In recent years, Japan has significantly updated its Subcontract Act (Shita-uke Hō) to enhance protections for subcontractors and promote fairer business practices. In particular, as a specialist component of Japan’s antitrust legislation, the Act regulates relationships between larger businesses (parent contractors) and smaller businesses (subcontractors). With a focus on industries such as manufacturing, repair, information technology, transportation, and outsourcing. The goal is to ensure fair transactions and reduce the potential for abuse in subcontracting agreements.
Key Provisions of the Subcontract Act
The Subcontract Act outlines clear obligations for parent contractors, while also prohibiting certain practices to safeguard the interests of subcontractors. Therefore, understanding these key provisions is essential for grasping the Act’s purpose and its impact on business operations.
Obligations of Parent Contractors
Parent contractors are required to adhere to specific duties under the Subcontract Act, which include:
- Firstly Clear Written Agreements: Parent contractors must provide written contracts that clearly define the terms of the subcontract. Including the scope, pricing, and timelines.
- Additionally Fair Pricing and Payment: The Act mandates that parent contractors must avoid engaging in unfair practices. Such as setting unreasonably low prices or delaying payments. Prompt payment is required to prevent financial strain on subcontractors.
Prohibited Acts
The Act explicitly prohibits certain practices, including:
-
Forced Purchases: Parent contractors are not allowed to force subcontractors to purchase goods or services from them.
-
Unfair Price Reduction: Parent contractors cannot reduce the agreed price once the subcontract is in place.
-
Delaying Payments: The Act ensures timely compensation for subcontractors by banning unjustified delays in payments.
Enforcement of the Act
The Japan Fair Trade Commission (JFTC) and the Small and Medium Enterprise Agency (SMEA) enforce the Subcontract Act. They have the authority to issue warnings, enforce cease and desist orders, and impose penalties on businesses that violate the regulations.
Recent Amendments: Strengthening Subcontractor Protection
The Japanese government has introduced amendments to the Subcontract Act, providing even stronger protections for subcontractors. Key updates include:
- Enhanced Measures Against Unfair Pricing: The amendments make it more difficult for parent contractors to unilaterally reduce subcontracting fees. There is now a stronger emphasis on fair consultation between both parties regarding pricing.
- Improved Payment Terms: The amendments enforce stricter regulations on payment deadlines and introduce interest penalties for delayed payments, ensuring that subcontractors are paid promptly and reliably.
- Preventing Abuse of Superior Bargaining Power: The law now addresses the issue of parent contractors exploiting their stronger bargaining position, curbing unreasonable demands and impositions on subcontractors.
- Promotion of Written Agreements: The amendments further emphasize the importance of clear, detailed written agreements to prevent misunderstandings and disputes between parent contractors and subcontractors.
Conclusion
The amendments to Japan’s Subcontract Act highlight the government’s commitment to fostering a fairer and more equitable business environment. By addressing unfair pricing, improving payment terms, and preventing abuses of power, these updates strengthen relationships between large and small businesses. As a result, they contribute to a more stable and supportive economic landscape for subcontractors. Japan’s proactive approach reflects its ongoing efforts to adapt its legal framework to the evolving needs of modern business practices, all while safeguarding the interests of smaller enterprises.
At 360 Business Law, we recognise the importance of robust subcontracting practices and fair business relationships. Our legal expertise can help companies navigate international contract laws. Including subcontractor agreements, ensuring compliance with local regulations and safeguarding your business interests. If you are looking for guidance on improving your subcontractor agreements, our team is here to help.
Written by Takeshi Ishida