New protection for freelancers coming into place

On November 1, 2024, new legislation protecting freelancers from exploitation, the Act on Ensuring Proper Transactions Involving Specified Entrusted Business Operators (Act No. 25 of 2023), was coming into force. The government began considering certain protections for freelancers in 2020 as they gained more presence in the labor market over the last decade, where they are often forced to accept one-sided conditions when dealing with larger corporations. After a few years of deliberation, the legislation passed the congress in May 2023. 

Traditionally, Japanese law protects certain freelancers by treating them as employees of their clients, but not all of them enjoy these protections. The new legislation expands protection for freelancers who are not considered "employees" from an employment law viewpoint and extends similar protections available for subcontractors under the Subcontract Act.

Who falls under the term "freelancers?"

An individual not having any employees or an entity not having any officers or employees other than the entity’s representative are freelancers for the purpose of this legislation. In other words, a sole proprietorship or a loan-out entity with an employee are not freelancers.

Who is subject to the regulation?

Any individual or entity with an employee* or officer (in case of entity) engaging a freelancer to use their services.

*an individual without employees, including a freelancer, is still subject to the disclosure requirements discussed below.

What transactions are subject to the regulation?

Engaging a freelancer to manufacture or assemble goods, create intangible deliverables, or provide services for business purposes.

What restrictions apply to clients using freelancers?

1. Disclosure requirements

Upon engagement, a client must disclose in writing the terms and conditions of the engagement to freelancers. The terms should at least include the following:

  • Name of the parties

  • Date of agreement

  • Scope of services

  • Date and location of delivery

  • If the client inspects the deliverables, the inspection deadline

  • Amount and payment date of compensation

  • Payment method, if paid other than cash

"Writing" does not necessarily mean the parties must create a contract. An order form or invoice can be sufficient as long as it contains the necessary terms. Further, writing can be an electronic form, including emails or text messages; however, if the freelancer requests hard copies, the client needs to send them accordingly. 

2. Payment term must be within 60 days of receiving deliverables or services.

3. If the engagement continues for one month or more, a client is enjoined from certain abusive activities, such as:

  • Refusing to accept deliverables 

  • Reducing compensation

  • Returning products or deliverables

  • Setting out unfair compensation

  • Forcing certain purchases in exchange for engagement

  • Demanding undue benefits

  • Changing the scope of services

Some of those requests may be fair in certain contexts, so the assumption is that the client does the above at its discretion without good cause. The concern here is some, but not all, clients take advantage of their bargaining power, forcing freelancers to accept unfair conditions in exchange for engagements. As the Subcontract Act has similar protections for subcontractors, these are intended to expand similar protections for freelancers.

4. Harassment prevention

A client must take necessary steps to prevent harassment activities against freelancers. This includes, but is not limited to, setting out a company policy prohibiting harassment against freelancers, training its employees, introducing a grievance procedure, and conducting investigations when observing incidents.

Please note that the above are not exclusive lists of statutory restrictions. The Act sets out further regulations, such as representation in job solicitation and notification requirements upon termination. For further information, please contact us.

Disclaimer
The information contained in this newsletter is for informational purposes only and should not be construed as legal advice on any matter. The material herein may not reflect the most current legal developments. The content and interpretation of the law addressed herein is subject to revision. We disclaim all liability in respect to actions taken or not taken based on any or all the contents of this newsletter to the fullest extent permitted by law. Do not act or refrain from acting upon this information without seeking professional legal counsel.

Hajime Iwaki