Freelance work is booming, with an estimated 1.57 billion freelancers worldwide and a projected annual growth rate of 14%. While this opens up exciting opportunities for independent contractors, it also comes with challenges.
For one, many countries offer few protections for freelancers, leaving them vulnerable to unfair labor practices or late payments. However, other countries, like Japan, have enacted laws to protect them.
Japan's "Act on Ensuring Proper Transactions Involving Specified Entrusted Business Operations" (or the "Freelance Act") went into effect on November 1, 2024. Companies hiring freelancers in Japan must follow the terms of this law to avoid potential penalties.
Key takeaways:
- Japan's new Freelance Act contains several specific protections for freelancers.
- Under the Act, freelancers are entitled to written contracts, timely payments, and a working environment free from harassment.
- Failure to comply with the Act can result in investigations and fines.
Why Was the Freelance Act Introduced?
A 2021 survey conducted through the Japanese Ministry of Health, Labour, and Welfare (MHLW) identified several challenges freelancers face, including not being paid in a timely manner.
Japan's existing Subcontract Act protected freelancers against late payments, but only if their client had at least JPY 10 million in capital. Since this requirement excluded about 60% of clients, many freelancers remained unprotected under the law.
The Freelance Act was created to address this and other key challenges faced by over 2 million freelancers in Japan. The Act sets clear regulations to enhance working conditions — ensuring freelancers have transparent contracts, fair compensation, and timely payments.
Key Provisions of Japan's Freelance Act
In 2021, the Japan Fair Trade Commission (JFTC) defined "freelancer" as "any self-employed persons or sole traders (sole business owners) who have neither fixed physical business premises nor any employees who earn income utilizing their own experience, knowledge, and skills."
The new law adopted the same definition and defines "companies" as businesses or individuals that hire freelancers, with any industry or sector eligible to do so.
Covered transactions are any "business consignment," which is defined as "an entrepreneur's agreement that entrusts to another entrepreneur the manufacture (including processing) of goods or the creation of information-based products as a part of its business" or "an entrepreneur's agreement that entrusts to another entrepreneur the provision of a service as a part of its business (including having another entrepreneur provide a service for its own services)."
The Freelance Act includes several requirements, some of which vary based on the freelancer's contract length.
Written Contracts
Companies must provide clear contracts that outline the terms of the transaction. Contracts can be written or electronic and must contain (at a minimum):
- A description of the work to be performed
- The project completion date
- Payment terms, including the amount, method, and timing
Recruitment
Any company hiring freelancers must ensure all advertisement recruitment information is accurate and up-to-date. Providing false or misleading information is prohibited.
Timely Payments
To avoid excessive payment delays, companies must pay freelancers within 60 days of a project’s completion.
Protection Against Unfair Practices
Companies cannot impose unfair working conditions or exploit freelancers, such as abruptly canceling contracts or underpaying for their services.
Additionally, any agreements lasting longer than one month prohibit the following acts:
- Refusing to accept completed freelance work without a valid reason
- Returning delivered work or goods to the freelancer without a valid reason
- Reducing payment without a valid reason
- Setting unreasonably low pay
- Forcing freelancers to buy goods or services without a valid reason
- Requesting unreasonable revisions or changes to the deliverables
Harassment
Companies must have measures in place to prevent harassment against freelancers, including sexual harassment and power harassment. Companies must also establish a system that allows freelancers to seek consultation on harassment issues.
Contract Termination
If the freelancer works for a company for six months or more, the company must provide 30 days' notice if terminating a contract prior to its expiration date.
Work-Life Balance
Freelancers working for a company for more than six months are entitled to accommodations for family responsibilities. For example, the company must allow reasonable working hours so the freelancer can balance obligations like pregnancy, childbirth, nursing care, caregiving, and childcare.
Dispute Resolution Measures
The Freelance Act gives independent contractors several options to handle disputes if an issue arises, including:
- Mediation facilitated by the Labour Relations Commission
- Reporting violations to the Japanese Fair Trade Commission or other relevant authorities
- Legal claims for unpaid fees or breaches of contract
In addition, companies are prohibited from retaliating against independent contractors if they report a violation.
How This Impacts Companies Hiring in Japan
If your company hires, or is planning to hire, international freelancers in Japan, you must comply with the new rules under the Freelance Act.
One of the most critical steps is first ensuring that freelancers are classified correctly under Japanese law. Misclassification is a common issue that can lead to legal and financial risks, so getting it right is essential.
In addition, businesses should:
- Review and update employment contracts so your business is in compliance with the Freelance Act.
- Ensure your recruitment practices meet the Act's requirements.
- Revise your company's anti-harassment policies to include freelancers (if they don't already).
What Happens If Your Company Violates the Freelance Act?
Once a freelancer reports a company for a violation of the Freelance Act, the Japanese government will investigate. If the government finds that the company violated the Act, it can issue warnings, recommend remedial measures, or order the business to implement corrective measures.
Fines of up to JPY 500,000 can be assessed if a company fails to comply or racks up repeated offenses.
On top of that, the government may publicly disclose the names of companies that commit violations of the Freelance Act, which can lead to reputational damage.
How to Stay Compliant With Japan's Freelance Act
Consider consulting a legal expert who can help you navigate these new rules under the Freelance Act, including contracts, payment terms, and other internal policies.
Another option is to partner with an Employer of Record (EOR) to manage those responsibilities for you.
An EOR ensures compliance with all local employment laws (like the Japan Labor Standards Act) and can also handle making contractor payments.
Ensure Compliance With Japan's Freelance Act With RemoFirst
As an Employer of Record, RemoFirst ensures that contracts with international contractors comply with local laws in over 150+ countries, including Japan.
We have a free tier for contractor management only, and it costs $25 per person, per month, to manage and pay contractors via our platform.
To learn more about RemoFirst, schedule a demo or sign up today to start managing your contractors.
