Labor Risks Startups Tend to Put Off, and Responding to Customer Harassment
Hello, I'm Noriaki Asato, Representative Attorney at LegalAgent.
In providing legal support to startups, I notice a tendency for labor management to be put off. Fundraising, signing contracts with business partners and outsourcing work externally all involve external negotiations, so they readily prompt companies to seek advice, whereas labor matters tend to be handled through internal discretion and on-the-ground practice until trouble comes to the surface.
However, if labor arrangements are neglected during the period of rapid organizational growth around Series A, the corrections that become necessary later can take time and money. As headcount grows, middle managers are put in place, and contractors and full-time employees work side by side, sales and customer success (CS) staff may end up bearing the burden of customer handling alone, and harassment complaints may be raised. Putting the labor foundation in order at this stage is not only a matter of legal compliance; it is also a matter of creating an environment in which the organization can keep working sustainably.
Distinguishing Employment from Outsourcing According to the Actual Working Arrangements
The first thing to tackle is the substantive distinction between employment contracts and service agreements. At startups, side-job workers, freelancers and full-time employees often communicate in the same workplace and chat tools and work on the same projects. This is a natural setup for moving the business forward quickly, but legally, worker status is judged comprehensively according to the actual circumstances, not the formal title of the contract.
Specifically, the factors considered together include the presence and degree of direction and supervision, whether the person is free to refuse work requests, whether the place and hours of work are designated and binding, and whether the remuneration can be regarded as consideration for the provision of labor itself. Even if the contract is styled as a service agreement, where the daily start and end times are fixed, the person receives detailed instructions from a supervisor on a daily basis, and their work is effectively managed by the hour, they may be regarded as a worker under labor law, which can lead to labor risks.
You should also check the Act on Ensuring Proper Transactions Involving Specified Entrusted Business Operators (Freelance Act), which took effect on November 1, 2024. It imposes obligations such as clear indication of transaction terms, deadlines for paying remuneration and accurate presentation of recruitment information, but the obligations that apply differ depending on the ordering party's structure, the period of the engagement and other factors. Beyond tidying up the wording of the contract, it is important to align the contract with reality, including actual work management, the content of instructions given in chat and permission settings.
Proper Working Hours Management and Work Rules
The next area to check is day-to-day working hours management. In some cases, late-night and weekend work from the early founding period persists as a custom and continues to be practiced. Even if that approach worked for the small team that supported the founding phase, as members with diverse backgrounds and health conditions join, the organization can no longer function on the same assumptions.
Even where a fixed overtime pay system has been introduced, it is essential to keep track of employees' actual working hours. The ordinary wage portion, such as base salary, and the fixed overtime pay portion must be clearly separated in the contract, and it must be set out which allowance covers how many hours of work, including late-night and holiday work. Where the statutory premium wages calculated exceed the amount of fixed overtime pay, the excess must be paid in addition.
When adopting the discretionary work system for professional work or for planning work, or a flextime system, also check the work and persons covered by each system and the required procedures. Distinguish the requirements for each system, such as a labor-management agreement for the professional work type and a resolution of a labor-management committee for the planning work type, and check the necessary filings, individual consent and health protection measures. A system cannot be applied on the subjective ground that "we're a startup, so we'll use the discretionary work system as a flexible way of working."
Deficiencies in working hours management can lead to an accumulation of unpaid wages. Going back through attendance records and work chats to recalculate takes time. It is prudent to confirm the consistency between the attendance management system and the wage design once the company reaches a stage of organizational expansion.
Review of the work rules should proceed in parallel. Under the Labor Standards Act, a workplace that regularly employs ten or more workers is required to prepare work rules and file them with the competent Labor Standards Inspection Office. Even after filing a template, review whether the rules function as regulations supporting day-to-day personnel decisions, including the treatment of remote work, criteria for permitting side jobs, information management rules, the operation of the harassment desk and disciplinary procedures. Bear in mind that practices without written rules may appear flexible but in fact tend to make decisions dependent on individuals, which can cause a sense of unfairness and internal disputes.
Harassment Consultation Systems and Internal Investigation Procedures
Employers are legally required to take employment management measures to prevent power harassment, sexual harassment and harassment relating to pregnancy, childbirth, childcare leave and the like. At startups, people work closely together and interaction through chat and company events is active, but on the other hand there are cases where the words and actions of executives or managers are received differently from what was intended and develop into trouble.
In responding to harassment, simply putting up the name of a consultation desk is not sufficient. Decide in advance the initial response procedure, such as with whom the person receiving the consultation shares information, to what extent facts are confirmed, and how the complainant and those who cooperate are protected from disadvantageous treatment.
If the operating procedures have not been decided beforehand, the company will be thrown into confusion when a complaint is raised. Especially in cases where executives or early members are involved, it is difficult for internal personnel alone to conduct an objective investigation and make a judgment, and involving outside counsel in the investigation or advice is an effective option for maintaining neutrality.
Responding to Customer Harassment Ahead of the October 1, 2026 Effective Date
In recent years, the need to address customer harassment from customers and business partners has been growing rapidly within labor management. The Ministry of Health, Labour and Welfare has been preparing manuals and publishing guidelines, and with the amended Act on Comprehensive Promotion of Labor Policies taking effect, all employers will be required to take measures to prevent customer harassment from October 1, 2026 (at the time of writing, we are in the preparation stage before it takes effect). It covers words and actions of customers and others in the workplace that, in light of the nature of the work and other factors, exceed the range acceptable under socially accepted standards and harm workers' working environment.
Customer harassment can occur not only in stores and face-to-face customer service but also at companies running SaaS or B2B businesses. Examples include CS staff being harshly berated by customers for long periods, being pressured into giving refunds, or sales staff being forced to perform free work outside the contract or to meet excessive demands.
If staff on the ground are made to keep putting up with this "for the sake of customer satisfaction," the company risks being held to have breached its duty of care for employee safety or to have failed to consider the working environment, which can lead to mental health problems and employee turnover.
To respond effectively to customer harassment, it is important not to leave decisions to individual frontline staff but to establish a company-wide response policy. While listening sincerely to legitimate inquiries and complaints, the organization deals firmly with conduct that exceeds what is reasonable under socially accepted standards. Specifically, the company puts its basic policy in writing, establishes internal escalation procedures, organizes categories such as abusive language, intimidation, prolonged detention and excessive demands, and sets rules for preserving call recordings and email and chat logs as evidence.
In egregious cases, the company discontinues handling by an individual staff member and considers consolidating contact through a company desk or switching to handling by an attorney. When moving to stop responding or to terminate the contract, proceed after individually confirming the contract terms with the counterparty and the legal requirements. At the same time, provide mental health care and consideration in assignments for employees after the incident. Setting out in advance, in terms of use and SaaS agreements, the scope of support, prohibited acts and clauses on suspension of service or termination of the contract in the event of a violation also gives frontline staff a basis for deciding how to respond.
Labor Management Checkpoints and Building a System
Here is an overall list of the labor items that startups in a period of organizational expansion should confirm.
- Whether the actual working arrangements with contractors amount to worker status, and if so, whether the necessary labor measures have been taken
- Whether the separation of fixed overtime allowance from ordinary wages and the calculation of payments for excess hours are lawful
- Whether actual working hours are accurately recorded in the attendance management system
- Whether, at workplaces with ten or more regular workers, work rules have been filed and revised to reflect actual practice
- Whether the rules on remote work, side jobs and information management match current working styles
- Whether awareness of the harassment consultation desk, fact-finding procedures and measures to prevent disadvantageous treatment are in place
- Whether procedures for leave of absence and return to work and guidelines for responding to mental health problems have been established
- Whether there is a basic policy, an escalation system and rules for preserving evidence regarding customer harassment
- Whether contracts and terms of use with customers clearly state the scope of support, prohibited matters, and clauses on stopping service and terminating the contract
- Whether operations are set up so that objective evidence of work and customer handling remains in chat tools and customer management systems
Preparing for labor risks is not merely about treating symptoms after a problem occurs; its main focus is on establishing clear decision criteria and response procedures in advance.
At LegalAgent, through collaboration between generative AI and attorneys well versed in corporate law, we provide broad support including drafting employment contracts and service agreements, revising work rules, and building procedures for responding to customer harassment. For putting in place a labor system suited to your actual internal operations, you can contact us through the following pages.
Services connected to this topic