Gaba teachers challenge ‘contractor’ status

Union fears employment model could mark first step on slippery slope for eikawa firms

Long accustomed to being ignored, being forgotten proved too much to take for unionized teachers at Gaba language school. On Oct. 4, the General Union registered an official complaint and request for an investigation with the Ministry of Finance’s Securities and Exchange Surveillance Commission (SESC).

The union accuses Gaba Corp. of lying in its 2009 financial report filed in March with the Tokyo Stock Exchange, which states that there is no union at Gaba and that labor-management relations were “smooth and harmonious.”

The G.U. argues it has an established Gaba Branch. Its complaint also points out that the Osaka Labor Commission ruled in December 2009 that it considered earlier negotiations held between the union and Gaba to represent collective bargaining.

The union also charges that the financial statement’s description of Gaba instructors as independent contractors rather than employees is disingenuous. The complaint points out that the Osaka commission also acknowledged Gaba’s instructors as employees under trade union law last December, and that the firm’s failure to mention that fact was misleading.

The SESC complaint is tied to a larger struggle for union recognition and employee rights at Gaba.

Instructors first formed a union in September 2007 and, according to union members, met with company representatives for talks. However, managers always refused to enter into serious negotiations, arguing the instructors were not employees and, as itaku — independent contractors — weren’t covered by Japanese labor laws.

Determining who qualifies as an employee and who can be classed as an independent contractor isn’t always clear. However, the method in which workers are scheduled and their place of work are important considerations.

“The company must be very careful it’s not treating them as employees,” says [Christopher] Gunson [an international transaction attorney]. “Even having someone in an office and working with an employee is risky.”

Gaba instructors are not alone in their fight for recognition as regular employees. According to journalist Naoki Kazama’s book “Koyo Yukai” (“Employment Meltdown”), there are no official statistics for the number of independent contractors working in Japan, but estimates range from 500,000 to 2 million workers.

Japan’s Statistics Bureau’s annual Labor Force Survey shows the number of nonregular workers has increased steadily since 1999, after the Japanese government started relaxing regulations to make it easier for companies to hire workers outside their regular employment system. In 1999, 25.6 percent of Japan’s labor force was classified as nonregular. By 2009 the figure had increased to 33.7 percent.

Employing instructors as independent contractors allows Gaba to reduce labor costs.

Instructors receive no paid sick days or vacation, no pay for training, no overtime pay, and there’s no limit on the number of unpaid overtime hours that can be worked. The company also avoids enrolling its instructors in unemployment insurance, the national health insurance and pension schemes, and workers’ compensation. It also fails to pay a commuting allowance to instructors.

The instructors, working on six-month contracts, also lack job security. Employment as independent contractors means Gaba can dismiss any teacher, with or without cause, simply by not renewing their contract.

Business English revives schools

The recent corporate trend of making English the “official language” within companies has given a tailwind to the formerly faltering English language school business.

As a number of companies aim to establish or maintain a global presence, English language schools are working to develop educational programs more practical than those offered by their rivals for businesspeople who need to use English at work.

Such a move came after companies, including online shopping mall operator Rakuten, Inc. and Fast Retailing Co., the operator of casual clothing chain Uniqlo, required their employees to use English as their official in-house language.

The English education-related industry has striven to capitalize on what it views as a golden opportunity.

During the April-June period, Berlitz Japan, Inc., an operator of foreign language schools, saw the number of its corporate customers and individual regular students who are company employees jump 50 percent from a year earlier. Its summer short program also has attracted about 2-1/2 times as many students as in the previous year.

Another English school operator, Gaba Corp., enjoyed a similar boost, with corporate contracts up 12 percent year on year in the first half of 2010.

According to private research firm Yano Research Institute, the market for foreign language business shrank about 5.8 percent to 502.6 billion yen in fiscal 2009, forcing Geos Corp., a major industry player, to file for bankruptcy.

With the economy recovering, however, the nation’s corporate environment has changed. With a growing number of companies aiming to expand their overseas operations, particularity in Asia, they are racing to secure people with a good command of English.

Panasonic Corp. is set to hire about 80 percent of its new employees who are fresh out of school for next fiscal year overseas. Half of the 600 people that Fast Retailing plans to employ in fiscal 2011 are also expected to be non-Japanese. Such moves have boosted the popularity of business English programs.

A 35-year-old company employee who studies at an English language school in Shibuya Ward, Tokyo, said, “As we’ve come to communicate with overseas clients through e-mail and video conferences on a daily basis, I’m worried that I might slow down business operations because of my poor English.”

“Companies like Rakuten could fuel ‘English fever,'” a source familiar with the industry said.

Nova fall just simple math: it bled red


A 330-sq.-meter office with a double bed, sauna and tea room was where Nozomu Sahashi, ousted president of Nova Corp., worked as the language school chain steadily teetered near bankruptcy over the past few years.

Unveiled to the media last week, the spacious presidential suite on the 20th floor of Nova’s head office in Osaka cost the company ¥2.7 million a month to rent and about ¥70 million to redecorate.

The posh office is yet another example of the reckless way Sahashi ran his firm, which filed for court protection under the Corporate Rehabilitation Law on Oct. 26.

Court-appointed administrators are hoping to come up with a new sponsor by the end of this week, which will allow about 7,000 unpaid teachers and 30,000 paid-up students to return to their schools.

Some experts see Nova’s sloppy management as well as huge investment in TV ads as key reasons for the firm’s failure, for which warning signs were seen starting around 2000.

Tsutomu Kuji, author of “Nova Shoho no Maryoku” (“The Magical Power of the Nova Business”), has tracked Nova’s rapid expansion in the 1990s, when it took advantage of the burst in the bubble economy and consequent land price plunge to acquire and rent classrooms at low cost. Then came another economic slump, but the chain continued to pursue expansion and splurge on ads, as Sahashi pursued his extravagant lifestyle.

Nova was investing huge amounts of its resources on TV commercials.

The firm’s advertisement fee rose from ¥4.6 billion in business 1996 to ¥8.9 billion in business 2002, according to Kuji.

In the business year to March, Nova spent ¥7 billion on ads, or about 12 percent of its total sales of ¥57 billion.

Kuji wrote how Nova attracted new students with eye-catching commercials, talked them into paying tens of thousands of yen for lesson tickets for up to three years in advance and then short-changed refunds to students who grew dissatisfied with what they had paid for.

This prompted students to sue Nova for reimbursement.

In April, the Supreme Court ruled Nova’s contract cancellation policy as illegal and ordered it to repay about ¥310,000 to a man who canceled his English lesson contract in 2004 but was offered a much smaller refund than promised.

Nova, however, was not the only company whose business suffered due to sloppy management.

There was a time in the early 1990s when many language schools went bankrupt, prompting an industry group to draw up regulations.

In 1994, the Japan Association for the Promotion of Foreign Language, which has 66 language schools or chains as members, came out with a regulation stipulating that only a year’s worth of lessons could be prepaid for.

“In many of those bankruptcy cases, companies used prepayment money to invest in real estate and golf course memberships, causing them to (run out of cash and) go bankrupt,” said Mihoko Fujimoto, the association’s spokeswoman.

Member companies are obliged to comply with the regulation. But Nova, Japan’s biggest language school chain, did not join.

Now rival language schools fear the Nova collapse may trigger a bankruptcy domino effect or a considerable drop in sales as distrust of the industry mounts.

There is speculation that Nova’s downfall, which was set in motion by the Ministry of Economy, Trade and Industry’s partial business suspension order, contributed to the bankruptcy of the ABC Language School chain.

Osaka-based ABC Language, a small English-school chain, filed for court protection from creditors in July.

Gaba Corp., listed on the Mothers market for startups, said its net profit for the business year to December is expected to plunge 53 percent to ¥387 million.

Gaba said it has not been able to attract as many new students as expected this year because of the Nova meltdown.

But according to Yano Research Institute Ltd, the language school business has been declining since 2003 as the market became saturated.

The market peaked in 2003 with ¥375 billion in combined sales but it shrunk to ¥346 billion in business 2006, according to Yano Research.

The market is expected to drop 4.7 percent to ¥330 billion by the end of March, it said.

In 2003, the Ministry of Health, Labor and Welfare began to slash grants for vocational education, including language courses, causing the market to shrink, said Mika Fukuoka, a researcher at Yano Research.

Grants for such courses started in 1998, allowing those who had paid job insurance premiums for five years or more to apply for the grant to cover 80 percent of lesson fees ? up to ¥300,000.

In 2003, however, the ministry limited the grant to 40 percent, or up to ¥200,000, after it determined some grant recipients had not been entitled to them.

The grant cut led to a decline in students and the industry began to shrink.

“Frankly speaking, I don’t think there is any language school whose business is on solid footing,” Fukuoka said.

Language school chains Gaba and Berlitz Japan Inc., which target high-end customers, are the few still relatively successful, Fukuoka said.

“During the bubble economy, many housewives who had time and money took English lessons as a hobby,” she said. “But now, only those who really need to study English will take lessons.”