What the Freelance Protection Act (Enacted 2024) Changed

This section uses a concrete example to illustrate the legal protection gaps previously faced by freelancers and the significance of the new law in filling them.

Freelance web producer A accepted a site redesign project from a mid-sized company. The contract was verbal, with only a rough outline agreed: "corporate site design overhaul, budget 500,000 yen, deadline two months away." A month into production, the client contacted A: "Actually, please add an e-commerce feature too. Same budget." When A asked for an additional fee citing the increased workload, the client unilaterally issued a termination notice: "That was the plan from the beginning. If you won't agree, we're ending the contract."

In this situation, A had no recourse but to accept the loss. The Labor Standards Act protects employees in employment relationships and does not apply to freelancers working under service agreements. The Act against Delay in Payment of Subcontract Proceeds, Etc. to Subcontractors (Subcontract Act) also has capital requirements and transaction content restrictions that exclude many freelance cases. Civil Code contract provisions exist, but the hurdle for an individual to take legal action against a corporation is extremely high.

The Freelance Protection Act (formal title: Act on Proper Transactions with Specified Consignees and Improvement of Their Working Environment), enacted November 1, 2024, fills this legal blind spot. Under the Act, in transactions meeting certain conditions, clients are required to provide written disclosure of transaction terms, and acts such as unilateral contract changes and payment delays are clearly prohibited. Violations are subject to administrative guidance and recommendations, and in serious cases, companies can be publicly named.

With the amendment of the Freelance Protection Act, contractors' legal position has improved compared to before. However, to actually benefit from the new law, contractors must accurately understand the eligibility conditions and prohibited acts, and have the knowledge to respond appropriately when a real dispute occurs.

This section analyzes the structural reasons why freelancer rights protection had blind spots, and the social changes that led to the new law.

Japan's labor legislation has focused on protecting employees in employment relationships. The Labor Standards Act, the Labor Contract Act, the Trade Union Act, and similar laws protect workers — the weaker party — within a hierarchical employer-employee relationship. On the other hand, individuals working under service agreements or contracts for work are treated legally as "businesses," and transactions are assumed to take place between equals.

In reality, however, the power imbalance between an individual freelancer and a large corporation is enormous. Despite this asymmetry in negotiating power, information, and financial resources, the law treated these as "transactions between equal businesses." As a result, unilateral changes to conditions by clients, payment delays, and unreasonable contract terminations went unchecked, and contractors had no effective means of resistance.

Growing demand for protecting specified consignees was driven by the diversification of work styles. According to a Cabinet Secretariat survey (2020), the freelance population, including side jobs, reached approximately 4.62 million people, with an economic scale expanding to approximately 28 trillion yen. The spread of IT technology has created an environment where individuals can handle corporate-level work, and companies have been increasing transactions with freelancers from the perspective of reducing fixed costs and acquiring skills.

But legal frameworks had not kept pace with the change in working styles. The existing Subcontract Act was limited to specific industries such as manufacturing and information services, with strict capital requirements (over 300 million yen, etc.) that left many freelance transactions uncovered. Worker status determinations were also ambiguous, and there were many cases where people working in substance like employees fell outside protection because their contract form was a service agreement.

Overseas, legislation to protect freelancers' rights has already progressed. New York City enacted its Freelance Isn't Free Act in 2017, requiring written contracts and setting payment deadlines. The EU adopted a Transparent and Predictable Working Conditions Directive in 2019, strengthening protections for non-standard workers.

In Japan, as freelance disputes increased, the government began seriously examining legislation around 2020. After surveys by the Fair Trade Commission and the Ministry of Health, Labour and Welfare, and discussions in expert panels, the bill passed in April 2023 and came into force on November 1, 2024. The enactment of this new law for service agreements represents a historic turning point in which legal frameworks responded to the social change of expanding non-employment work arrangements.

This section explains the criteria for determining eligibility under the Freelance Protection Act and the specific contract management steps contractors should take in day-to-day work.

The protected category under the Freelance Protection Act is defined as "specified consignees," and all of the following conditions must be met.

Client Size Requirements

• A business with 21 or more employees, or
• A corporation with capital of 10 million yen or more

Under this condition, orders from sole proprietors or small businesses are outside scope. However, since the total number of employees in a group of companies is considered, orders through a subsidiary may still qualify if the parent company is large.

Nature of the Work

• Carried out as a service agreement
• An ongoing transaction (generally 6 months or more)
• The compensation is a primary source of income

"Primary source of income" here refers to a state where compensation from that client makes up most of the contractor's income. A specific percentage is not defined in the text, but over 50% is considered a rough guide.

Practical Determination Method

Before signing a contract, confirm the client's corporate information. For listed companies, use securities reports; for unlisted companies, information can be found on the company's website or in corporate databases such as Teikoku Databank. When determination is difficult, directly confirming at the time of contracting is also important.

Next, periodically review your own income structure. As dependence on a particular client grows, the likelihood of being protected as a specified consignee increases. Conversely, when income is evenly distributed across multiple clients, the work often falls outside scope.

Obligations Imposed on Clients

Under the Freelance Protection Act, the following obligations are imposed on eligible clients.

1. Written disclosure of transaction terms

   • Work content, compensation amount, payment due date, payment method
   • Contract period and whether renewal is available
   • Provisions regarding mid-term termination

2. Setting and adhering to a payment due date

   • Manufacturing of goods: within 60 days of delivery
   • Provision of services: by end of following month when invoiced on month-end basis
   • Creation of information products: within 30 days of delivery

3. Avoiding prohibited acts

   • Reducing compensation without cause attributable to the contractor
   • Refusing acceptance without cause attributable to the contractor
   • Delaying payment beyond the due date
   • Changing the content of the work or terminating mid-term in a way that unjustly harms the contractor

Practical Contractor Response Procedures

To ensure the benefits of the new law, contractors should manage contracts using the following procedure.

At Contract Execution

1. Confirm that the client meets the size requirements
2. Always request written disclosure of terms (avoid verbal agreements)
3. Verify that payment terms are within the legally mandated deadline
4. Explicitly document the conditions for contract changes and mid-term termination

During Work Performance

1. Always confirm additional work and specification changes in writing
2. Keep records of all interactions with the client via email or chat
3. Save materials that prove delivery (email send records, receipts, etc.)

At the Payment Stage

1. State the payment deadline clearly on the invoice
2. Keep records of late payment reminders if they occur
3. Obtain written confirmation of any reason for reduction or refusal of payment

These practices ensure that evidence is available to file a report under the new law if a dispute arises. The effectiveness of protection as a specified consignee ultimately depends on the contractor's own day-to-day record management.

This section identifies the limitations of the Freelance Protection Act and gives concrete examples of over-expectations and missteps that contractors tend to fall into.

Misconception About Eligibility: "All Freelancers Are Protected"

The most common misconception is that the Freelance Protection Act protects all service agreement transactions. As noted above, the act only applies if the client meets the size requirements and the work meets the ongoing-transaction/primary-income requirements.

For example, a web designer receiving orders from multiple small businesses will not have the new law's protection if none of the clients have more than 20 employees. Even orders from large companies may fall outside scope if they are occasional one-off projects with a small share of total income.

Particular care is needed in determining "primary source of income." Even if a particular client accounts for a high proportion in a given month, if the picture is more distributed over the full year, coverage may not apply. Conversely, if dependence on a single company temporarily spikes during a particular period, coverage may apply during that period.

Excessive Expectations of "Legal Enforcement Power"

The Freelance Protection Act fundamentally relies on administrative guidance for dispute resolution and does not have the enforcement power of civil litigation. Even if a client ignores administrative guidance, it does not directly enable the contractor to recover compensation.

In actual proceedings, a report is first filed with the Ministry of Health, Labour and Welfare or the Fair Trade Commission, and the administrative body conducts fact-finding and guidance with the client. If there is no improvement, the process escalates to recommendations and publication of the company's name — but even after such penalties, there remains a possibility that the client continues to refuse payment.

To actually recover compensation, civil litigation or payment orders must be considered in parallel with the new law's procedures. The new law can be a "tailwind," but it is not a "universal solution."

Inadequate Response to Formal Compliance With Written Disclosure

Some clients try to formally fulfill the written disclosure obligation with vague entries like "Work content: website production" and "Compensation: to be discussed." While a document has technically been provided, this creates seeds of dispute in practice.

When contractors receive inadequate written disclosure, it is important to request specific entries. Phrases like "to be discussed" and "subject to negotiation" tend to become sources of later disputes.

Also, even with a contract in hand, there may be cases where a unilateral change clause is included (e.g., "Party A may amend this contract with 30 days' prior notice to Party B"). Such clauses may conflict with the purpose of the new law, and contractors should point this out and request modification before executing the contract.

Administrative Burden of the Reporting Process

Filing a report with an administrative body places a certain burden on the contractor — preparing the report, organizing documentary evidence, explaining the facts, etc. For small-value cases, the cost of filing may exceed the expected recovery.

If a report becomes known to the client, it may also negatively affect the future business relationship. For freelancers who value an ongoing relationship, reporting tends to be a last resort.

Gaps in Evidence Preservation

When filing a report under the new law, documentary evidence that objectively proves the violation is needed. However, many freelancers do not systematically preserve records from contract execution through work performance to payment.

Particularly problematic is verbal communication and instructions given by phone. These are difficult to prove afterward, and if the client disputes "what was or wasn't said," the contractor is at a disadvantage.

To enhance the effectiveness of the new law, contractors must thoroughly practice day-to-day record management, understand the law's limitations, and be prepared to use other remedies in combination.

This section presents the practical procedures for reporting a suspected violation under the Freelance Protection Act and specific everyday evidence preservation methods.

Staged Escalation Strategy

When a dispute arises, it is important to respond in stages rather than immediately filing an administrative report.

Stage 1: Direct Discussion Between the Parties

First, point out the problem to the client while citing the relevant provisions of the new law. Many companies do not accurately understand the content of the Freelance Protection Act, and simply showing that this is a legal obligation may prompt improvement.

When making the point, avoid emotional language and present the specific article of law and the facts clearly. A specific demand like "Under Article 12 of the Freelance Protection Act, reducing compensation without cause attributable to the contractor is prohibited. Please provide the reason for the reduction in writing" is effective.

Stage 2: Formal Request by Certified Mail

If direct discussion does not resolve the matter, send a formal request by certified mail. Clearly state the facts of the violation, the improvement requested, and the response deadline, and add that administrative reporting is under consideration. Many companies wish to avoid administrative penalties and public naming, so movement toward resolution can be expected at this stage.

Stage 3: Administrative Report

If there is still no improvement, file a report with the Ministry of Health, Labour and Welfare or the Fair Trade Commission. Filing is free and no representative is needed.

Practical Reporting Procedure

Choosing Where to Report

• If the Subcontract Act applies: Fair Trade Commission
• In other cases: The labor bureau of the relevant prefecture (Ministry of Health, Labour and Welfare)
• When unsure: Consult both (they will advise which is appropriate)

Preparing Required Documents

1. Report form (downloadable from each agency's website)
2. Contract or documents showing transaction terms
3. Documents showing work performance (emails, progress reports, etc.)
4. Evidence of the violation (notice of reduction, record of payment delay, etc.)
5. Record of the direct discussion process

Key Points for the Report

• Clearly separate facts from opinion
• Organize chronologically, concisely enough for a third party to understand
• Specify the correspondence between the violation and the relevant article of law
• Specifically state the improvement being sought

Practical Evidence Preservation Manual

To ensure the effectiveness of the new law, contractors should practice the following record management daily.

At the Contract Stage

• Confirm all transaction terms in writing or by email
• Always follow up verbal agreements with a confirming email ("Just to confirm what we discussed today")
• Even without a contract, save the email record of any agreement
• Investigate and record client company information (number of employees, capital)

During Work Performance

• Record all client instructions by email or chat
• When instructions are given by phone, immediately follow up with a confirming email
• Always get written approval for specification changes and additional work requests
• Regularly report work progress by email (creates a record)

At Delivery and Payment Stage

• Save documents proving delivery (sent email, receipt confirmations, etc.)
• Keep records of invoice submissions (copy of sent email, delivery confirmation, etc.)
• State the payment deadline clearly on invoices and keep records of reminders if late
• Always request written reasons for reductions or payment refusals

Using Digital Tools

Use the following tools for efficient record management:

• Automatic email saving: Use Gmail or Outlook's auto-classification to organize emails by client
• Cloud storage: Save contracts, invoices, and deliverables in project-specific folders
• Screenshots: Regularly capture screenshots of chat tool conversations
• Project management apps: Centrally manage project progress and client interactions

Preventive Contract Clauses

When signing new contracts, including the following provisions can prevent disputes:

• Specification change procedures (written agreement, calculation method for additional compensation)
• Clear payment terms (due date, who bears bank transfer fees, late fees)
• Contract termination conditions and procedures (notice period, penalty provisions)
• Attribution and usage terms for intellectual property rights

The enactment of the Freelance Protection Act has definitively improved the legal position of contractors. However, to actually benefit from the new law, contractors must understand its content, practice day-to-day record management, and know how to respond appropriately. The law is only a tool, and it only takes effect when paired with the knowledge and preparation to use it.

References

Overview of the Act on Proper Transactions with Specified Consignees (2024)

Guidelines for Creating an Environment Where Freelancers Can Work with Peace of Mind (2021)

Explanatory Materials on the Amendment to the Civil Code (Law of Obligations) (2020)