Service agreements should now be reviewed with Japan's fair subcontracting rules and Freelance Act in mind

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Startups and growing companies rely heavily on outsourcing: development, design, ad operations and other specialist work handled by people and firms outside the company. Using outside talent before hiring full-time staff is a natural choice for a startup that wants to keep fixed costs down while borrowing expertise only when it is needed.

Service agreements deserve closer attention than they used to, though, because of the Act on Ensuring Appropriate Transactions Involving Small and Medium-sized Subcontractors (取適法) and the Freelance Act. The law long known as the Subcontract Act (下請法) was renamed effective January 1, 2026, and its current name is the Act on Ensuring Appropriate Transactions Involving Small and Medium-sized Subcontractors, commonly abbreviated 取適法. Practitioners still often call it by its old name, but a published article should use the current one.

Neither law applies to every outsourcing arrangement. Whether 取適法 applies depends on the type of transaction and thresholds such as capital and headcount, and the Freelance Act's obligations and prohibitions depend on whether the counterparty qualifies as a specified entrusted business operator and what kind of business the ordering company is. Still, checking applicability only at the end does not work in practice. Companies increasingly need to design their ordering process, purchase orders and payment terms with both laws in mind from the start. This article covers what an ordering company, particularly a startup, should check when reviewing its service agreements.

The contract clause is not the whole picture

Reviewing a service agreement is not only about the clauses on scope, fees and IP ownership, important as those are. With 取適法 and the Freelance Act in view, review also needs to cover how orders are actually placed after the contract is signed. In practice, a master agreement often says individual work is defined by a separate purchase order, but the actual instruction goes out over Slack or email, with pay mixed between flat monthly fees, hourly rates and success fees, and inspection timing, when payment starts counting, and how revision requests are handled all left vague. That vagueness is what causes problems later. An ordering company may want to withhold payment because inspection is not finished, cut the fee for low-quality work, cancel partway through, or ask for free revisions after delivery, but several of these responses need care under 取適法 and the Freelance Act. Where the order itself was vague, a claim that the result "was not what we expected" tends to carry less weight later, so stating scope, deliverables and payment date as clearly as possible at the time of ordering makes it easier to explain the company's position afterward.

Start from how the engagement actually works

Both laws start from confirming whether they apply. 取適法 carries forward the old Subcontract Act while shifting the relationship toward more equal terms, and covers manufacturing subcontracting and commissioned creation of information products among other categories; the revision also brought in points such as specified transport subcontracting and headcount-based thresholds, so treating it as simply "the old Subcontract Act" is risky. Startups most often run into this with commissioned creation of information products or services, such as software development, website production or ad creative, which can fall within 取適法's scope in substance even where the parties simply call it a service agreement. The Freelance Act, in force since November 1, 2024, requires businesses that deal with freelancers to disclose transaction terms and pay by the due date, among other obligations, and an ordering company needs to check whether the counterparty is a corporation or a sole proprietor and whether the engagement is ongoing or one-off.

Getting this right at the contract-drafting stage is not enough on its own. Before reviewing a service agreement, get at least the following from the business team: the counterparty's status (corporation, individual, one-person company) and capital size; the type of work; whether it is deliverable-based or service-based; one-off or ongoing; whether purchase orders are actually issued; how fees are structured; whether there is an inspection and approval flow; the payment cycle; and the expected scope of revisions or redos.

Disclosure is required with every order

Disclosing transaction terms at the time of ordering is central to both laws. Under 取適法, a company that places a manufacturing subcontract or similar order must disclose certain matters, and the operational guidelines call for thoroughly clarifying the terms at the time of ordering. The Freelance Act requires immediate disclosure of transaction terms, in writing or electronically (including email or chat tools), whenever work is outsourced to a freelancer; signing a master agreement once is not enough on its own; a master agreement usually carries general terms, while the actual scope, deadline and payment date are often set order by order, so purchase orders, individual agreements and even chat instructions all need to leave a clear record of the terms, not the master agreement alone. A startup asking for a landing page "by next week" over Slack is not necessarily a problem by itself, but leaving fee, deadline and revision scope vague tends to cause trouble later, so even a Slack or email order should record enough to confirm scope, fee and inspection method.

Designing the payment deadline and inspection process

A clause reading "paid at month-end following completed inspection" looks natural, and wanting to confirm the deliverable before paying is understandable, but 取適法 and the Freelance Act call for care in how the payment deadline is set. Under 取適法, the payment date must be set within 60 days of receiving the work, as short a period as is practicable, with a statutory rule filling the gap if no date is set or a date beyond 60 days is set; the Freelance Act imposes the same 60-day rule and requires payment by that date. A month-end-to-month-end cycle can work as long as it still falls within 60 days of receipt.

Inspection is where this often goes wrong in practice. Some companies want to treat a deliverable as not received until inspection is complete, but the deliverable may already be usable while only an internal review is running late, and using inspection as a reason to stretch out payment does not hold up well in that situation. For web production or system development in particular, inspection can drag out once a business or legal reviewer gets involved after delivery, so an ordering company should design a realistic internal review process alongside the inspection period in the contract, for example confirming within five business days of delivery and treating silence as acceptance. Payment terms are a clause the business team, legal and accounting should review together; leaving it to accounting alone risks nobody noticing a mismatch between the receipt date and the payment deadline.

Where to draw the line on fee cuts, redos and cancellation

Fee reductions, redos and cancellations are common flashpoints, since an ordering company might want to cut the fee, demand a free revision, or cancel outright when a deliverable seems low quality, late, or less useful than hoped, but 取適法 and the Freelance Act can treat a fee reduction or an unreasonable redo demand as a prohibited act. Where the counterparty is genuinely at fault, requesting a redo is reasonable, but making the counterparty absorb a cost caused by the company's own internal circumstances, a policy change, or an unreasonably short deadline risks crossing that line, for example demanding a free revision after ordering without settling the specification, cutting pay for a delay actually caused by the company's own slow internal review, or cancelling a completed piece of work because internal plans changed. These situations are hard to judge from the contract text alone; they need the order-time explanation, inspection comments and internal decision records too.

The Freelance Act also covers the working relationship

The Freelance Act goes beyond disclosure and payment, also covering accurate recruitment postings, consideration for childcare and caregiving needs, and harassment prevention. Startups often treat outside collaborators almost like internal staff, added to Slack and managed through the same task tools as employees, which is convenient but is exactly why harassment response, scope of work and how a contract ends need care. Expecting evening or weekend availability as a given, continually asking for work outside the agreed scope, or ending a contract abruptly can all become legal and organisational problems, and "it's not employment, so anything goes" does not hold up under this law.

Manage contracts, orders and invoices in one place

Complying with 取適法 and the Freelance Act takes more than fixing the contract text. What matters in practice is being able to explain the whole flow from order to payment afterward: what was ordered, when, for how much, what the deliverable was, when it was inspected, and when it was actually paid. Where the contract lives in Google Drive, the order went out on Slack, and the invoice sits in an accounting tool, reconstructing that flow later takes real effort. An outside lawyer reviewing the contract alone, without visibility into actual practice, cannot fully judge the risk under these laws either, so pulling contracts, purchase orders and invoices into one case folder makes it easier for outside counsel to judge the real transaction, closer to how an internal legal team would.

A practical checklist for reviewing service agreements

• is the counterparty a corporation, an individual, or a one-person company?
• could 取適法 or the Freelance Act apply?
• is the relationship between the master agreement and individual orders clear?
• does each order state scope, fee, deadline, deliverable and payment date?
• can the terms of a Slack or email order be confirmed later?
• is the inspection period realistic?
• does the payment deadline, measured from completed inspection, stay within the statutory limit?
• is the scope of revisions and redos clear?
• is cost responsibility for a company-side cancellation or spec change settled?
• is any fee reduction, transfer fee or system charge justified?
• is there a process for harassment complaints and for ending a contract?
• are invoices, purchase orders, deliverables and inspection comments kept on file?

No single team, business, legal or accounting, tends to catch all of this alone, because a service agreement runs on contract text, ordering practice and internal communication together.

Legal outsourcing means looking at the ordering decision itself

Having outside counsel review only the contract text has real limits, because what actually causes problems is not just contract language but who decided to place the order and who approves a revision request and within what scope. Consider a marketing team ordering ad creative from an outside designer: the contract may look sufficient with scope, fee and confidentiality covered, but without settling how many rounds of revision are included or who bears the cost if an ad is rejected in review, disputes tend to follow. System development runs into the same problem when "the whole thing" is ordered before requirements are settled and spec changes accumulate along the way, since a general change-negotiation clause is not enough without an actual process for who approves a change and when additional cost gets estimated.

LegalAgent's legal outsourcing looks at this ordering decision itself, not only the contract, reviewing the checklist a business team uses before ordering and the purchase-order template as well, functioning closer to an internal legal team than a one-off review would. Service agreements are ordered by the business team daily, so legal cannot get deeply involved every time, yet leaving them unmanaged lets 取適法 and Freelance Act issues build up, which is why it is worth setting up the ordering flow, templates and a checklist, and keeping evidence in the case folder, from the start.

Service agreements are a genuinely useful tool for a startup, borrowing outside expertise exactly when it is needed while keeping fixed costs down. That convenience now comes with the need to operate with 取適法 and the Freelance Act in mind: state ordering terms clearly, meet the payment deadline, design inspection and revisions realistically, and keep correspondence and invoices in a form that can be checked later.