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Bogus Outsourcing in Japan


When a company cannot handle a piece of work, it may outsource this to an individual on a “gyōmu itaku” or outsourcing contract.

Why abuse outsourcing contracts?

It’s about profiting from reduced labour force costs. Contractors are not legally “Employees” and therefore employers can avoid their obligations under the Labour Standards and other laws.

An Employee or a Contractor?

The difference between the Employees and Contractors starts with Article 9 of the Labour Standards Act. An “Employee” is deemed to be in a “subordinate” position. Judgments about whether or not a worker has Employee status are based on the answers to several questions:

  • To what degree does the enterprise have authority to give directions to the individual in completing the work?
  • To what degree is the individual bound to time slots and locations?
  • Does the individual have the right to accept or refuse each task?
  • Can the individual freely arrange for another person to fill in for the work?
  • Does the individual own the materials or tools used in carrying out the work?

Someone who comes to the office during set times, works under the authority of their bosses at a designate place and without the right to refuse tasks is an Employee. In return for accepting these working restrictions, there are limitations on Employee’s’ working hours, higher pay for overtime and paid holidays. If they get injured or sick at work, they are eligible to receive workers’ compensation. If they lose their job, they get unemployment benefits.

Someone who can choose the time and place of their work and even whether to complete the task is not in a subordinate position and is not and Employee. Thus labour laws (except the Trade Union Law) do not apply to them. Such Contractors have no right to unemployment insurance, paid holidays or workers’ compensation.

Court contests over Employee status have been fought by truck drivers, singers, TV license fee collectors, journalists, hostess bar staff, monks, sumo wrestlers and many more. Winning or losing makes such a difference from a legal point of view that it is not surprising that many conflicts arise.

Rampant bogus outsourcing (giso ukeoi)

The best known example is Japan’s largest beef and rice shop operator, Sukiya. It has about 2,000 restaurants providing meals 24 hours a day. Until recently its workers received no overtime pay regardless of how many hours they worked because the company maintained that it had a private Contractor relationship with them. The Tokyo Labour Commission ruled in November 2009 that management had committed unfair labour practices by refusing to negotiate with the workers’ Union.

The workers pressed criminal charges against top corporate executives for Labour Standards Act violations (which are criminal offenses that can potentially mean jail time). After an eight-year fight, the company was finally forced (through a settlement with their Labour Union) to recognize that those working at Sukiya branches around the country are Employees.

Realistically it was absurd to suggest that Sukiya staff could work when and where they like without taking orders from superiors.

After all, every Sukiya in Japan sells the same beef and rice, at the same price under the strict control of management. If such conditions allowed them to be Contractors, then pretty well every other worker in Japan would likewise be similarly classified.

Not worth the risk

Bogus outsourcing is being progressively cracked down on. The law makes a clear distinction between Employees and Contractors and it is not worth taking the legal, workplace turmoil and reputational risk of operating bogusly.

This is even more so for foreign companies operating in Japan who tend to come under greater scrutiny from the labour authorities.


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