In Japan, freelancers lack bargaining power with companies. And as they are not recognised as employees at law, they are not protected by labour laws either.
In order to provide a certain level of protection to these freelancers, the Act on Ensuring Proper Transactions Involving Specified Entrusted Business Operators (Act No. 25 of 2023) (hereinafter referred to as the ‘Freelance Act’) was passed on 12 May 2023.
This Freelance Act will come into effect in Japan on 1 November 2024.
As this Freelance Act will also have an impact on overseas businesses that work with freelancers in Japan, we will explain its outline in this article.
I.- Impact of the Freelance Act on overseas businesses
Minister Shigeyuki Goto said during a plenary session on 21 April 2023 in Japan’s House of Commons, that the Freelance Act will apply to outsourcing work to freelancers across countries and regions if it is considered that all or part of a business’s activities are undertaken in Japan. Specifically, this means that the Freelance Act will apply to cases where:
(i) A freelancer residing in Japan is entrusted with business from a consignor located overseas; or
(ii) A freelancer residing overseas is entrusted with business from a consignor located in Japan, when;
(a) A contract is executed in Japan,
(b) The goods are manufactured, or the services are provided in Japan on a contractual basis.
Although this is not a law or court decision, the above criteria are useful as a reference.
II. Who is covered by this Freelance Act?
The term ‘specified entrusted business operator’ is used to refer to freelancers who shall be covered by the Freelance Act, and who shall be required to meet the following requirements:
- An individual that does not employ any employees.
- A legal person that has no directors other than a sole representative and does not employ anyone.
The term ‘employee’ above refers to a worker who is expected to work at least 20 hours a week and for at least 31 days.
In other words, if an individual only employs one part-time worker who works for 15 hours a week, that individual would be considered a ‘specified entrusted business operator’.
Nevertheless, information on how many hours the employees hired by the freelancer is not usually known to the other party.
Rather than confirming whether or not the Freelance Act is applicable in each case, it is preferable to follow the regulations of the Freelance Act when dealing with individuals or legal entities that are similar to them, even if the other party is not subject to the Freelance Law.
III. Obligations imposed on the consignor.
1. Obligation to clearly indicate the details of the work.
Consignors must clearly indicate the details of the work in writing or by electronic means immediately after working out the details (article 3 of the Freelance Act).
Such writing must include the name of each party, the date on which they are entrusted with work, the content of the freelancer’s provision of services or performance, the date and period of receipt, the place of receipt, the date of completion of inspection, the amount of remuneration (or the method of calculation if it is difficult to determine the amount), the date of payment, and (if payment is to be made by a method other than cash) the necessary matters concerning the method of payment of remuneration.
2. Date of payment of remuneration.
When entrusting work to a freelancer, consignors are obliged to pay the remuneration within 60 days from the date of receipt of the work (articles 4.1 and 4.2 of the Freelance Act).
However, if the work is sub-contracted to a freelancer, and the freelancer is clearly informed of the fact that the work is sub-contracted and of certain information about the original contract, the consignor is obliged to pay the freelancer within 30 days of the original payment date (articles 4.3 and 4.4 of the Freelance Act).
3. Noteworthy issues.
When entrusting a business to a freelancer for a period of one month or more, consignors must not conduct any one of the acts below (article 5 of the Act):
- Refusing work from the freelancer without grounds attributable to the freelancer,
- Reducing their remuneration without grounds attributable to the freelancer,
- Taking back the goods relating to their work after the work has been done,without grounds attributable to the freelancer,
- Unjustly setting an amount of remuneration at a level conspicuously lower than the price ordinarily paid for the same or similar work.
- Coercing the freelancer to purchase goods or use services without reasonable grounds.
- Causing a freelancer to provide economic benefits.
- Causing a freelancer to change or redo the work without any grounds attributable the freelancer.
4. Advance notice of cancellation.
When seeking to cancel a contract more than 6 months before its due date, or deciding not to renew the contract, the consignor must give advance notice of at least 30 days.
If the freelancer requests disclosure of the reason for the cancellation during the period from the date of notice until the cancellation date, the consignor must disclose the reason(s) (article 16 of the Act).
5. Other obligations.
When a consignor recruits a freelancer by means of an advertisement, the information must not be false or misleading,and must be kept accurate and up to date (article 12 of the Freelance Act).
A consignor must provide necessary consideration to enable the freelancer to balance work with childcare and nursing care, etc., in response to requests from the freelancer (article 13. 1 of the Freelance Act).
A consignor must establish the necessary system for responding appropriately to consultations from a freelancer to prevent the working environment from being harmed by acts of harassment (article 14 of the Freelance Act).
Satoshi Minami
Vilá Abogados
For more information, please contact:
11th October 2024
