COVID-19: Options for shrinking business activities and employment

As evident Covid-19 is spreading around the world, it is more and more affecting people as well as the business of companies. Japanese government and several prefectures in Japan have implemented special measures to help the companies against the decline in their activities due to the COVID-19.

The Japanese government supports business activities through (1) special measures for the employment and (2) financial support for small and medium enterprises.

SPECIAL MEASURES FOR THE EMPLOYMENT

Temporary suspension of the employment agreements: partial activity plan

It is possible for the employer to suspend all or part of the employment agreements in order to cope with a business downturn under Article 26 of the Labor Standards Act. The employer has the obligation to pay a leave of absence allowance to all employees whose employment agreements are suspended. Such allowance shall be at least equal to 60% of the average wage for the past 3 months.

In case of a suspension of employment agreements, it is advisable that the employer enters into a labour management agreement with the representative of the employees. The purpose of the labour management agreement is to agree with the employees on the partial activity plan which shall provide the cause for such suspension of employment agreements, the duration of the plan, the envisaged reduction of the working time, the number of employees concerned by the plan per category and the detail of the calculation of the absence allowance to be paid by the employer to the employees. This would clarify the terms applicable to such suspension and avoid potential disputes. On the other hand, the employers who enters into the labour management agreement is eligible for the subsidies.

Subsidies from the unemployment insurance

An employer who is facing economic difficulties and who has to implement a partial activity plan may submit an application to the unemployment insurance scheme through Hello Work in order to get the leave of absence allowance under the plan covered by the unemployment insurance.

As rule, the conditions to be eligible to such subsidy are quite strict. However, under the current situation, the Japanese government has eased the possibility for companies to claim the benefit of such coverage.

The main conditions are the following:
i) the implementation date of the partial activity plan shall take place between 24 January and 23 July 2020 and shall last more than 1/20 (1/15 for big companies) of the annual prescribed working days;
ii) applicable to all employees (including employees with less than 6 months seniority);
iii) the turnover or the volume of production has decreased by more than 10% compared to the previous year (or such other economic difficulties leading to the closure of an office or plant);
iv) conclusion of a labour management with the employees and v) submission of the form to Hello Work with all supporting evidence.

If the application is validated and accepted by the unemployment insurance, the employer will get the leave of absence allowance to be paid to employees covered up to 2/3 of the amount per employee for an SME and up to 1/2 for a big company up to a maximum amount of JPY 8,330 per day per employee.

FINANCIAL SUPPORT FOR SMALL AND MEDIUM ENTERPRISES

The Japanese government grants financial support to the Small and Medium Enterprise (SME) representing a total amount of 1.6 trillion JPY by extending the eligibility to specific credit guarantees provided to support the decrease of business activities due to COVID-19, providing new type of loans and adopting new guidelines for financial institutions regarding business loans.e.

Guarantees: Specific Credit Guarantees for Business Difficulties Due to Covid-19

Small and Medium-sized Enterprise Credit Insurance Act (SME Credit Insurance Act) provides multiple credit guarantees to guarantee SMEs’ debt up to JPY 280 million coverage per SME (“Safety Net Credit Guarantees”). Such Safety Net Credit Guarantees cover 8 different situations[1]. Concerning Safety Net Guarantee n°4 and n°5, these guarantees are open for application only when there is a special reason admitted by the Minister of Economy, Trade and Industry. The Minister have admitted Covid-19 as a special reason to grant the guarantees above to SMEs facing business difficulties due to Covid-19 with an additional amount of debt coverage of 280 million JPY (total accumulated amount of JPY 560 million) for categories n°4 (Natural disaster guarantee) and n°5 (Sectors in business difficulties).

SME Credit Insurance Act provides an additional guarantee called “Crisis-related Guarantee” (Kikikanren Hosho). The Minister has also decided to grant this guarantee to SMEs facing business difficulties due to Covid-19. This guarantee coverage cumulated with the Safety Net Guarantee n°4 or n°5 represent a total potential coverage amount of JPY 840 million.

Loans: Types of Loans

On 10 March 2020, the Japanese government announced the creation of new “low interest and no-pledge” loan system for SMEs to mitigate the economic impact of the Covid-19 (the “Special Covid-19 Loan”) financed by the Japan Finance Corporation[2] (the “JFC”). The Japanese government has also decided to implement an additional loan with a special interest for the loans already provided by JFC to SMEs which are under special business program of local or regional Chamber of Commerce (Maru-kei Yushi) and extended the “Safety Net Loan” to SMEs in business difficulties due to the Covid-19.

We hope you find this information useful

Please note that the information we made available is based on information available publicly however to know more and authenticity of this you need to reach out to the respective legal authorities and practitioners.

You can also refer https://japan.kantei.go.jp/ongoingtopics/_00015.html

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