Key Differences between Employment Contracts and Independent Contractor Agreements

Are you an employee or an independent contractor?

We are frequently asked by clients whether entering into an independent contractor agreement (業務委託契約 or "gyomu itaku keiyaku") means that they are not entitled to any protections and benefits under Japanese labor laws, as they are not a "worker" (労働者 or "rodo-sha") as that term is defined under the law.

This is not always the case.

If it is determined that the agreement was acutally an employment contract (雇用契約 or "koyo keiyaku"), you may in fact be entitled to protections and benefits under Japanese labor laws.

Key differences between employment contracts and independent contractor agreements

What is an employment contract?

An employment contract involves a worker being engaged by an employer to carry out work in exchange for remuneration paid by the employer.

If you fall under the definition of a "worker," you will generally be entitled to the various protections and rights provided for in the Labor Standards Act and Labor Contracts Act.

What is an independent contractor agreement?

An independent contractor agreement can not be strictly defined, and under Japanese law, is wide in scope.

However, it usually involves a sole proprietor carrying out specific work in exchange for remuneration paid by the party for whom that specific work is completed.

Key differences between employment contracts and independent contractor agreements

Unlike in employment contracts, independent contractor agreements do not entail a superior-subordinate relationship, and are not entered into between "workers" (労働者 or "rodo-sha") and "employers" (使用者 or "shiyo-sha"), but rather between two independent businesses.

In other words, if you have entered into an independent contractor agreement, you are not a "worker" for the purposes of Japanese labor laws and will not be entitled to the various protections and rights provided for in the Labor Standards Act and Labor Contracts Act.

How to identify employment contracts and independent contractor agreements

An employment contract or an independent contractor agreement?

So, what if you sign an agreement that is entitled "Independent Contractor Agreement"?

Just because the document is entitled "independent contractor agreement" or any other similar variant, that does not mean that you are not entitled to the various protections and rights afforded to "workers" under Japanese labor laws.

Whether you are a "worker" under an employment contract, or a sole proprietor under an independent contractor agreement, does not depend on the formalities of how the contract is drafted, but rather on whether key elements of an employment relationship exist between the parties to the contract.

In other words, no matter what the title is of the contract you enter into, if it is recognized that an employment relationship exists between yourself and the other party to the relevant contract, you will be a "worker" for purposes of Japanese labor laws, and entitled to to the various protections and rights afforded thereunder.

The existance of the following factors are a significant indicator of there being an employment relationship between yourself and the other party to the contract.

Factors that may indicate the existance of an employment relationship

  • There is no freedom to accept or reject work requests, nor the instructions for how such work is to be completed
  • There is a significant amount of supevision and control over the work to be completed
  • There are restrictions on the place of work and hours to be worked
  • Remuneration is paid (provided, however, that this refers to remuneration being paid not for the result of the work itself, but rather paid for the fact that the employee was employed for the period, or for remuneration paid in the form of wages calculated on an hourly or daily basis)
  • Machinery, equipment and the like to be used in carrying out the work are provided at the expense of the company
  • The level of remuneration paid is the same as that of regular employees
  • Priority or exclusivity of the role above other work, such as stating that "you will only complete work for this company"
  • Employment/internal work rules and policies, and other documents that prescribe workplace conduct are provided
  • Income taxes are witheld (源泉徴収 or "genzen choshu") from the remuneration paid
  • Being eligible for severance payment or retirement money systems (退職金制度 or "taishokukin seido"), and benefit plans (福利厚生制度 or "fukuri kosei seido").

If you think you are working under an employment contract

If you have in fact entered into an employment contract, and fall under the definition of a "worker", you will be entitled to the following protections and rights provided for under the Japanese labor laws.

Examples of rights and protections workers under employment contracts are entitled to:

  • Eligibility to use and be enrolled in social insurance systems (社会保険制度 or "shakai hoken seido") such as employment insurance (雇用保険 or "koyo hoken"), health insurance (健康保険 or "kenko hoken"), worker’s compensation insurance (労災保険 or "rosai hoken"), and employee pensions (厚生年金保険 or "kosei nenkin hoken").
  • Eligibility to use paid annual leave (年次有給休暇 or "nenji yukyu kyuka").
  • A high level of security and status in society as the right of the employer to terminate your employment is extremely limited.
  • Payment for overtime can be demanded in accordance with the Labor Standards Act (残業代請求 or "zangyodai seikyu")

If you are unsure whether you are working under an employment contract

  • Where there is no written contract, and you are unsure as to what working arrangement you have but are being ordered by the company to work long hours.
  • You have signed an "independent contractor agreement" or a similar document but are working under the directions and orders of the company and are being made to work in the same manner as ordinary employees.

If you find yourself in this type of situation, and wish to claim for unpaid or forced overtime, or wish to avoid being terminated or being made redundant by the company despite being unsure of your employment contract status, please contact our experienced labor law attorneys.

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The consultation fee payable will vary based on the particular facts of the matter.

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