Many overseas companies looking to hire in Japan are presented with an “EOR solution” that is actually structured as outsourcing, secondment, or a combination of both.
Before signing anything, ask your Japanese legal advisor or provider three simple questions. Each one maps to an actual test in Japanese law — not just good practice.
1. Who Actually Directs the Worker?
Who decides what the employee does every day?
Who sets priorities?
Who approves leave?
Who conducts performance reviews?
If the answer is your managers, your company may be exercising direct control over the worker.
That is not how a genuine outsourcing arrangement works. This isn’t a matter of opinion — it’s the first prong of the government’s own test for telling outsourcing (請負) apart from worker dispatch (労働者派遣):
次のイ、ロ及びハのいずれにも該当することにより自己の雇用する労働者の労働力を自ら直接利用するものであること。 — 労働者派遣事業と請負により行われる事業との区分に関する基準（昭和61年労働省告示第37号）第2条第1号
[A genuine contractor must satisfy] all of the following (i), (ii), and (iii), thereby directly utilizing on its own the labor of the workers it employs. — Notification on Criteria for Distinguishing Worker Dispatch Businesses from Businesses Conducted by Contract (MHLW Notification No. 37 of 1986), Article 2, Item 1
The three sub-requirements the notification lists are direction over how the work is performed and evaluated, direction over working hours and leave, and direction over workplace discipline and assignment — in other words, exactly the questions above: who directs the work, who approves leave, who evaluates performance. If the client company is answering “us” to any of these, the notification’s own test says the contractor is not directly utilizing its own workforce, and the arrangement functions as dispatch regardless of what the contract is titled.
In the event of a dispute, what matters is not just what the contract says, but how the relationship actually functions in practice. If the paperwork says “outsourcing” but the reality looks like something else, that discrepancy is likely to be exposed.
More importantly, this may not only create compliance concerns, it could also weaken the position of the hiring company. A company that has relied on a contractual structure that does not reflect the actual working relationship may find it harder to defend its position when dealing with employment claims, regulatory scrutiny, or disagreements over responsibility and control.
It pays to ensure that the contracts accurately reflect the reality of the arrangement, rather than relying on labels alone.
2. Who Owns the Deliverable?
This is the simplest test of all.
In a true outsourcing arrangement, the vendor is responsible for the service, project, or deliverable.
The vendor manages the worker.
The vendor accepts responsibility for the outcome.
This is the second prong of the same government notification — a genuine contractor must process the contracted work as its own independent business, not as an extension of the client’s:
次のイ、ロ及びハのいずれにも該当することにより請負契約により請け負つた業務を自己の業務として当該契約の相手方から独立して処理するものであること。 — 同告示第2条第2号
[A genuine contractor must satisfy] all of the following (i), (ii), and (iii), thereby processing the work undertaken under the contract as its own business, independently from the other party to the contract. — Same notification, Article 2, Item 2
That independence has to show up financially and operationally, not just contractually: the contractor funds and bears responsibility for the work under its own name, carries the legal liability of a business operator for it under the Civil Code, Commercial Code, and other applicable law, and — critically — is not merely supplying physical labor. It has to bring its own equipment, materials, or specialized expertise and planning to the job. If your company is directing the worker and taking responsibility for the result, ask whether the arrangement is really outsourcing in substance, regardless of what the contract is called.
3. What Legal Framework Supports the Arrangement?
If the worker is employed by one company but works under the day-to-day direction of another company, what legal framework is being relied upon?
There are only a small number of legal structures in Japan that allow this. Worker dispatch is one, and it requires a license:
労働者派遣事業を行おうとする者は、厚生労働大臣の許可を受けなければならない。 — 労働者派遣事業の適正な運営の確保及び派遣労働者の保護等に関する法律第5条第1項
A person intending to conduct a worker dispatch business must obtain a license from the Minister of Health, Labour and Welfare. — Act for Securing Proper Operation of Worker Dispatch Undertakings and Improved Working Conditions for Dispatched Workers, Article 5, Paragraph 1
In-service secondment (在籍型出向) is another — one we’ve covered in detail elsewhere — but it only avoids the licensing requirement where the receiving company forms a genuine second employment relationship and the arrangement fits one of a handful of recognized purposes, not simply because the parties called it “secondment.”
See “What Is Secondment? A Japan EOR Term, Explained.” for the full breakdown of that test.
Outside of a license, a valid secondment, or a genuine outsourcing arrangement that passes the two-part test above, supplying labor to work under another company’s direction is simply prohibited:
何人も、次条に規定する場合を除くほか、労働者供給事業を行い、又はその労働者供給事業を行う者から供給される労働者を自らの指揮命令の下に労働させてはならない。 — 職業安定法第44条
No person shall conduct a labor-supply business, or cause a worker supplied by a person conducting a labor-supply business to work under their own direction and command, except as provided in the following article. — Employment Security Act, Article 44
The penalty for violating Article 44 is up to one year of imprisonment or a fine of up to ¥1,000,000, under Article 64, Item 10 of the same Act — and it applies to both the company supplying the worker and the company receiving and directing them. A hiring company that is comfortable directing a worker’s daily work under someone else’s employment contract is taking on that exposure directly, not just handing a compliance problem to its vendor.
More importantly, does the provider hold the necessary licenses to support whichever framework is actually being used? The name on the contract is less important than the reality of the working relationship — and the government’s own anti-circumvention rule makes that explicit. Even an arrangement that looks, on paper, like it satisfies the outsourcing test above is still treated as dispatch if it was deliberately structured to disguise what is actually happening:
前条各号のいずれにも該当する事業主であつても、それが法の規定に違反することを免れるため故意に偽装されたものであつて、その事業の真の目的が法第２条第１号に規定する労働者派遣を業として行うことにあるときは、労働者派遣事業を行う事業主であることを免れることができない。 — 同告示第3条
Even a business operator meeting all of the criteria in the preceding article cannot avoid classification as a worker dispatch business operator where the arrangement was deliberately disguised to evade the law, and its true purpose is to conduct worker dispatch as a business. — MHLW Notification No. 37 of 1986, Article 3
When Haken May Be the Better Solution
Sometimes the answers to these questions reveal that the proposed structure does not fit neatly within an outsourcing model.
In those cases, a licensed haken (worker dispatch) arrangement may be the cleaner and more transparent solution.
Under haken, the worker is employed by a licensed dispatch company but works under the direction of the client company. The structure reflects the reality of the relationship rather than attempting to fit it into an outsourcing model that may not match how the individual is actually being managed. It also comes with its own, separately regulated obligations — equal pay against comparable host-company employees, and a disclosure duty toward the worker that gets stricter this October — covered in Japan’s Dispatch Worker Pay Reform.
For mobility specialists, HR leaders, and global expansion teams, the goal is not simply to hire someone in Japan.
The goal is to use a structure that accurately reflects the way the person will work.
Before accepting an EOR proposal, ask three questions:
- Who directs the worker?
- Who owns the deliverable?
- What legal framework supports the arrangement?
The answers may tell you more than the sales presentation ever will and do not accept “it’s a grey zone” for an answer — the government’s own notification exists precisely to close that grey zone, and it explicitly disregards paperwork designed to disguise the real arrangement.
If you want the fuller list of questions to put directly to a prospective EOR provider — including licensing, in-country support, and how work is actually subcontracted — see Japan EOR Legal Risks: 8 Questions Every HR Manager Should Ask.
This article quotes MHLW Notification No. 37 of 1986, the Employment Security Act, and the Worker Dispatch Act directly. It is provided for general informational purposes, is not legal advice, and is not directed at any specific company or arrangement. Companies evaluating a workforce structure in Japan should consult qualified Japanese employment counsel regarding their specific facts.
Sources
- MHLW Notification No. 37 of 1986 — Criteria for Distinguishing Worker Dispatch from Contracted Business (reference text)
- Employment Security Act — full text (MHLW)
- Worker Dispatch Act — full text (MHLW)
- Understanding “Secondment” (出向): What Does the Japanese Government Actually Say?
- Japan EOR Legal Risks: 8 Questions Every HR Manager Should Ask