Contractors instead of employees in Japan: does it hold?

HQ's plan is simple. Dismissal in Japan is hard and social insurance is expensive, so don't employ anyone. Put sales, engineers and the office manager all on service contracts. The contract says the contractor decides how to do the work. Then everyone joins the 9 a.m. standup, uses the company CRM and sends a weekly report to the Japan head.

Japan has a name for this: gisou ukeoi, disguised contracting. It is not a grey zone. It is well-mapped ground, with published tests, penalties and a long line of cases.

A company that walked this road to the end

In 2021 Spain passed the Rider Law. If a platform organises, directs or controls couriers' work, including through algorithms, employment is presumed. Glovo, the Barcelona delivery platform, answered with a product change. Couriers could log in whenever they liked, faced no explicit penalty for refusing orders, and could choose their own daily rate multiplier. Autonomy as proof of non-employment.

Three years later Glovo and its parent Delivery Hero announced they would employ about 15,000 couriers in Spain. In between came courier protests over falling income, accumulating labour penalties and a criminal case. An October 2026 piece in MIT Sloan Management Review uses it as the lead case and draws this conclusion: in algorithmic businesses, minimal-compliance fixes leave auditable traces, widen what regulators can inspect, and end up forcing the redesign the company was trying to avoid, at the most expensive moment.

I don't think Glovo's problem was a clumsy redesign. The business needed to control couriers, and control is exactly what the law tests. They changed the interface. The regulator looked at the substance.

What Japan looks at

Japan decides whether someone is a worker by looking past the contract's title to subordination in practice. A 1985 Labour Standards Act study group report set out the factors, and labour inspectors and courts still use them. Can the person refuse an assignment? Is there specific direction and supervision during the work? Are hours and location fixed? Can they send a substitute? Is pay a price for time worked? Supporting factors: whose equipment, whether pay looks like a salary or a fee, and whether they work for anyone else.

Run HQ's plan through that. The 9 a.m. standup is a time constraint. The company CRM and weekly report are supervision. Not being able to decline an assigned account is the absence of refusal rights. Contract says contractor; substance says employee.

The consequences come in two layers. The first is labour law. Once the person is reclassified, overtime, paid leave, back social insurance and dismissal protection all apply, counted from day one. You didn't avoid the dismissal problem. It comes back later, when it costs more. The second layer is the Worker Dispatch Act and the Employment Security Act. Where disguised contracting is used to evade the law, the company receiving the work is deemed to have offered the person an employment contract (Dispatch Act Article 40-6, in force since 2015). If they accept, you have a new permanent employee. Since November 2024 the Freelance Act is in force, and the labour ministry opened desks at labour inspection offices for people who suspect they are really employees. The door for complaints is wider than it was.

Then there is the Glovo problem again. Traces. Daily instructions in Slack, shift tables, weekly reports, performance comments. The more tightly you manage, the more complete the evidence.

When contracting does hold

It holds when the outsourcing is real. Pay for output, not hours. The contractor decides when and where. They can subcontract. They work for other clients. They use their own tools. A market consultant billing by project, an external engineering team delivering by module, a distributor paid per deal. Those all fit.

It does not hold when you need to control the process. Sales following your cadence with your accounts, engineers in your daily standup, support staff sitting a rota you wrote. The essence of those roles is that you direct the person, and direction is employment.

The most expensive place to be is in the middle. A contract that says contractor, and management that treats the person as staff. Nothing happens while things go well. When you want to end the relationship, or their income falls, one visit to a labour office or a lawyer opens back-claims on three fronts at once: labour law, dispatch law and tax.

Design on substance, not packaging

Before setting up how the new entity engages people, answer one question per role: do I need to control the process, or only the result? If the process, employ, and put probation and the true cost in the budget. If only the result, contract, and then actually let go. No standups, no fixed hours, no mandated tools.

Maybe you can't let go and still don't want to employ. Then two legitimate routes remain. Dispatch, through a licensed agency, where you direct the work and the agency is the employer. Or fixed-term employment, where expiry is an ending rather than a dismissal, with the caveat that renewals past five years give the person a right to convert to permanent. Both cost a little more than disguised contracting and far less than being reclassified.

Glovo spent three years changing the screen and then hired the people. The screen is for users. Labour law looks at who gives the instructions.

This article summarises publicly available legal frameworks and general principles. It is not legal advice. For a specific case, consult a Japanese lawyer or a licensed labour and social security attorney.