Japan’s government recently submitted the “Draft Law on the Optimization of Transactions Related to Specified Contractors” to the Diet. This will “create a stable working environment for entrusted non-employee business workers and optimize transactions related to entrusted businesses”. The purpose of this law is to contribute to the healthy development of Japan’s national economy, especially in light of the diversification of work styles in the country. Optimization of Contractor and Outsourcing Relationships in Japan is especially important in current post-pandemic times.

The proposed law defines several key terms of the target parties and transactions.  These include:

• Specific entrusted business operators –  specific entrusted business operators are businesses that are the other party of outsourcing and do not use employees
• Specific contract workers – individuals who are specific entrusted businesses and representatives of corporations who are specific entrusted businesses
• Outsourcing – entrusting the manufacturer of goods, the creation of information deliverables, or the provision of services to the business. Meanwhile, specific business outsourcing businesses are businesses that outsource business to a specific entrusted business operator and use employees.

One of the key aspects of the proposed law is the specification of the contents of benefits of specific entrusted businesses and other matters, the amount of remuneration, and other details in writing or digital means. The same applies when a business operator who does not use employees, outsources business to a specific contract business operator.

Further, the law addresses payment arrangements and compliance requirements relating to entrusted parties and outsourcing. One example is setting a compensation payment due date within 60 days from the date of receiving the benefits of a specific entrusted business operator, that must be paid (in the case of re-consignment, within 30 days from the date of receiving payment from the ordering source).

Regarding compliance for specific outsourcing business operators, the following have been set out as not permissible:

the acts of (1) to (5) shall not be done, and the interests of specific entrusted businesses shall not be unreasonably harmed by the acts of (6) and (7).

(1) Refusing to receive it without any reason attributable to the specific entrusted business operator

(2) Reduce the reward without any reason attributable to the specific entrusted business operator

(3) Returning without any reason attributable to the specific contractor

(4) To unfairly determine the amount of remuneration that is significantly lower than the normal market price

(5) Pursory the purchase and use of services of your own designated items without a justifiable reason

(6) To provide money, services and other economic benefits for oneself

(7) Change or redo the contents without any reason attributable to the specific entrusted business operator.

Another important provision of the law is the establishment of the working environment for specific entrusted workers. The Minister of Health, Labor and Welfare will publish the necessary guidelines for specific subcontractors to properly deal with the matters stipulated below. The law requires:

• that recruitment information provided through advertisements, etc., must be accurate and up-to-date. 
• specific entrusted business operators must outsource business in compatibility with childcare and nursing care, and necessary consideration must be taken in response to related requests so that they can perform the work considered as “continuous outsourcing.” 
• specific subcontractors must also take measures such as necessary system development such as consultation and response to harassment of specific entrusted workers. 

In the event of a violation of the law, the Fair Trade Commission, the Secretary of the Small and Medium Enterprise Agency, or the Minister of Health, Labor, and Welfare can advise, guide, report collection, conduct on-site inspections, issue recommendations, publication, and orders on violations to specific business contractors, among other measures. Violation of orders and refusal of inspection will be punished by a fine of not more than ¥500,000, with provisions for both corporate punishments.

The proposed law has a specific enforcement date, which will be specified by Cabinet Order within the scope of not exceeding June of one year from the date of promulgation. The law is expected to create a more stable working environment for specific entrusted business workers, improve transactions related to specific entrusted businesses, and contribute to the healthy development of Japan’s national economy.

Verse Corporation publishes articles on timely issues in Japanese Social Welfare and Labour Law. Japanese payroll, source deductions, and myriad labor law work & pay rules regarding compensation, social insurance, absenteeism & sick leave, etc. require strict adherence. Labor/employment law can be complex, even for Japanese companies, and must be handled mostly in Japanese. As with all social welfare and labor law matters in Japan, please seek out professional Sharoushi (Certified Labour Law and Social Insurance Attorney.)

The proposed law, has several additional details that companies will want to be aware of, and in compliance with.  These can all be found at the Secretariat’s website.  

Specifically, these are the key documents, all in Japanese.

• Overview (PDF/249KB)
• Outline (PDF/135KB)
• Draft law and reasons (PDF/160KB)
• Reference article (PDF/86KB)

Optimization of Contractor and Outsourcing Relationships in Japan is especially important in current post-pandemic times. Further, it is a Recognition of the Increasingly Important Role Of Freelancers.