority based on law, and responding to the correction recommendations and guidance notices issued after the investigation. Refusing a statutory on-site inspection is directly subject to penalties. On the other hand, although a correction recommendation itself is classified as administrative guidance, for the facts of the labor law violations underlying the recommendation, the company is required to correct the violations in accordance with the law, and if those facts fall under penal provisions, criminal liability can also become an issue.

Inspectors' Legal Authority and the Prohibition of Disadvantageous Treatment of Employees Who File Reports

The investigative authority of labor standards inspectors is clearly set out in Article 101 of the Labor Standards Act (Japanese). That Article grants labor standards inspectors the authority to inspect workplaces, dormitories and other ancillary buildings, to require the submission of books and documents, and to question employers and employees, and provides that inspectors must carry identification certifying their status when conducting an inspection.

The Ministry of Health, Labour and Welfare's guidance on on-site inspections (Japanese) states that, as a basic matter, business operators should approach inspectors' investigations with an attitude of cooperating as far as possible. Where there is a legitimate reason, such as the person in charge being unavoidably absent on the day of the inspection, there is room to explain the circumstances to the inspector and request a shorter inspection or a postponement, but it is not legally permissible for a company, on its own judgment, to refuse or obstruct an on-site inspection. Article 120 of the Labor Standards Act provides for a fine of up to JPY 300,000 for a person who refuses, obstructs or evades an inspection under Article 101 of that Act, refuses to make statements in response to questioning or makes false statements, or fails to submit books and documents or submits documents containing false entries. What is subject to the penalty is the conduct set out in that Article, such as refusal, obstruction and false statements. It does not mean that a company is immediately punished merely because its attitude appears uncooperative.

A provision to keep in mind at the same time is Article 104 of the Labor Standards Act. Paragraph 1 of that Article guarantees that, where a violation of the Labor Standards Act exists at a workplace, employees may report that fact to the administrative agency or to a labor standards inspector. Paragraph 2 provides that the employer must not dismiss an employee or subject them to any other disadvantageous treatment on the ground that they made such a report. Even if the investigation was triggered by a report from an employee, it is prohibited to search for the reporting employee and take retaliatory personnel measures. A violation of Article 104, Paragraph 2 of that Act is subject to criminal penalties under Article 119 of that Act: imprisonment for up to six months or a fine of up to JPY 300,000.

The Legal Nature of Correction Recommendations and Guidance Notices

The official document issued when an inspection finds a violation of labor-related laws is a "correction recommendation." A correction recommendation is classified as administrative guidance under the Administrative Procedure Act, and its legal nature differs from that of an administrative disposition. The recommendation itself has no compulsory enforcement power, but the obligation to comply with the laws on which the findings are based remains.

Leaving a correction recommendation unaddressed because it is only administrative guidance invites serious legal risk. The Inspection Office is requesting correction because it has determined that there are facts violating the Labor Standards Act or other laws. If you believe the findings contain a factual error, explain this with supporting materials. According to the Ministry of Health, Labour and Welfare's explanation of the work of inspectors (Japanese), in serious or malicious cases, such as where a company does not comply despite having been asked to correct violations through supervisory guidance, labor standards inspectors exercise their authority as special judicial police officers to investigate and refer the case to the public prosecutors office. The status of correction may be checked through a follow-up inspection, and serious or malicious cases may proceed to criminal investigation and referral to prosecutors. Whether to indict after referral is decided by the prosecutor.

A "guidance notice," on the other hand, is a document issued to encourage improvement on matters that cannot be definitively called violations of law but do not reach a desirable level of labor management. Even within the same area of working hours management, the status of the document issued differs depending on whether there is a clear violation of law or guidance to improve operations. Because a correction recommendation and a guidance notice carry different legal weight, in preparing the report discussed below, handle the findings of each separately without confusing them.

Practical Response from Notice of Inspection to Correction Report

Understanding the Form of Investigation and Setting Up the Initial Response

Investigations by the Labour Standards Inspection Office include cases where a summons or advance notice specifying the date and time is sent beforehand, and cases where an inspector suddenly visits the workplace without prior notice. According to the Ministry's guidance, on-site inspections are, as a rule, conducted without notice. Although advance notices are sometimes sent, in practice the defense that matches reality is to maintain, in ordinary times, "a system that can demonstrate legal compliance whenever an inspector visits without notice."

Investigations can be triggered in many ways, including routine inspections selected by the Inspection Office based on its annual priority plan, report-based inspections triggered by an employee's report of a violation, accident-related inspections following a serious industrial accident, and follow-up inspections tracking the status of past corrections. The focus of the investigation changes depending on the trigger, but the basic policy of presenting accurate books in response to fact-finding and explaining matters in good faith does not change.

Cross-Checking Required Books Against Actual Records

The documents you will be asked to present on the day of the investigation vary somewhat with the size and industry of the business, but the key materials generally subject to review are as follows.

• Employee register (a book covering names, dates of birth, career history, etc.)
• Wage ledger (a book stating the basic number of days and hours used to calculate wages and a breakdown of the amounts paid)
• Objective records of working hours, such as attendance records and time cards
• Filed copies of the agreement on overtime and holiday work (Article 36 agreement)
• Filed copies of the work rules and each ancillary set of rules
• Notices of working conditions or employment contracts

Employers are obliged to prepare an employee register and a wage ledger under Articles 107 and 108 of the Labor Standards Act, and under Article 109 of that Act, these registers and ledgers, as well as important documents relating to hiring, dismissal, accident compensation, wages and other labor relations, must be retained for five years (three years for the time being under the transitional measure in Article 143, Paragraph 1 (Japanese)). The Article 36 agreement, which is the prerequisite for having employees work overtime or on holidays, is based on Article 36 of that Act, and to order statutory overtime, both the statutory upper limits and the extension limits set in the agreement must be strictly observed. As for work rules, Article 89 of that Act requires each workplace that regularly employs ten or more employees to prepare work rules and file them with the competent Inspection Office; the determination is based on the number of employees regularly employed at each workplace, not the total number of employees of the entire corporation.

Because it is difficult to assemble past records starting on the day of the investigation, it is important to have a system for checking regularly that these books are kept up to date and that there are no discrepancies between attendance data and the calculations in the wage ledger. In particular, points you will want to confirm periodically by comparing records with operations are whether actual working hours have exceeded the upper limits in the Article 36 agreement, and whether the work rules filed with the Inspection Office match the workplace discipline actually being applied on the ground.

Handling the Inspection and Questioning on the Day

On the day of the inspection, the inspector presents identification, inspects the facilities at the workplace, requests the submission of books and documents, and interviews management, labor management staff and, where necessary, employees on the ground. The staff in charge are expected to submit the requested documents without delay and to state the facts accurately in response to questions. Rather than covering up matters you are unsure of with guesswork, sincerely stating that you will check internal records and answer at a later date will, as a result, prevent confusion in the process.

If a violation of law is identified during the investigation, the company may be told of it orally on the spot, or may later be summoned to the Inspection Office and given a correction recommendation or guidance notice. In exceptional cases, an administrative disposition may be issued on the spot ordering the suspension of use of machinery or equipment posing a serious danger, but this is a direct disposition different in nature from corrective guidance.

Drafting the Correction Report and Attaching Objective Evidence

When a correction recommendation or guidance notice is issued, prepare and submit, by the specified deadline, a correction report (or improvement report) stating the results of the improvements made to eliminate the state of violation. Page 1 of the Uozu Labour Standards Inspection Office's guidance on preparing correction and improvement reports (April 2023) (Japanese) asks that reports be written so that the items identified and the specific correction and improvement measures taken in response can be clearly understood. Draft the report so that, for each finding, the specific measures taken and their completion dates correspond precisely.

What should be included in the report is the objective facts of what was done. The drafting tips on page 1 of that guidance state that abstract statements of resolve such as "we will be thoroughly careful in the future" are not acceptable; instead, describe the specific corrective measures taken, such as the fact that new notices of working conditions were issued, the fact that a labor-management agreement on wage deductions was lawfully concluded, or the fact that an objective time card system was introduced to establish starting and finishing times. It is recommended to attach as evidence photographs of the site before and after improvement in the case of facility repairs, a copy of the revised work rules in the case of deficiencies in the rules, and copies of transfer statements or receipts in the case of settlement of unpaid overtime premiums.

The report form is not limited to the template provided by the Inspection Office; preparation in any format is also accepted. Even when using your own format, however, the report must show the name of the Inspection Office to which it is addressed and the title and name of the person reporting, and must be structured so that the findings and the corrective actions can be clearly compared. If it is physically difficult to complete the corrections by the specified deadline, a practical safeguard is to report the progress and the planned schedule to the inspector in charge before the deadline and to discuss a possible extension of the submission date.

Embedding the Improvements and Handover Between Staff

Even after the correction report has been submitted, a follow-up inspection may be conducted later to confirm that the reported operational improvements are actually being maintained. Keep copies of the full set of submitted reports and attachments, and track whether the revised attendance aggregation rules and overtime premium calculation standards continue to be applied accurately in payroll practice from the following month onward.

Rather than treating the submission of the report as the end of the labor management response, it is essential to have a system in which the department that aggregates attendance and the department that handles payroll closely share the revised work rules and their effective dates. So that proper operation does not become a dead letter even if the staff in charge change in the future, the background of the findings, the measures taken and the location where supporting materials are stored should be recorded in a handover document.