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No.136(2013/8/30)
Proxy Payment of Unpaid Wages Following Corporate Bankruptcies:
FY 2012 Results and Issues

The Ministry of Health, Labour and Welfare on June 26 announced the fiscal 2012 results of the government's scheme to implement the advance proxy payment of unpaid wages in the event of corporate bankruptcies. Under this scheme, the state, on behalf of the employer, pays a part of unpaid wages to workers who have been made redundant as a result of a company's bankruptcy and have not received some of their wages.

According to Tokyo Shoko Research Ltd., the number of corporate bankruptcies in fiscal 2012 was 11,719 companies, a decrease of 7.7% from the previous fiscal year. As a result of this drop in the number of bankruptcies, the number of companies involved in the scheme, the number of recipients, and the total amount of proxy payments all declined as well, marking the third consecutive year of decline since fiscal 2009.

Implementation of Scheme in FY 2012
No. of companies: 3,211 (down 12.8% year-on-year)
No. of recipients: 40,205 persons (down 5.7% year-on-year)
Total proxy payment amount: 17.5736 billion yen (down 12.2% year-on-year)
Average proxy payment per recipient: 435,000 yen

Most companies involved in the scheme (89.3% of the total) employed less than 30 workers, and companies employing less than 30 workers also accounted for the highest share of the total proxy payment (53.8% of the total).

This scheme is indispensable as a safety net contributing to the short-term livelihood stability of workers and their families. Since there is an upper limit on proxy payments, however, the current scheme is insufficient to respond properly to all workers' claims, including wages and retirement allowances. In addition, since there are other claims, such as taxes and mortgages, that are given priority over workers' claims, it is often the case that workers' claims are not paid to the people concerned. Therefore, RENGO (Japanese Trade Union Confederation) urges that workers' claims should be given higher priority than other claims; that domestic legislation should be enacted to, among other things, raise the upper limit on proxy payments; and that Japan as soon as possible should ratify Convention No. 173 of the International Labour Organization (ILO) on the protection of workers' claims in the event of an employer's insolvency.

Reference

  • Wages eligible for proxy payment
    Wages eligible for proxy payment under this scheme are limited to regular wages
    and retirement allowances that have not been paid during the period from six months prior to the day of retirement to the day of retirement. Accordingly, the scheme does not cover such payments as bonuses and other extraordinary wages, dismissal allowances, special service rewards, and travel expenses.
  • Proxy payment amounts
    As shown in the table below, the upper limit on proxy payments, which differs depending on the age of the worker on the day of retirement, amounts to 80% of the
    total sum of unpaid wages. A total unpaid wage limit is fixed for each age group, and the upper limit on proxy payments is calculated accordingly.
Age on day of retirement Total unpaid wage limit Upper limit on proxy payments
45 years of age or over 3.7 million yen 2.96 million yen
30-44 years of age 2.2 million yen 1.76 million yen
29 years of age or under 1.1 million yen 880,000 yen
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