This article was written as of January 2024.

1. Introduction

On April 28, 2023, the Act on Optimization, etc., of Transactions concerning Specified Outsourcees (特定受託事業者に係る取引の適正化等に関する法律 in Japanese; hereinafter referred to as the "Freelance Act") was enacted by the Japanese Diet.

Before drafting the Freelance Act, the government of Japan conducted some extensive surveys on the status of freelance workers from 2019 to 2020. The results of that survey and other findings revealed the following facts.

• ● In recent years, the diversification of work styles has progressed and the freelance work style has become popular in Japan.
• ● On the other hand, freelancers have experienced various troubles in dealings with their business partners as reported in the surveys.

In light of these circumstances, the purpose of the Freelance Act is to optimize transactions involving freelancers and to improve their working environment. Therefore, the Freelance Act has been separated into two main parts, with the first part setting out the regulations regarding the optimization of transactions involving freelancers (Chapter 2) and the second part setting out the regulations regarding the freelancers’ work environment (Chapter 3).

2. Target

The Freelance Act covers the outsourcing of transactions to freelancers. In addition, the Freelance Act defines a freelancer as a "specified outsourcee", which means a party to whom business is outsourced that is a sole proprietorship (without employees) or a one-person corporation (Article 2 Paragraph 1). The terms "freelancer" and "specified outsourcee" are thus used interchangeably in this summary.

3. Optimization of transactions

There are three main regulations regarding the optimization of transactions as follows.

3.1 Obligation to clearly indicate the details of consignment, etc.

When a service provider (the "Outsourcer") outsources transactions to a freelancer, the Outsourcer must, in principle, immediately provide the freelancer with the details of the outsourcing, amount of compensation, payment date and other matters specified by the Rules of the Japan Fair Trade Commission, in writing or by electromagnetic means (Article 3).

3.2 Obligation to fix the date to pay compensation

When an Outsourcer which has employees ("Specified Outsourcer") outsources transactions to a freelancer, the Specified Outsourcer must fix the date on which to pay compensation to the freelancer, and the date must be within a period of sixty (60) days from the date of receipt of the work from the specified outsourcee, and must be as short as possible (Article 4 Paragraph 1).

3.3 Prohibition of certain acts

When a Specified Outsourcer outsources transactions to a freelancer continuously for a period longer than the period to be specified by Cabinet Order, the Specified Outsourcer must not conduct any of the prohibited acts prescribed in the Freelance Act (Article 5).

Specifically, the following acts are prohibited.

• Refusal to receive the work without reasons attributable to the freelancer
• Reduction of the compensation without reasons attributable to the freelancer
• Return of the goods after receiving it without reasons attributable to the freelancer
• Unjust setting the amount of compensation that is significantly lower than the compensation normally paid for work of the same or similar nature
• Causing the freelancer to purchase designated goods or to use designated services without justifiable reasons
• Causing the freelancer to provide economic gains that unjustly injure the interests of the freelancer
• Causing the freelancer to change the content of the work or to re-work without reasons attributable to the freelancer that unjustly injure the interests of the freelancer

4. Work Environment

To improve the working environment for freelancers, the Freelance Act imposes on a Specified Outsourcer (i) the obligation to accurately display recruitment information (Article 12 Paragraph 1), (ii) the obligation to establish a system to prevent harassment (Article 14 Paragraph 1), (iii) the obligation to allow freelancers to balance work with childcare, nursing care, etc. (Article 13 Paragraph 1), and (iv) the obligation to give freelancers notice in the case of mid-course termination, etc. (Article 16 Paragraph 1).

The latter two obligations are applicable only when the transaction is conducted continuously for a period longer than the period to be specified by Cabinet Order.

5. Enforcement

The Japan Fair Trade Commission, the Director-General of the Small and Medium Enterprise Agency, or the Minister of Health, Labor and Welfare may give advice and guidance, collect reports, conduct on-site inspections, issue cautions, make public announcements, or give orders to a Specified Outsourcer, etc.

6. Future Outlook

Various preparations are currently underway with the aim of enabling the Freelance Act to come into effect in the fall of 2024, and by November 12, 2024 at the latest. Based on publicly available information regarding the budgets and staffing of the relevant authorities, it appears that active enforcement of the Freelance Act is expected in the future. Therefore, companies that do business with freelancers should pay close attention to the Freelance Act once it comes into effect.