Labor & Employment

When a contractor claims to have been a worker

Someone to whom a company has been giving work on a continuing basis under a service contract demands payment of overtime pay, saying that in reality the work was done as an employee. The company says it will not renew the contract, and the other party disputes that, saying it amounts to a dismissal. An injury sustained while working leads to a request that the company deal with workers' accident compensation insurance. A trade union that the person has joined requests collective bargaining. Questions of worker status arise in these ways.

What makes this difficult to handle is that whether a person is a worker is said to be determined by how the work was actually done, rather than by the title of the contract or by what the parties understood their relationship to be.

A further difficulty is that the term "worker" is defined separately in different statutes, and those definitions do not necessarily cover the same range of people. This page sets out, in order, how the claim may be organized, how the way the work was actually done can be checked, and what changes from one statute to another.

Last updated: September 18, 2026

What to check first

The following are matters we ask you to share with us, so far as they are known, when you contact us. You can contact us even at a stage where it has not been settled whether the person is a worker.

The content of the demand or notice, and the deadline by which a response is requested — the company preserves the document received, the calculation attached to it, and the record of communications from the other party's lawyer, and checks who is making the claim, the period covered, the amount, what the company is being asked to do, and the deadline for responding.

The contract and the records relating to orders placed — the company secures the service contract, specifications, purchase orders, order acknowledgments, quotations, renewal records, and records relating to revisions of the remuneration. Where no written contract was drawn up, the company checks the records of the exchanges that actually took place.

Records relating to instructions for the work and to the specifying of times and places — the company checks records showing what instructions were given about the content of the work and how it was to be carried out, whether the dates, times and places of the work were specified, whether daily or other reports were required, and whether the person was permitted to have someone else carry out the work.

How the remuneration was determined, and who bore the costs — the company checks whether the remuneration was based on time, on days, on volume of output or on results, who bore the costs of equipment, materials, travel and other expenses, and whether there was any mechanism by which the remuneration increased or decreased according to the outcome of the work.

Whether the person worked for others — the company checks whether the person was also working for other customers during the same period, whether it was possible to do so, and what proportion of the person's work the company's work in fact accounted for.

Other proceedings to be responded to — the company checks whether there has been a request for collective bargaining, a claim for workers' accident compensation insurance benefits, an inquiry about coverage under social insurance or employment insurance, or contact from the Labor Standards Inspection Office, the local administrative body in Japan that supervises compliance with labor standards legislation, and considers the response to each.

After comparing the terms of the contract with the way the work was actually done, we consider the response to the claim and how the company may proceed with such arrangements in future.

How we can helpChecking what is claimed and the period it covers / setting out the terms of the contract alongside how the work was actually done / distinguishing which statutes apply / setting out the burdens that arise where the claim is upheld / preparing a written reply and negotiating / responding to administrative procedures, labor tribunal proceedings and litigation

Contact Form

Contents

1. Establishing what is being claimed
2. Considering worker status by reference to how the work was actually done
3. Checking what changes from one statute to another
4. Considering how to proceed with such arrangements in future
Key legislation and official sources
Frequently asked questions

1. Establishing what is being claimed

The statutes that apply, and the facts that need to be checked, differ according to whether what the other party seeks is payment of unpaid wages, an objection to the ending of the contract, treatment under workers' accident compensation insurance, or collective bargaining. The first step is to establish accurately what is being claimed.

The period and amount claimed, and the reasons given for saying the person is a worker

The company checks the period covered by the claim, the amount, and the basis on which it has been calculated. It also sets out which facts the other party relies on in asserting that the person is a worker.

Exchanges relating to instructions for the work — email, chat, and work management systems — may be set to be deleted automatically after a set period, so they need to be preserved without delay.

2. Considering worker status by reference to how the work was actually done

The Labor Standards Act defines a worker as a person who, regardless of the type of occupation, is used by a business or workplace and is paid wages. In practice, whether a person is so "used" and "paid wages" is considered primarily by asking whether the person can be said to work under direction and supervision and whether the remuneration can be said to be consideration for that work — the question generally referred to as use and subordination. Whether use and subordination is present is assessed as a whole in each case, on the basis of the terms of the contract, the form in which the work was provided, the remuneration and the other factors, irrespective of the form or name of the contract, such as a contract for work or a mandate.

Freedom to refuse work, and instructions on how the work is carried out

Whether the other party was able to accept or refuse individual requests to carry out work is treated as an important circumstance.

The company also checks the extent of the instructions given on how the work was to be carried out. Setting out the specifications for a work product and the delivery date is something commonly done under a service contract as well. By contrast, where specific instructions were given about the steps to be followed, the methods to be used and how the work was to proceed from day to day, or where daily or other reports were required at regular intervals, that points toward a finding that the person worked under direction and supervision.

Constraints of time and place, and performance by a substitute

The company checks whether the dates, times and places of the work were specified, whether starting and finishing times were set, and whether attendance records were kept.

Whether the person was permitted to have someone else carry out the work is treated as one of the relevant circumstances. Where the other party was able to use assistants at its own discretion, or to have a substitute carry out the work, a finding that the person worked under direction and supervision becomes less likely.

The nature of the remuneration, and indications of operating as a business

The company checks whether the remuneration was determined on the basis of the time or number of days spent on the work, or on the basis of results or volume of output. Where the remuneration is calculated on the basis of time, or where there is a mechanism reducing it for days not worked, that points toward a finding that the remuneration has the character of consideration for work.

The company also checks the circumstances indicating that the person was operating as a business: who provided the equipment, materials and vehicles used for the work, who bore the costs, whether there was any mechanism by which the person stood to profit or lose according to the outcome of the work, and how the level of the remuneration compared with that of the company's employees. It also checks how far the person worked exclusively for the company and whether working for other customers was in fact possible. These are treated as circumstances that reinforce the assessment of use and subordination.

3. Checking what changes from one statute to another

Because the term "worker" is defined separately in different statutes, the company needs to check which statute is in issue for each of the steps it is being asked to take.

Claims for wages and overtime pay

Where a worker is covered by the Labor Standards Act and the employer has had the worker work in excess of the statutory working hours or on a statutory day off, premium wages must be paid as provided by law. The same applies where the worker has worked during late-night hours.

Claims for overtime pay are dealt with in the same way as claims made by an employee under an employment contract. On these, see the guide on when employees or former employees claim unpaid overtime pay.

Objections to the ending of the contract

The Labor Contracts Act defines a worker as a person who is used by an employer, works, and is paid wages. Where a person falls within that definition, the ending of the contract is assessed as a dismissal if the contract is of indefinite duration, and as termination during the term or a refusal to renew if the contract is for a fixed term.

Unavoidable grounds are required in order to terminate a fixed-term contract during the term. As to a refusal to renew, it is also provided that, where certain requirements are met and the refusal lacks objectively reasonable grounds and is not considered appropriate in general societal terms, the contract is deemed to have been renewed on the same working conditions as before. On questions concerning the ending of a contract, see the guide on when a dismissal or a requested resignation is challenged.

Workers' accident compensation insurance, social insurance and employment insurance

Coverage under workers' accident compensation insurance is understood to be based on the concept of a worker under the Labor Standards Act. Whether benefits are payable, however, is a separate question from whether the person is a worker: the requirements have to be checked for each benefit claimed, including whether the event was an accident arising in the course of employment or an accident during commuting.

Workers' accident compensation insurance also provides a special enrollment system under which certain owners of small and medium-sized businesses, and self-employed persons who work without employing others together with other self-employed persons, may enroll subject to the requirements and procedures laid down by law. The company therefore also checks whether the other party had enrolled in that way.

For health insurance, employees' pension insurance and employment insurance, each of the governing statutes sets out the requirements for the businesses or workplaces covered, the requirements for becoming an insured person, and the persons excluded from coverage, so each scheme is checked separately. Where coverage applies retroactively, the treatment of the contributions is checked at the same time.

Requests for collective bargaining

The Labor Union Act defines a worker as a person who, regardless of the type of occupation, lives on wages, salary or other equivalent income. The wording differs from the definition in the Labor Standards Act, and a person who is not a worker under the Labor Standards Act may still be held to be a worker under the Labor Union Act.

Accordingly, where collective bargaining is requested in relation to a party engaged under a service contract, it is not appropriate to refuse to bargain on the ground that the person is not a worker under the Labor Standards Act. On responding to collective bargaining, see the guide on responding to a request for collective bargaining.

4. Considering how to proceed with such arrangements in future

Where the person is a worker under the Labor Standards Act

Where, in light of how the work was in fact provided, the person is a worker under the Labor Standards Act, the labor standards legislation applies. In that case, the Act on Ensuring Proper Transactions Involving Specified Entrusted Business Operators, commonly known in Japan as the Freelance Act, is treated as not applying.

Where the person comes to be treated as a worker retroactively, a number of matters may need to be checked in addition to unpaid wages, including coverage under social insurance and employment insurance and measures relating to occupational safety and health. Where there are other parties engaged on the same terms, the company also checks how far that extends.

Where the person is not a worker under the Labor Standards Act

Even where the person is considered not to be a worker under the Labor Standards Act, the Freelance Act does not apply as a matter of course. That Act contains definitions of specified entrusted business operators, of business entrustment and of other terms, so whether those definitions are met needs to be checked. Where they are met, the Act requires certain steps to be taken in relation to matters such as the disclosure of the terms of the transaction, the date for payment of the remuneration, statements made when work is advertised, and the working environment.

Rewriting the contract does not by itself resolve the problem

Where an assertion of worker status has been made, a company sometimes redrafts the wording of the contract so that it reads more clearly as a service contract. Worker status, however, is assessed by reference to how the work is actually done, so adjusting the wording of the contract alone does not resolve the problem if the way the work is done remains unchanged.

Where the company reviews the arrangement, it considers, alongside the wording of the contract, how work is requested, the extent of the instructions given, the specifying of dates, times and places, the reports required, how the remuneration is determined, and who bears the costs. Conversely, where the nature of the work means that arrangements involving direction and supervision need to be maintained, there are situations in which moving to an employment contract is one option to consider. Whichever direction is taken, the company needs to consider separately how to deal with the engagement currently in progress and how to design its contractual arrangements going forward.

Key legislation and official sources

English translations of legislation are provided for reference. The Japanese texts are authoritative.

Where it appears	Legislation	Source type
Definition of a worker; premium wages for overtime, work on days off and late-night work	Labor Standards Act（労働基準法）	Japanese legislation
Definition of a worker; dismissal; termination of a fixed-term contract during the term; refusal to renew	Labor Contracts Act（労働契約法）	Japanese legislation
Definition of a worker; refusal of collective bargaining without justifiable grounds	Labor Union Act（労働組合法）	Japanese legislation
Coverage, benefits and the special enrollment system under workers' accident compensation insurance	Industrial Accident Compensation Insurance Act（労働者災害補償保険法）	Japanese legislation
Coverage and insured persons under health insurance	Health Insurance Act（健康保険法）	Japanese legislation
Coverage and insured persons under employees' pension insurance	Employees' Pension Insurance Act（厚生年金保険法）	Japanese legislation
Coverage and insured persons under employment insurance	Employment Insurance Act（雇用保険法）	Japanese legislation
Definitions of specified entrusted business operators and of business entrustment; disclosure of the terms of the transaction; the date for payment of remuneration; statements made when work is advertised; the working environment	Act on Ensuring Proper Transactions Involving Specified Entrusted Business Operators（特定受託事業者に係る取引の適正化等に関する法律）	Japanese legislation

Legal information reviewed: 2026-09-18

Frequently asked questions

Even where a service contract has been signed, can the other party be held to be a worker?

Yes, that can happen. The Labor Standards Act defines a worker as a person who, regardless of the type of occupation, is used by a business or workplace and is paid wages, and whether a person falls within that definition is said to be assessed by reference to how the work was actually done rather than the form of the contract. The title of the contract, and a statement in it that no relationship of direction and orders exists, are among the circumstances taken into account, but they do not by themselves determine the outcome.

If the person is free to choose when and where to work, does that mean the person is not a worker?

The absence of constraints of time and place points toward a finding that the person did not work under direction and supervision, but it does not by itself determine the outcome. The assessment is made overall, taking into account circumstances such as whether individual requests to carry out work could be refused, the extent of the instructions given on how the work was to be carried out, whether the person was permitted to have someone else carry out the work, and what the remuneration was based on.

What if the other party issued invoices and reported the income as business income?

The issuing of invoices, whether tax was withheld at source, and how the income was reported for tax purposes are circumstances showing how the parties understood their relationship, but they do not immediately determine the question of worker status. The matter is considered after checking the facts about how the work was actually done.

Does the company still need to check these points if the assertion is made after the contract has ended?

Yes. Even where the contract has ended, there are cases in which wages are claimed for the period during which the person is said to have been employed, or in which it is asserted that the ending of the contract amounted to a dismissal.

If the person is not a worker under the Labor Standards Act, can the company refuse collective bargaining?

Not necessarily. The Labor Union Act defines a worker as a person who, regardless of the type of occupation, lives on wages, salary or other equivalent income, and that wording differs from the definition in the Labor Standards Act. A person who is not a worker under the Labor Standards Act may still be held to be a worker under the Labor Union Act, so it is not appropriate to refuse to bargain on that ground. The company checks what the request covers and then considers how to respond.

Contact

Making an inquiry

Please tell us the outline of the situation, any notice you have received and its date, and any deadline you are working to.