Japanese Companies & Employment Litigation: Special Concerns

Corporate & Policy Spring 2008

April 24, 2008

SPEAKERS
Philip Berkowitz, Partner, Nixon Peabody LLP
William Gilbert, Vice President, General Manager, Human Resources, Canon USA, Inc.
George Pierce, Senior Vice President and General Counsel, Toyota Tsusho America, Inc.

A distinguished panel of attorneys and business leaders met at Japan Society to discuss employment-law issues often confronted by Japanese companies operating in the United States.

Compliance with American laws on employment discrimination is a challenge for employers of any origin, but "foreign companies are special targets" for such claims, said Philip Berkowitz of Nixon Peabody. Managers from abroad may be unfamiliar with what the law requires. There are differences in culture, customs and language, and different attitudes about litigation. Whereas an American company might view an employee lawsuit as a routine cost of doing business, a Japanese firm may see it "as a threat to the company's social fabric, to their compact with their customers, to their compact with society in general" and overreact. Actions intended to protect the company may backfire; indeed, there's a perception that Japanese companies "want to avoid litigation at all costs."

U.S. laws bar discrimination in employment based on race, color, religion, gender, pregnancy, sexual harassment; on age, extending even to mandatory retirement based on age; and on disability, even perceived disability--"it's illegal to discriminate against somebody even if they're not disabled if we think that they're disabled," Mr. Berkowitz said. American laws also forbid retaliation, and claims of this sort can be hard for an employer to defend against. "It's very easy for a jury or a judge to conclude that if I have been accused of discrimination or sexual harassment, that I might become resentful and take action against the individual. So, even if the underlying claim of discrimination has no basis, the claim of retaliation can result in significant liability."

The scope of American discovery rules is uniquely broad--"there is nothing like it anywhere else in the world," he said. E-mails and other kinds of electronically stored data may have to be disclosed during litigation, including metadata about how a document was created and who made changes to it. A handwritten notation on a document may have to be disclosed, and "the fact that that a Japanese executive writes something in Japanese for his own use on a document doesn't make confidential. To the contrary, it's something that an employee or their lawyer might be able to read down the road," if only with the aid of a translator.

Plaintiffs are usually entitled to jury trials in these cases, he noted. They may win compensatory damages, damages for emotional distress, back pay including the value of benefits, and punitive damages. "They recover their attorney's fees if they win or even if they favorably settle--generally speaking, a normal part of settlement will be payment of some portion of attorney's fees."

One special issue for Japanese companies is rotating staff, Mr. Berkowitz said. They are employees of the parent company, though this isn't always understood by local hires. Rotating staff may be treated differently in terms of pay, benefits, discipline and job security. "The accusation from U.S. employees is often that they receive the top positions, they receive more money, they may function as, quote-unquote, a shadow employee to the U.S. employee, to the local hire. The local hire may say I have more experience doing this job, I've been doing this for years and here is some fellow from Japan who has never done this job before and I'm reporting to this person."

Language issues can be an added source of friction, he said. Japanese executives may feel more comfortable speaking with each other in Japanese, and may need to meet separately to talk about the American subsidiary's operations in the broad context of the global business, but when this happens, American employees may feel excluded. Conversely, Japanese executives may think "that if they communicate in Japanese no one else will understand them, that it's their way of speaking in a confidential way--and that may translate even to written communications, and that is incorrect. Documents that are in Japanese can be discovered. Comments that are made in Japanese may be discovered and may be understood, and it can be a dangerous gamble."

"It's not illegal to hold meetings in Japanese, and to favor the Japanese language in writing and in discussion," Mr. Berkowitz observed. "The question is, are the American employees being excluded, are they losing opportunities because of their national origin or their citizenship?" There may be ways to include local hires "and make an attempt to reduce the feeling of alienation."

Japanese companies need to make sure that they understand what the case is about, he said. Translations of documents must be done carefully to preserve nuance and intention. Companies also need to take into account the ways in which social conventions, the desire to be polite and to avoid conflict, can hamper a defense. There may be "a reluctance to appear to be rude, and some of these social differences need to be confronted, need to be discussed head on when an employee is being deposed or questioned by a lawyer. The employee should understand that it's often important to be direct. Employees need to consider those social nuances so that they are not misinterpreted to their disadvantage."

There are two basic approaches to the question of how to treat expatriate employees as compared with local employees, said Bill Gilbert of Canon USA. Some companies localize their expatriate employees, treating them to the extent possible the same as local employees. This approach was used at a Swiss company for which Mr. Gilbert worked for several years before joining Canon, he said. Other companies use a home country administration system, which is what Canon does.

Localizing employees from the home country means paying expatriates the same base salary, through the same payroll, and the same benefits, salary increases, bonuses, performance appraisal systems and promotion criteria, he explained. This "can minimize the locals' perception that there are special privileges or special arrangements for expatriates," but doesn't address the differences that remain. Expatriates alone get home leave, and if they're to be laid off or terminated for poor performance, they're usually sent back to the home country first.

Depending on the culture of the company, Mr. Gilbert indicated, the disadvantages of localization may not have much impact. At the Swiss company for which he worked earlier in his career, "the senior level of employees were local employees. Expatriates tended to be filtered throughout the organization and not at the most senior levels. So, in that particular culture it worked and we had very little difficulty with that."

At Canon, which retains the concept of lifetime employment in Japan but not outside Japan, "we make it very clear that we don't classify our expatriate employees as employees of our U.S. subsidiary," Mr. Gilbert said. "They are employees of Canon Japan or Canon, Inc. simply working in the U.S. on assignment. They are no way, shape or form employees of the U.S. subsidiary. They are paid on a separate payroll. Their salary increases are determined through the traditional Japanese home country method. Performance appraisals are done through the Japanese home country method again--totally a different form. Promotions are done under the Japanese evaluation system, which takes in totally different factors than what we might use in the U.S. And so in this sense even our most senior people, including quite frankly the president, are not considered to be employees of Canon USA. They are employees of Canon, Inc., Japan."

Canon's approach not only makes it easier to defend differences in treatment, but also serves to "minimize an expatriate's ability to claim protection under U.S. law" and challenge policies such as mandatory retirement that are illegal in the U.S. "but totally legal and acceptable and expected in Japan," he said. "For the culture in our company and perhaps in many Japanese companies this approach works best and provides the least vulnerability to any kind of legal suit."

"One thing I would advise against is taking a hybrid approach," Mr. Gilbert commented. "I don't believe it can work if you try to implement elements of various approaches. You must take one approach or the other and apply it in its entirety."

George Pierce of Toyota Tsusho rounded out the panel presentations with a discussion of "miss communication"--a communication that misses its point, because it's between people who have different understandings of what the communication means.

To illustrate this, Mr. Pierce pointed to the word shibui. He noted that shibui has many meanings, and that he is not aware of any word in English that has a comparable meaning.

At the root of "miss communications" is "something that I call the common sense meter," Mr. Pierce said. "What I mean by that is you take the sum total of your life experiences, how are you acculturated, and it's what seems natural to you, what seems right to you. It's something that's very internal. It's something that you feel. It's not something that is necessarily analytical. You hear something and your meter goes over to the good side and it's okay, or it goes over to the bad side, or maybe it's somewhere in the middle and it's kind of ambivalent and it seems to be okay."

Everybody has a common sense meter, in Mr. Pierce's view, and it's calibrated through acculturation--"what you heard from your parents, your teachers, your friends, significant others who have influenced your life, your life experiences, even your understanding of the law"; which he defined as a formal codification of cultural norms.

In Japan and in the U.S., the norms that are codified in law start from very different premises. First of all, Japan uses a civil law approach based on the Napoleonic Code where in the U.S., we use an approach based on English common law. The cultural approaches are also quite different, one example being the approach to contracts, he said.

"I think when Japanese enter into a contract they start out with a basic idea of this is someone I can work with. I have some knowledge about them, I've dealt with them, I have some kind of feeling toward this individual--some sense of harmony or wa," he said. And so in Japan, the traditional contract provides basic terms, "but it doesn't try to address every issue, because as you work together and an issue comes up there is a basic core of good-faith understanding between the parties, and you work through the issues as they occur." The traditional Japanese contract approach often produces a written agreement that is ambiguous Pierce noted.

The approach to contracts law in the U.S., by contrast, is based on what is called the "mirror image rule," which is intended to produce an exact agreement. This approach means that the two parties begin at opposite poles and then narrow down the issues. The parties go back and forth in negotiation and come up with a very exact and detailed agreement. "You try to think of everything that could possibly happen and you write that down so that if something happens there is nothing to argue about. It's all laid out in the agreement and each side's rights and responsibilities should be clearly stated."

Thus although it's a cliché to say that in Japan people tend to be indirect whereas in the U.S. people tend to be direct, "I think there's a lot of truth to that cliché in the approach toward contracts" Mr. Pierce remarked.

Litigation is another area where our cultural approaches are very different. Litigation itself is much less common in Japan than in the U.S., he pointed out, and there are dramatic differences in notions of confidentiality. What we call discovery in the U.S., which is a routine part of litigation in the U.S. does not exist in Japan.

Disclosure in Japan requires a court order, which is not easy to get. In a famous 1999 case, the heir of a Fuji Bank client sued the bank and sought an order requiring the bank to disclose an internal document approving a loan that the heir said had been made in breach of the bank's duty of care to the client. The client had since died, and a lower court had ruled that the approval document, which was the only source of evidence of what the bank understood about the client's situation, which is what created the bank's duty of care, would have to be disclosed. But on appeal, the Japanese Supreme Court reversed the lower court, ruling because the approval document had been prepared for the exclusive use of the bank it was a confidential internal company document and not subject to disclosure pursuant to the Japanese Code of Civil Procedure.

"This is really, really very different from how we do these things in the U.S.," where disclosure of this type of document "would be a no-brainer. You would be sanctioned if you refused to produce it," Mr. Pierce said. U.S. business people who've been in litigation commonly understand that internal documents are discoverable. But the mindset in Japan is different, and "in fact I have taken depositions of Japanese witnesses and presented them with their company documents and they get very upset--how did you get this?" They react with surprise that an outsider could have access to internal company documents.

U.S. discovery requirements recently have become even broader than they used to be, he said. For example, under the Federal Rules of Civil procedure, before the opposing side asks for anything, a litigant must provide names and contact information for key individuals, describe documents that may be used to support claims and defenses, and present them for copying and inspection. Documents--including electronic documents such as e-mails--have to be produced unaltered--not just "official" versions, but drafts as well. It doesn't matter if the material isn't itself admissible evidence, as long as it's relevant and "reasonably calculated to lead to the discovery of admissible evidence." This is a very broad standard, and almost anything can be discovered in the U.S. unless it is protected by privilege, noted Pierce. Japanese business people might not consider these issues, but instead might rely on their common sense meter that internal company documents need not be disclosed.

Mr. Pierce then briefly noted that there are attorney client, accountant client and work product privileges that can protect information from discovery. He explained that communications to attorneys for the purpose of seeking legal advice is privileged in the U.S., and therefore usually is protected from disclosure. He also explained that in the U.S., privilege belongs to the client. Because Japan does not have a discovery system like that in the U.S., Japan does not have the concept of privilege that we have in the U.S. Although, in Japan attorneys are required to maintain the secrecy of information provided to them by their clients under the Practicing Attorney Law of Japan, this an obligation of the attorney, not a right of the client as in the U.S., which again is a very different approach.

When internal documents are disclosed, nuances of language are critical, Mr. Pierce emphasized. One of his favorite examples is ryoukai desu. "I have had so many discussions with people and disputes with people over what this means. I think it is best described as the written version of saying 'n' and nodding your head to acknowledge having heard something. Yet many times I have seen ryoukai translated as approved. Although it might mean approved, but I don't think it necessarily means approved."

Mr. Pierce noted that another area of U.S. discovery where language and cultural differences are critical is the deposition process. First of all, Japanese witnesses tend to nod when a question is asked, which is a polite acknowledgement of having heard the question. An American attorney, however, will often interpret this gesture as an agreement that what he or she said is correct, and it is very important to recognize that this may lead to major misunderstandings.

Mr. Pierce illustrated the translation problem with an example where a translator at a deposition used a very generic term in his translation, which resulted in the witness giving an answer that was not correct. Accordingly, he advised that "it really is a good idea to have a couple of people in the room who are translators who can listen carefully and who can pick up and correct mistakes or misunderstandings."

Mr. Pierce concluded by noting that it is easy to "miss communicate", and both American attorneys and our Japanese colleague need to be sensitive and aware of the ways in which this can happen so that we can take the "miss" out of our communications.


***

Mr. Berkowitz began the Q&A:

What happens if a litigant is caught between the laws of two countries, and-a U.S. court orders the disclosure of an internal document that the Japanese courts have said is protected?

"It's a very big problem," Mr. Pierce replied. "I think the answer, Phil, is most judges here are not going to care." He told of a case he worked on involving a French company that had refused to produce certain documents, citing a statute in France that made it a crime for a French company to respond to a U.S. discovery request.

"It was in front of Judge Sweet in the U.S. District Court here in New York, and I can tell you that the judge had no problem at all with it. He said I'll tell you what, either you produce these documents, which go towards the issue of mitigating damages, or if you don't produce the documents I'll find that you did not mitigate the damages and I will dismiss the complaint. They didn't produce the document and he dismissed the complaint."

During the early 1980s a bill was introduced in the Japanese Diet similar to the French statute, he added. "Ultimately it never got out of the lower house because of the concern that it would not be good for U.S.-Japan trade relations."

The audience joined in:

Is it helpful to have a company-wide policy on discarding older documents, adopted independently of any litigation?

It can be, but it can also create problems if policies aren't followed uniformly, which is often the case, Mr. Berkowitz answered. The company may lose important access to evidence about what happened, and why; and there can be other problems: "One employee of was actually sentenced to a long jail period when he sent a one-line e-mail to his colleagues which said you may want to take another look and be sure that we're following our data retention policies after they received a grand jury subpoena instructing them to save documents."

"I think the actual intent of the e-mail was it's time to clean out your files," Mr. Pierce said dryly.

Under new requirements for electronic discovery, he added, "once you reasonably believe that a lawsuit is going to be brought against you, you have an affirmative obligation to put out a litigation-hold message, which you have to tell your IT people, you have to tell everybody don't purge documents, don't delete documents, don't destroy any backup tapes," on pain of, ultimately, having your defense stricken and being held liable for the full measure of what the plaintiff is seeking, which may wind up being millions of dollars.

With information being duplicated on laptops, zip drives, home computers, computers at headquarters in Japan, "there is really no easy way to say we just don't have it. It's rare that that will be the case," commented Mr. Berkowitz.

Are overtime pay requirements a difficult issue for Japanese companies, where junior people work long hours or weekends and the employer doesn't realize that overtime pay can apply to salaried staff and not just to low-level wage earners?

Many American companies have settled cases in this area for big sums, $50 million or $100 million, because they've failed to classify employees properly under the Fair Labor Standards Act. That statute requires that you go back two or three years and may even impose double penalties, Mr. Berkowitz replied.

Where workers are local hires, keeping track of the hours worked can be an issue, he added. "BlackBerrys are often the new way--people can work all hours on their BlackBerrys, and so there is a very significant potential for liability."

This has been an issue for U.S. and international companies alike, Mr. Gilbert agreed.

If documents are translated after litigation begins, in order to respond to the lawsuit, and it's determined that they're relevant, must the translations be turned over as well as the originals?

Your obligation is to produce the document exactly as it's maintained in your files, and generally you don't have to produce a translation prepared at the direction and control of counsel in connection with litigation, because it's attorney work product, Mr. Pierce answered. You may want to for tactical reasons, however, if you think the document will be helpful to your position, though "if I did that, I would want an agreement from my adversary that he would not consider that any kind of waiver" or obligation to turn over other translations or other work product.

"But if the client on their own undertakes to prepare translations of documents without having been requested to by counsel, then those documents may be discoverable," Mr. Berkowitz added.

What kind of staff training do you do on differences between Japanese and U.S. law on employment issues?

Canon has four different courses on cultural differences, Mr. Gilbert explained. The courses are split by level, one for mid-level and one for manager and above, and by perspective, one for Japanese employees and one for Americans. There's no formal program to explain the home country approach, but it's made clear to everyone throughout the year as home country HR and human capital administration practices are used for all the expatriates.

Toyota Tsusho trains its American staff on a rolling basis and since Japanese staff tends to come on board at the same time the company welcomes them with a two-day group orientation session, Mr. Pierce said.

--Katherine Hyde