With Japan opening up to diverse styles of working, freelancing is becoming a more common career path.

But such workers often face hurdles, such as being on an unequal footing with their client companies and being exploited for their services. Contracts are vague or not even issued, and payments may not be delivered on time.

The government is looking to change that, with Japan’s first-ever law designed to protect freelancers going into effect on Friday.

What are the major issues freelancers face? What is the Freelance Act, and how will it help them? Here is what you need to know.

How big is the freelance population in Japan?

Japan had 2.57 million freelancers — nearly 4% of the working population, according to a 2022 employment status survey the internal affairs ministry conducts every five years. The ministry counted the number of freelancers for the first time under nonagricultural sectors as proprietors who had no employees working for them.

The do-it-yourself work style and flexibility of being a freelancer seems to be appealing to many.

The ministry survey shows that 32.5% chose freelancing “because they can put specialized skills to use” while 29.5% said it was “because they can work at times that are convenient to them.”

Freelance Association Japan, a Tokyo-based body that represents freelancers, said its members grew from 2,604 in September 2019 to 16,855 as of February this year.

What are some common issues that freelancers face?

One major issue is that client companies often don’t provide a contract.

In a separate government survey conducted between May and June this year, 44.6% of freelancers said past clients did not disclose the details of their business transaction in writing.

Late remuneration is also a problem. Around 28.1% of freelancers said clients did not pay them within the 60-day period.

Client companies also tend to treat freelancers poorly, such as giving unreasonable demands for discounts.

How will the Freelance Act improve the situation?

The new law will require clients to provide contracts with the details of their business transaction written electronically or on paper.

Contracts must include descriptions of the content and completion date of the freelancer’s work, as well as the amount to be paid, the date to pay by and the payment method.

Clients will also be prohibited from spreading false or misleading recruitment information.

Under what is known as the Subcontract Act, companies with more than ¥10 million in capital must provide contracts with terms and conditions, but those with less than that are not.

Yet many freelancers rely on business from small and midsize companies, which is why the Freelance Act aims to hold smaller firms accountable as well.

Clients will be obligated to pay within 60 days of freelancers delivering work results.

Under the new law, if a freelancer works for a month or longer, the client cannot refuse or return the final product, reduce remuneration or order a redo of the work without grounds to do so.

The law also requires clients to take matters of pregnancy, child-rearing and nursing-care, among others, into consideration for freelancers who work for six months or longer.

What happens if companies violate the law?

First-time offenders may receive an administrative warning from the government, while repeat offenders will have to pay a fine of up to ¥500,000.

The authorities can also disclose the names of offenders and add them to what is colloquially called the "black companies list.”

Will the Freelance Act be effective?

For big companies, a ¥500,000 fine is not significant, but it is for small to midsize companies, which are the main clientele for freelancers, said Mariko Morita, a lawyer at Mori Hamada & Matsumoto.

“I think a fine of ¥500,000 is appropriate. But for companies, what is more incentivizing than a fine is risking the company’s reputation from having the authorities disclose the companies’ names,” Morita said.

“From now on, based on this law, there is expected to be a black list for companies dealing with freelancers.”

Such a list “poses a big reputational risk and is a great incentive and motivation to follow the law,” she added.

What does this mean for foreign nationals who freelance in Japan?

Morita said that freelancers who were unable to negotiate better terms with clients due to language barriers will now automatically receive legal protection.

“Even if foreign freelancers do not initiate negotiations, their clients are now expected to actively work to improve problematic behavior,” Morita said. “In that way, (the law) greatly benefits those who could not negotiate well due to language barriers.”

What are the shortcomings of the Freelance Act?

Although clients will be obligated to issue contracts, Morita pointed out that freelancers could still be put in a vulnerable position if they don’t closely go over the details of the work terms with client companies.

“This law does not touch on the content of contracts so much as the deadlines for payments. So, I think problems about (the content of contracts) will persist,” said Morita.

For instance, even if a freelancer suddenly has to stop work due to a health issue, they may not be able to depending on the conditions of the contracts.

Another shortcoming of the Freelance Act is the lack of awareness among freelancers, themselves.

A government survey conducted in May and June of this year found that 76.3% of freelancers and 54.5% of clients did not know what the Freelance Act was about.

“It is possible that (freelancers) can be taken advantage of if they do not know about (the Freelance Act), so I want them to become more aware,” Morita said.