Rare Japanese Labor Win Prompts New Fears

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That case spurred a host of other companies to look at the way they paid their own staffers. In March, Seven-Eleven Japan began paying overtime to more than 500 managers at directly run shops and Aoyama Trading, Japan's largest men's wear retailer, has been paying overtime to more than 900 store managers since April. Aoki Holdings, another men's wear retailer, began paying its store managers overtime in May.

Will Toyota's Quality Control be Hurt?

In the fast-food sector, McDonald's move is likely to affect rival chains that carry out similar practices. According to research by the Nikkei Marketing Journal, almost 70% of restaurant operators still classify store managers as managerial positions despite the court ruling against McDonald's. If they're compelled to follow McDonald's example, it will increase labor costs at a time when food inflation is already gnawing into margins.

In Toyota's case, concerns run deeper than a simple increase in wage costs. A bigger worry is how the changes will affect the vital quality control program. Set up in the 1960s, the program involves about 40,000 workers in 5,000 teams of about eight workers that meet periodically to discuss many of the continuous improvements, or kaizen, that underpin the fabled Toyota production system.

Toyota watchers, though, say that as long as the sessions themselves aren't scaled back as part of cost-cutting drives, there's no reason why the system can't function as well as it has until now. "Even if they're paying a bit more to the workers, they should still be able to generate the ideas," says Andrew Phillips, an analyst at KBC Securities in Tokyo.

McDonald's New Check on Unpaid Work

Perhaps a bigger challenge for companies trying to pay workers for overtime may be persuading them to claim all the hours they have worked. Despite Japan's low unemployment rate, many employees fret over job security and are likely to avoid asking for overtime pay for fear of being singled out as troublemakers. That's amplified in Japan where, despite years of restructuring, working an entire career at one company remains the norm.

Last fall, coffee producer Key Coffee said it failed to pay about $20 million, or 1.15 million hours of unpaid overtime, to 1,000 of its 1,100 employees mainly because they didn't report hours worked to the company. As part of its reforms, McDonald's is creating a supervisory division to ensure that managers and their supervisors cannot underestimate the number of hours they work.

The behavior of office workers, who are entitled to claim pay for working after hours, also suggests many employees find it almost impossible to demand what they're owed. Indeed, a survey by the Japanese Trade Union Confederation found that among male employees, 80% between ages 25 and 45 work at least some unpaid overtime, with two-thirds working more than 20 hours of unpaid overtime a month.

One in 25 admitted to working 80 hours a month in overtime, a level that is considered to put someone at risk of karoshi, a Japanese term that literally means "working to death." Of course, while those levels are excessive, executives privately argue that long hours are vital to maintaining Japan's competitive edge.

Rowley is a correspondent in BusinessWeek's Tokyo bureau. Tashiro is a correspondent for BusinessWeek based in Tokyo.