Freelance Protection Law is enacted in April 2023
In April 2023, the “Law Concerning the Proper Handling of Transactions Pertaining to Specified Subcontractors” or so-called “Freelance Protection Law” was enacted.
The enforcement date of this law has not yet been determined, but it is expected to come into effect by the fall of 2024 at the latest.
Purposes of the Freelance Protection Law
The purpose of the Freelance Protection Law is to create an environment in which individuals can engage stably in work entrusted to them as business operators, in light of the increasing diversification of work styles.
In fact, the population of freelancers has been increasing year by year, but it has been frequently pointed out that, unlike workers, freelancers have less legal protection and may suffer unfair disadvantages. The new law was enacted to provide freelancers with a certain level of legal protection, although not to the same extent as employment, in order to promote the healthy development of the national economy.
Obligations of Clients
The Freelance Protection Law applies to transactions between a company or business owner, who is the ordering party, and a freelancer, who is the subcontractor. It obliges the ordering company to:
- Clearly describe the details of the contract in writing;
- Pay remuneration within 60 days;
- Accurately display recruitment information; and
- Take measures against harassment, etc.
For more details, please refer to the explanation by MHLW below.
Difference from the Subcontract Act
Previously, freelance transactions were partially protected by the Subcontract Act (下請法）. The Freelance Protection Law will provide protection similar to the Subcontract Act, for transactions that are not protected by the Subcontract Act.
More specifically, the Subcontract Act does not apply to orders placed by companies with capital of 10 million yen or less. However, in the case of freelance transactions, ordering parties are often small companies, and, therefore, there have been many cases where the Subcontract Act could not provide adequate protection to freelancers. The Freelance Protection Law will provide protection for freelancers in cases where such small companies place orders.
Conversely, companies that outsource work to freelancers will be obligated to draw up contracts and pay within 60 days and comply with other requirements in spite of the size of their business. So they need to review the current practice of outsourcing.