Lifetime employment is fairly well-institutionalized in Japan thanks to the Labor Standards Law and a bizarre constitutional "right and obligation to work."
Essentially, if you're in Japan and you aren't on a fixed-term contract, you can only be fired if you commit a crime on the job, or perpetrate some sort of extreme wrongdoing against the company. Even if you're on a fixed-term contract, you achieve this sort of invulnerability after the second or third renewal (which is why many foreigners, like JET Programme participants, only get two or three one-year contracts).
This is best illustrated by the Kochi Broadcasting case, probably the most-read in Japanese labor law. A hapless radio announcer slept in two times over a fairly short period of time, and both times caused a major radio station in Shikoku to broadcast dead air for up to ten minutes. His bosses tried to fire him, but the local district court overturned the dismissal.
Contract law in Japan is influenced by many notions of the strong overpowering the weak. Distributors, for instance, can often get huge damage awards if their supplier terminates the distribution contract. A 10-year distribution relationship might yield two years' worth of lost profits, for instance. The idea is that the distributor relies on the supplier for their livelihood, especially if they have some sort of exclusive deal.
Employment works the same way. The employee is reliant on their employer for a livelihood, and the employer has the responsibility to help them get over their problems, much like a parent has to keep their child from smoking crack or becoming a cowboy.
As a result, you can't fire, demote, or cut the pay of an employee without cause—either heinous behavior (in which case you have to punish them pursuant to work rules approved by the local Labor Standards Office), or absolute economic necessity (i.e. the company is about to declare bankruptcy, in which case everyone, including management, has to take pay cuts at the same time).
Of course, this doesn't mean that employers are stuck with problematic employees forever. They just have to find alternative methods to deal with them. The noble methods are:
- Transfer the employee to a different department.
- Find the employee a job at another company.
- Bribe the employee to resign.
There are also some not-so-noble methods, of course. The most infamous is to stick the employee in a completely empty office—a chair, a desk, and maybe a clock—from 9 to 5 every day, and give them nothing to do. A more senior employee who's become completely useless is likely to be given a "job" where they stare out a window every day.
Such procedures often baffle foreign companies that are doing business in Japan. When they learn about an employee who's sleeping on the job or abusing customers, their first reaction is to send out a pink slip. You can't do this. If you fire someone and they know anything about labor law (or can afford a lawyer who does), they can sue you and get damages, as well as an injunction to have them reinstated. (To which the appropriate response, of course, is to let them come back, which will invariably frustrate them enough to accept a severance package and disappear...)
In Japan, your company is your family. When you hire people, you hire them for the long-term. And if they turn out to have issues, it's your job to make things work, like a good corporate mommy.