I am a civilian working for the U.S. Government in Japan. When civilians come to the main island of Japan, most of us sign a 3 year service agreement. That 3 year service agreement is extendable for 2 more years for a total of 5 years. The way the five year rule works is that unless a waiver is granted to extend beyond 5 years, civilians must return to CONUS (we call the U.S. CONUS for Continental United States and OCONUS for Outside the Continental United States) for a minimum of 2 years before being eligible to work in an OCONUS position again. This works because upon entering into the initial 3 year service agreement, employees must have a return rights agreement with their current agency which says that you will have your old job back when your overseas tour ends.
It is possible to get a waiver to extend in 2-year increments beyond 5 years, but requires higher level approvals. If you are granted a waiver things could get complicated when your overseas tour ends since agencies are not required to hold your position beyond 5 years, which means that you could lose your return rights and have to find another job before you can return.
The policy is found in DoD Instruction 1400.25 Volume 1230 and gives the following explanation.
h. Civilian employment in the competitive service in foreign areas shall be limited to a period of 5 continuous years unless interrupted by at least 2 years of physical presence in the United States or nonforeign area. This policy serves to increase employment opportunities for military spouses and family members and developmental opportunities for employees in the United States, periodically renew the knowledge and competencies of the overseas workforce, including familiarity with current strategic goals, enhance the interoperability of employees, and promote a joint perspective in the workforce.
So that’s it.