In Japan, working as a freelancer might have made you seem like a maverick in the past, since the nation's labor culture has traditionally embraced stability and life-time employment.

Yet the situation has changed greatly in recent years, with the country promoting more flexible working styles and encouraging people to take on second jobs. Meanwhile, the spread of remote work due to the pandemic has made it easier for individuals to casually work in their spare time.

Despite more people pursuing a new working style, business practices pertaining to freelancers are still quite old fashioned — verbal agreements are often the norm — and regularly create problems, including on compensation, prompting the government to work on new legal protections for them.

In light of the increasing number of freelance workers, the government has been conducting surveys and running counseling services in order to shed light on issues that such workers face.

“More data related to freelancers have been accumulated. We know more about the kinds of problems they face, and there are problems that are difficult to deal with through existing laws,” said Mariko Morita, a lawyer at Mori Hamada & Matsumoto. "Thus, I think momentum for introducing a new law has been growing."

According to Lancers, a Tokyo-based job-matching platform, the estimated freelance population had surged to 15.77 million as of October last year, up from 11.18 million in 2019. The definition of a freelance worker is wide-ranging, and it includes 5 million sole proprietors and 4.24 million people who mainly work for a company but also take on second jobs.

Adding to the growth, emerging services, such as food delivery businesses like Uber Eats, have produced many individual contractors, boosting the number of so-called gig workers.

Morita was seconded to the labor ministry from 2019 to 2021 and worked on issues related to freelancers. She is also one of the counselors for the support hotline established by the government for such workers.

Since its launch in November 2020, the number of consultations had reached 8,230 as of August this year.

Trouble related to compensation is the most common issue among freelancers, according to Morita, saying that there are cases where contracting companies do not pay, delay payments or unreasonably reduce remuneration.

These payment problems occur because of Japan’s old business custom in which companies offer freelancers jobs through verbal promises. This loose business custom has been a common practice across the media, culture, art and entertainment industries.

A lot of freelancers didn’t raise their voice over this practice in the past, since they probably just thought that this is the way it is, Morita said.

She added that the current legal framework doesn't really do a good job of protecting freelancers.

In some cases, freelancers are deemed to have an employer-employee relationship with a contracting firm based on the tasks and working style, meaning they can be covered by the Labor Standards Act, but freelancers are generally not considered employees.

Under the Act Against Delay in Payment of Subcontract Proceeds, companies with more than ¥10 million ($73,000) in capital are obliged to provide contracts with terms and conditions. But those with ¥10 million or under are not, although they can be deemed to be abusing their dominant bargaining position under the antitrust law.

“There are actually a lot of cases where contracting companies don’t provide contracts. Even if they do, terms are vague and unclear,” Morita said.

But a number of freelancers rely on business from small and midsize companies. A government survey conducted in 2020 found that about 40% of freelancers got more than a half of their annual sales from companies with ¥10 million in capital or under.

The government actually drafted new guidelines in March last year and urged businesses to provide clear terms and conditions, but apparently that has not been nearly enough.

“Troubles are more likely to arise when dealing with small and midsize enterprises,” said Mari Hirata, the representative director of the Freelance Association Japan.

“Many freelancers have experienced compensation trouble once or twice, so everyone says that it’s common,” she said, adding that she herself has faced such problems and filed a lawsuit in the past.

“For those working for companies, it’s probably surprising that we do business without setting such basic things, but this is the current reality.”

When freelancers face payment problems, they mostly just give in, Hirata said.

Not only is it costly to hire lawyers and take matters to court, but the current legal framework does not strictly regulate small enterprises. “So it’s just going to be a he-said-she-said argument,” Hirata said.

“Unless (small and midsize firms are) legally mandated to provide clear terms and conditions, we can’t even sit at the negotiation table,” Hirata said.

The government has drafted a document that sets out the direction of the new legal rules, which state that contracting firms or individuals must provide paper or digital records that include job descriptions and the amount of compensation. The document also says that they must pay within 60 days.

“The biggest point is that terms and conditions will be clear to us. We can choose not to accept them if compensation is too low for the tasks,” Hirata said, adding that if troubles occur, the records can be used as evidence.

It had been reported that the government was looking to enact a bill setting out the new rules during the current parliament session, which ends Saturday. But the bill was not submitted, so it will have to wait until the next session, which will begin in January.

Morita said that the new law is expected to protect freelancers from problems regarding compensation, but it is still unclear whether the government will have enough manpower to firmly enforce the rules.

Hirata said that the new rules will actually protect not only freelancers but also contracting firms.

Without records of clear terms and conditions, deadlines for tasks and the content of them can be ambiguous, which can cause trouble for companies.

As such, issues related to business transactions “will likely decrease quite a lot” once the new law is introduced, Hirata said.