Outsourcing
The basic rule under Japan employment law is that a company may not engage in ‘worker supply’ – that is, dispatching a worker to another company who will give the employee their day to day work instructions. The exceptions to this rule are in the case of a secondment between related companies (subject to the specific rules that apply), or where the dispatch is permitted under the Worker Dispatch Act.
The main purpose of the Worker Dispatch Act, is to set standards for agencies who dispatch workers to other companies. Agencies must have a licence for job placement. The agency will be responsible for paying salary, unemployment insurance premiums, social insurance premiums, and withholding tax. The receiving company is responsible for health and safety of the dispatched worker, and is entitled to give the dispatched worker direction and supervision.
The receiving company is allowed to utilize a dispatched worker for a particular job for no more than 3 years . (This means that the receiving company has to stop the job or to have a directly-hired employee handle the job or to outsource the job, when 3 years have passed.) If the job concerns one of 26 professional types of job, however, then there is no limited period.
Dispatched workers can conclude an employment agreement with the receiving company after their contract with the agency has ended. The Act provides for hiring preferences in respect of dispatched workers who have worked for a receiving company for a particular period (generally 3 years) in certain situations.
Contracting
Companies may engage persons (eg consultants) as independent contractors. However, the courts will examine the substance of the relationship and will consider a person to be an employee if the relationship appears to be one of employment – that is, where the employee undertakes work under command and instruction from the employer.
In order for the person to be an independent contractor, they will need to decide themselves how the contracted business will be done, without detailed command or instruction, and be independent in management, including starting and finishing time, rest periods, holidays, etc.