Service Agreements, the Torihiki Tekiseika Act (Formerly the Subcontract Act) and the New Freelance Act: Points to Review After the Amendments
Hello, I'm Noriaki Asato, Representative Attorney at LegalAgent.
Startups and growing companies use service agreements every day. Asking outside specialists and businesses to handle development, design, ad operations and similar work is commonplace. Rather than hiring full-time employees right away, borrowing expertise through a service agreement first is a natural choice during a company's launch phase. Companies around the time of a fundraising round want to keep fixed costs down while drawing on the specialist knowledge they need, when they need it.
When you enter into a service agreement, you should check before placing the order whether the Torihiki Tekiseika Act and the Freelance Act apply. From January 1, 2026, the former Subcontract Act was reorganized into the "Act on the Prevention of Delay in Payment, etc. to Small and Medium-sized Entrusted Businesses for Manufacturing Consignment, etc.", which is commonly called the Torihiki Tekiseika Act. Beyond the change of name, the covered transactions, the company-size thresholds and the prohibited acts have also been revised.
Of course, the Torihiki Tekiseika Act and the new Freelance Act do not apply to every service agreement. Whether the Torihiki Tekiseika Act applies depends on criteria such as the nature of the transaction, stated capital and number of employees. Under the new Freelance Act as well, the obligations and prohibited acts that apply change depending on whether the counterparty is a specified entrusted business operator and what kind of business the ordering party is. Even so, an approach of "we can check applicability at the very end" does not work in practice.
Contract Clauses and Post-Order Operations
When people think of reviewing a service agreement, they may picture looking only at the clauses of the contract. Checking basic provisions such as the scope of services, fees and ownership of rights in deliverables is indispensable. But when you have the Torihiki Tekiseika Act and the new Freelance Act in mind, it is important to look beyond the contract clauses to how things will actually run after the order is placed.
In practice, a contract may say that "the details of individual services will be set out in separate purchase orders," while in reality requests are made only via Slack or email. Fee structures also tend to be a mix of fixed monthly fees, hourly rates and success fees, and the criteria for completing acceptance inspection, the starting point for the payment due date and the treatment of revision requests tend to be vague. This vagueness later leads to disagreements over payment and fee reductions.
On the ordering side, there are moments when you think, "We won't pay because acceptance inspection isn't finished yet," "The quality of the deliverable is low, so we want to reduce the fee," "We no longer need part of it, so we want to cancel that part," or "We want additional revisions after delivery." However, these are issues that must be handled carefully in light of the regulations under the Torihiki Tekiseika Act and the new Freelance Act.
If you proceed with vague terms at the time of ordering, it becomes harder for the ordering party's position to prevail later even if you say "this is not what we expected." Clearly exchanging the scope of services, the specifications of deliverables and the payment due date at the time of ordering is the precondition for your company's explanation to hold up in later discussions.
The Actual Nature of the Outsourcing as the Starting Point for Applicability
Under both the Torihiki Tekiseika Act and the new Freelance Act, you first confirm whether your company's transaction falls within the scope. The Torihiki Tekiseika Act carries over the former Subcontract Act while being amended in the direction of making business relationships more equal. Covered transactions include manufacturing consignment and consignment for the creation of information-based products. The amendments also added issues such as the addition of specified transportation consignment and the introduction of an employee-count threshold, so the internal criteria you use to judge applicability should also be updated to match the amendments.
For the production of software, websites and advertising creatives, you check whether the work falls under consignment for the creation of information-based products. For deliverables for your company's own use, there are requirements such as whether your company itself creates such products as a business, and not every outsourced task is covered. For service provision consignment, you check whether the work is a re-consignment of services your company provides to others; consignment of services used exclusively within your own company is, as a rule, not included in this category. How to think about covered transactions is determined in line with the Torihiki Tekiseika Act Operational Standards (Japanese).
The Freelance Act took effect on November 1, 2024. The specified entrusted business operators it covers are individuals who do not use employees, or corporations that have no officers other than one representative and do not use employees. If the counterparty you engage as a business meets this definition, the ordering party bears the obligation to specify transaction terms even if it is itself a one-person business. The specified business consignors that bear obligations such as those relating to payment of fees are individuals who use employees, or corporations that have two or more officers or use employees. The definition of employee is judged separately under each of the two Acts. Depending on the nature of the transaction, the Torihiki Tekiseika Act and the Freelance Act may apply concurrently. For details of the system, you can also refer to the Small and Medium Enterprise Agency's guide to the Freelance Act (Japanese).
Drafting only a contract while leaving the actual nature of the outsourcing vague will not prevent practical shortcomings. To review a service agreement properly, confirm in advance with the business unit the counterparty's attributes (corporation or individual, and whether it is a one-person company), both parties' stated capital, number of employees and officer composition. At the same time, understand the classification of the outsourced work (development, production, operations, sales support and so on), whether there are deliverables, and whether it is one-off or ongoing. Further, find out beforehand how purchase orders are issued, the fee structure (monthly, hourly, success-based and so on), the acceptance inspection flow, the payment terms and the anticipated scope of revisions and redoing. Only when these premises are in place can you conduct an appropriate contract review from the perspective of both Acts.
The Obligation to Specify Transaction Terms at the Time of Ordering
Under both the Torihiki Tekiseika Act and the new Freelance Act, specifying transaction terms at the time of ordering is a pillar of the system. Under the Torihiki Tekiseika Act, when a consigning business makes a manufacturing consignment or similar consignment, it must specify certain transaction terms to the counterparty. The Operational Standards also stress thoroughly exchanging the terms clearly at the time of ordering.
Under the new Freelance Act as well, when you outsource work to a freelancer, you are obliged to specify the transaction terms immediately in writing or by electromagnetic means. Electromagnetic means include email and chat tools. You cannot simply say, "We signed a master agreement, so we're fine."
A master agreement sets out general provisions, but in most cases the actual scope of services, delivery date, payment due date and so on are decided for each individual order. It is therefore important to keep the finalized transaction terms as clear records, covering not only the master agreement but also purchase orders, individual contracts and orders placed via chat.
At startups, people sometimes prioritize speed and ask on Slack, "Please do this landing page by next week," or "Please start running our ads from this month," and the work begins right away. Moving quickly is not in itself a violation of law, but proceeding with vague fees, delivery dates and revision scope tends to cause trouble later. Even when ordering by chat or email, specify without omission the items required by the applicable law: not only the scope of services and the fee, but also the names of the parties, the date of consignment, the date and place of delivery, the payment due date and, where inspection is performed, its completion date. Where there is a legitimate reason why certain items cannot be fixed at the time of ordering, indicate that reason and the expected date, and once the content is fixed, supplement it immediately in writing or by electromagnetic means.
Designing the Payment Due Date and Acceptance Inspection
A clause often seen in service agreements is something like "payment by the end of the month following completion of acceptance inspection." I understand the ordering party's wish to pay after checking the deliverable. But in light of the Torihiki Tekiseika Act and the new Freelance Act, the design of the payment due date requires careful consideration.
Under the Torihiki Tekiseika Act, the payment due date for the price must be set within a period that is as short as possible and within 60 days from the date the delivery was received. If no payment due date is set, or if it is set beyond 60 days, there is a rule under which the payment due date is automatically fixed by statute. A specified business consignor subject to Article 4 of the Freelance Act is also, as a rule, obliged to set a payment due date as short as possible within 60 days of receipt and to pay by that date. For service provision consignment, the starting point is the date the services were provided. There is a special rule allowing the due date to be within 30 days from the payment due date of the original consignment where you have specified in advance that it is a re-consignment, the name of the original consignor and the payment due date for the consideration of the original consignment, but this is not a mechanism that allows you to set the due date based on the day the original consignor actually paid your company. For transactions to which the Torihiki Tekiseika Act also applies, the deadline under that Act must also be met. Practices such as closing at month-end with payment at the end of the following month are possible, but they must be designed so that payment reliably falls within 60 days of the date of receipt.
Acceptance inspection is where practical friction tends to arise. Some companies want to treat a deliverable as "not received until acceptance inspection is complete," but in reality there are cases where the deliverable has been received and is ready for use and internal checks are simply running late. The date of receipt is determined objectively, separately from whether inspection has occurred or whether it passed, so you cannot push back the statutory starting date because of delays in internal acceptance inspection.
Particularly in web production and system development, business unit reviews and legal reviews may pile up after delivery, and acceptance inspection can drag on. As the ordering party, it is important not only to set an inspection period in the contract but also to include a deemed acceptance clause, such as "we will review within five business days after delivery, and if there are no comments, acceptance will be deemed complete," and to arrange your internal review procedures on a realistic schedule.
Payment terms need to be reviewed jointly by the business unit, legal and accounting with the Torihiki Tekiseika Act and the new Freelance Act in mind. If you treat them as purely an accounting matter, operations can continue without anyone noticing the gap between the date of receipt and the payment due date.
Drawing the Line on Fee Reductions, Redoing and Cancellation
What tends to cause trouble in outsourcing is fee reductions, redoing and cancellation. From the ordering side, there are circumstances such as low-quality deliverables, missed deadlines or results that fell short of expectations. As a result, situations arise on the ground where people want to say, "Please do it for half price this time," "Please revise it at no additional cost," or "We no longer need it, so we want to cancel."
The Torihiki Tekiseika Act prohibits across the board any reduction for which the contractor is not responsible. It also prohibits unjustly harming the counterparty's interests through changes to the content or redoing for which the contractor is not responsible. The prohibited acts under Article 5 of the Freelance Act are checked for consignments of one month or longer (including renewals) made by a specified business consignor. Of course, where the contractor is at fault and you can explain this on a reasonable basis, there is room to request revisions or redoing. However, if the cause is the ordering party's internal circumstances, a change in policy or an excessively short delivery period and you nevertheless have the counterparty respond without additional cost, this may constitute such a prohibited act.
Where companies tend to stumble in practice is when they place an order without fully deciding the specifications and later demand free revisions because "this is not what we had in mind," or when the delivery date slipped because of internal review delays and they then reduce the fee on the grounds of late delivery. A cautious stance is equally essential for responses such as cancelling already-ordered production work as unnecessary due to a change in internal policy, or deducting fees from the payment.
In particular, under the Torihiki Tekiseika Act, making the contractor bear bank transfer fees and deducting them from the price is prohibited as a reduction even if agreed in advance. When deductions are made under names such as system usage fees, illegality is judged based on the actual circumstances, not only on whether there was a formal agreement.
When judging whether a fee reduction or redoing is permissible, check the explanation given at the time of ordering against the contract. Keep acceptance inspection comments and records of internal decisions together with the contract.
Improving the Working Environment Under the New Freelance Act
Specified business consignors are obliged, regardless of the consignment period, to display recruitment information accurately and to take measures against harassment. Consideration for balancing work with pregnancy and childbirth, childcare or nursing care is a legal obligation for continuous consignments of six months or longer where a request has been made, and an obligation to make efforts for shorter consignments. When terminating mid-term, or not renewing, a contract of six months or longer, you are obliged, except in statutory exceptions, to give notice at least 30 days in advance as a rule, and to disclose without delay the reasons for termination if requested between the notice and expiration. This six-month period is confirmed using the calculation method prescribed by law, including where renewed contracts are aggregated.
Startups sometimes treat outsourcing partners as "outside collaborators" at very close range. Having them join Slack, attend regular meetings and communicate through task management tools in the same way as internal members gives a sense of speed and is convenient in practice. But precisely because the distance is close, sufficient care is essential in handling harassment, managing the scope of work and communicating at the end of the contract.
Situations such as routinely expecting responses at night or on holidays, continually requesting work outside the scope, or announcing the end of the contract suddenly lead not only to legal risk but also to problems in running the organization. With an understanding of "it's not employment, so anything goes," you cannot comply with the rules after the amendments. The more a company collaborates on an ongoing basis with external talent, the more it needs to prepare in advance the specification of ordering terms, a harassment consultation system and procedures for ending contracts.
Centralized Management of Contracts, Purchase Orders and Invoices
Complying with the Torihiki Tekiseika Act and the new Freelance Act is not achieved simply by fixing your contract templates. What you need in practice is a record that lets you objectively explain, after the fact, the flow from ordering to payment. Which work did you request, when and for how much? What is the deliverable? When is the delivery date? When did you issue acceptance inspection comments? When was the actual payment date? If these are managed separately, checking them later takes an enormous amount of effort.
Not a few companies are in a state where contracts sit in cloud storage, orders are placed on Slack and invoices live in an accounting tool. At LegalAgent, we recommend an operation in which such information is consolidated and managed in matter folders. By setting up the necessary viewing permissions and integrations for tools such as Codex, you can streamline the work of cross-checking the contents of contracts, purchase orders and invoices. After confirming in advance the scope of information to be transmitted, confidentiality obligations and the handling of personal information, you can build a system in which an attorney reviews the primary materials directly and confirms payment due dates, acceptance inspection status and the history of revision requests.
How you manage materials also matters when consulting outside counsel. If outside counsel sees only the contract and does not understand the concrete ordering practices on the ground, it is difficult to accurately assess the risks under the Torihiki Tekiseika Act and the new Freelance Act. On the other hand, if contracts, purchase orders and invoices are gathered in matter folders, outside counsel can more easily give advice that reflects the history on the ground and goes into actual transaction operations.
Practical Checklist for Service Agreements
When reviewing service agreements, start by checking the practical workflow from ordering to payment, without being distracted only by the contract template. You can use the following items as a checklist to check your company's operations.
- Whether the counterparty is a corporation or an individual, and whether it is a one-person company
- Whether the transaction is subject to the Torihiki Tekiseika Act or the new Freelance Act
- Whether the rights and obligations under the master agreement and individual orders are clear
- Whether the scope of services, fee, delivery date, deliverables and payment due date are specified without omission at the time of ordering
- Whether orders placed via Slack or email are in a form that allows the terms to be confirmed later
- Whether the contractual acceptance inspection period is realistic in light of how internal reviews actually work
- Whether the relationship between completion of acceptance inspection and the payment due date is consistent with the statutory payment deadline (within 60 days of receipt, etc.)
- Whether the scope and conditions of revision requests and redoing are clear in advance
- Whether cost allocation is decided for cancellations or specification changes made for the ordering party's convenience
- Whether fee reductions or deductions of charges constitute prohibited acts (whether the contractor is being made to bear transfer fees in transactions subject to the Torihiki Tekiseika Act)
- Whether there is a harassment consultation desk and a procedure for advance notice and disclosure of reasons when ending a contract
- Whether contracts, purchase orders, deliverables, acceptance inspection comments and invoices are stored in one place
Ordering Decisions Through the Lens of Legal Outsourcing
For service agreements, an operation in which outside counsel only checks the contract has its limits. What actually becomes contested is not limited to the wording of the contract, but the internal decision-making process: who decided to place the order, from which budget it was placed, and who approves revision requests and to what extent.
Consider a marketing team asking an outside designer to produce an advertisement. Looking only at the contract, it may seem sufficient if the scope of services, the fee and confidentiality are written down. In practice, however, unless you decide how many rounds of revisions after the first draft are included and which party bears the cost if the ad is sent back in advertising review, disputes tend to arise at the delivery stage.
The same applies to system development and SaaS deployment support. If work is requested as a "complete package" before requirements are fixed and specification changes pile up along the way, the ordering party may think "this is included in the original price" while the contractor thinks "this is additional work," leading to conflict. In such a case, a general change-consultation clause in the contract is not enough; you decide the internal procedure for who actually approves changes and at what point additional costs are estimated.
What we emphasize in LegalAgent's legal outsourcing is looking at matters including such pre-order decision-making. With a one-off contract review, it is possible to point out clause risks and stop there. But when we are involved in a position close to a company's in-house legal function, we also review together the checklists the business units use before ordering, purchase order templates and how information is passed to accounting.
If such records are in place, it becomes easier for an attorney to support, in line with the reality of the business, judgments such as how far you can ask the counterparty for revisions and what procedures to follow when ending a contract. For service agreements, I think that establishing a pattern for pre-order decision-making, rather than consulting after trouble arises post-order, tends to reduce the burden on the company in the end.
LegalAgent's Support for Service Agreements and the New Freelance Act
At LegalAgent, through collaboration between generative AI and attorneys well versed in corporate law, we support the review of service agreements, the organization of ordering workflows and legal outsourcing. If you would like to entrust this work externally, including compliance with the Torihiki Tekiseika Act and the new Freelance Act, please see the service pages below.
Frequently asked questions
What is the Torihiki Tekiseika Act? Is it a different law from the Subcontract Act?
It is the law formerly known as the "Subcontract Act," as amended on January 1, 2026, and its official name is the "Act on the Prevention of Delay in Payment, etc. to Small and Medium-sized Entrusted Businesses for Manufacturing Consignment, etc." (the Act on Ensuring Proper Transactions with Small and Medium-sized Entrustees). While carrying over the previous rules, it revises the covered transactions and the payment rules.
To what transactions does the new Freelance Act apply?
It applies to outsourcing work to sole proprietors or one-person companies that do not use employees (specified entrusted business operators), and it sets out obligations such as specifying transaction terms, paying fees within 60 days from the date of receipt, prohibited acts such as reducing fees, and measures against harassment. It took effect on November 1, 2024.
Is having service agreements in place enough?
A master agreement alone is likely not enough. A review is needed that extends to post-order operations, such as specifying terms for each individual order, the operation of inspection and payment due dates, the handling of fee reductions and redoing work, and advance notice when a contract ends.
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