This article was written as of October 2024.

The Act on Optimization, etc., of Transactions concerning Specified Outsourcees (hereinafter referred to as the "Freelance Act") was enacted on April 28, 2023 and promulgated on May 12, 2023, and will go into effect on November 1, 2024. Prior to its enforcement, we would like to provide a summary of the main points of the Freelance Act.

The Freelance Act covers the outsourcing of transactions to freelancers by business operators (including freelancers, hereinafter referred to as "Outsourcers"). In this regard, the Freelance Act defines a freelancer as a "specified outsourcee", which means a party to whom business is outsourced that is either a sole proprietorship (without employees) or a one-person corporation (Article 2, Paragraph 1 of the Freelance Act). For ease of reading, we have used only the term "freelancer" in this summary.

Under the Freelance Act, the obligations imposed on Outsourcers vary depending on the attributes of such Outsourcers. Typical obligations include the following:

• (1) When an Outsourcer places an order with a freelancer, it is required to clearly state the details of the work to be outsourced and the amount of remuneration, etc. (Article 3, Paragraph 1 of the Freelance Act).
• (2) The Outsourcer (limited to those who are not freelancers) is required to set a payment date for the freelancer and comply with it (Article 4, Paragraph 1 of the Freelancer Act).
• (3) In the case where the Outsourcer (limited to those who are not freelancers) has been continuously outsourcing work to a freelancer for a period of one month or more, the Outsourcer is prohibited from reducing such freelancer’s compensation or setting an unjust amount of compensation (Article 5, Paragraphs 1 and 2 of the Freelance Act).
• (4) In the case where the Outsourcer (limited to those who are not freelancers) has been continuously outsourcing work to a freelancer for a period of six months or more, the Outsourcer is required to give such freelancer at least 30 days' notice if it intends to cancel a contract with the freelancer (including not renewing a contract after it expires) (Article 16, Paragraph 1 of the Freelance Act).

If Outsourcers breach the obligations under the Freelance Act, the Japan Fair Trade Commission, the Director-General of the Small and Medium Enterprise Agency, or the Minister of Health, Labour and Welfare may give advice and guidance to them. The Japan Fair Trade Commission and the Minister of Health, Labour and Welfare may also issue an order if the Outsourcers fail to comply with the advice and guidance they received.

The Japanese government is putting in place sufficient resources for the smooth enforcement of the Freelance Act, and we therefore recommend that business operators that do business with freelancers should pay close attention to the Freelance Act once it comes into effect on November 1, 2024.