Author: Attorney Yasuko Ishii

1　What is a Freelancer?

A Freelancer refers to an individual or a sole proprietor who works on a contract basis. According to the Employment Status Survey by the Ministry of Internal Affairs and Communications, as of October 2022, 2,094,000 people were working as full-time freelancers, and 480,000 were working as freelancers as a side job. With an increasing number of people working as freelancers as a side job and those working under outsourcing contracts after retirement and the growing need for flexible working styles, freelancing is expected to expand further.

However, freelancers are considered to be a vulnerable group who provide work/services as individuals or sole proprietorships and have for long been considered an ambiguous entity that falls outside the category of employee, leading to discussions about how they should be protected. As existing legal frameworks could not address these issues, the “Act on Ensuring Proper Transactions Involving Specified Entrusted Business Operators” (commonly known as the “New Freelance Act”) was promulgated on May 2023 and came into effect on November 1, 2024.

2　Overview of the New Freelance Act

The New Freelance Act introduces regulations similar to the Subcontract Act on companies that outsource work/services to freelancers. Additionally, the New Freelance Act provides freelancers with limited employee-like protections and also allows broad administrative guidance in case of violation of these regulations, as detailed below:

［Regulations Similar to the Subcontract Act］

(1) Obligation to Provide Written Contract Outlining Terms of Work/Services
Companies that outsource work/services to freelancers, shall provide the contract outlining the terms of work/services in writing or by electronic means to the freelancer promptly (Article 3 of the New Freelance Act).

(2) Payment of Remuneration within 60/30 Days (Special attention required for subcontracting cases)
Companies that outsource work/services to freelancers are obligated to pay remuneration to the freelancer within 60 days of the freelancer providing the work/services (Article 4, Paragraphs 1 & 2 of the New Freelance Act). However, in cases where a company, subcontracts work/services to another entity which then subcontracts it to a freelancer (company → sub-contractor → freelancer), the sub-contractor must pay the freelancer within 30 days of receiving payment from the company (Article 4, paragraphs 3 & 4 of the New Freelance Act).

(3) Prohibition of Payment Reduction and Unfair Price Cutting
When a company is outsourcing work/services to freelancers on a continuous basis, regulations similar to Article 4 of the Subcontract Act (prohibiting the unjust reduction of remuneration and unfair price cutting) are imposed on the company (Article 5 of the New Freelance Act).

［Employee-like Protections］

(4) Obligation to provide 30-day Advance Notice for Contract Termination/Non-Renewal
When a company seeks to terminate or not renew a continuous outsourcing work/services contract with a freelancer, the company must provide an advance notice of 30 days to the freelancer (Article 16, paragraph 1 of the New Freelance Act).

(5) Obligation to Implement Measures to Prevent Harassment
Companies must establish a system to respond appropriately to consultations from freelancers regarding sexual harassment, power harassment, and maternity harassment (Article 14 of the New Freelance Act).

(6) Obligation to Consider Pregnancy, Childbirth, Childcare, and Nursing Care Needs
Upon request from freelancers, companies must make necessary adjustments to enable the freelancers to provide work/services while also maintaining a balance with pregnancy, childbirth, childcare, or nursing care responsibilities (Article 13 of the New Freelance Act).

(7) Obligation to Accurately Display Recruitment Information
When a company provides recruitment information for freelancers through advertisements, the company must not make false or misleading representations and must maintain accurate and up-to-date content on such advertisements (Article 12 of the New Freelance Act).

3　Disguised Freelancing

Disguised freelancing occurs when a company treats freelancers as if they were employees in an employment relationship with the company. Unlike “employees” who work under direction and supervision, freelancers determine their work methods, hours, and location independently, receiving compensation for fulfilling their contracts. When a company takes away a freelancer’s discretion in these matters, it may be considered disguised freelancing.

However, the criteria for determiningwhether a situation constitutes an illegal “disguise” are not always clear. This uncertainty leads tocompanies refraining from hiring freelancers due to concerns about legal compliance, and results in over-compliance with the law. For instance, providing a freelancer with a manual and instructing them to follow specific procedures could be seen as disguised freelancing, while prohibiting progress reports or avoiding social gatherings with the freelancer might be considered overcompliance.

4　Consequences of Violating the New Freelance Act

If a company violates the New Freelance Act, freelancers can report the violation to administrative agencies. These agencies can provide advice, guidance, and recommendations, and issue orders for the company to comply with their recommendations (Article 9, paragraph 1 of the New Freelance Act). Companies violating such orders may be subject to fines of up to 500,000 yen (Article 24, item 1 of the New Freelance Act).

For companies seeking to engage freelancers, consulting with an attorney is recommended to ensure compliance with the law.