Dispatch, contracting or secondment: structuring foreign assignees in Japan

The question Japanese law asks

A foreign engineer employed by a Japanese subsidiary spends four days a week at a customer's plant. A consultant employed by a Tokyo firm sits in a client's office for a year. A specialist employed by an overseas parent is seconded to the Japanese affiliate's customer. In each case the immigration status may be in order and the labour structure may still be unlawful, because Japanese law asks a question the status does not answer: who directs the worker?

If the business where the work is performed gives the instructions, the arrangement is labour dispatch (労働者派遣) and must be run by a licensed dispatch business within the limits of the Worker Dispatch Act. If the worker's employer directs the work and performs it as its own business, the arrangement is contracting (請負 or 業務委託). A secondment (出向) places the worker under the receiving company's direction while the employment relationship continues with the sending company, and is lawful only within the limits of the Employment Security Act. Getting the classification wrong is called disguised contracting (偽装請負), and it exposes the client, the contractor and the assignee.

The 1986 criteria

The classification test is MHLW Notice No. 37 of 1986, the criteria for distinguishing a worker dispatch business from a business conducted by contract. A contractor is treated as running a dispatch business unless it satisfies both of two conditions. First, it directs and manages its own workers' labour: instructions on how the work is performed and evaluation of it; management of start and finish times, breaks, holidays, leave, overtime and holiday work, where merely recording hours does not count; and maintenance of workplace discipline and decisions on placement and transfers. Second, it handles the contracted work independently as its own business: it raises and pays for all costs on its own responsibility, bears the legal responsibilities of a business operator, and either performs the work with machinery, equipment or materials it supplies itself (simple tools excepted) or performs it on the basis of its own planning or specialised skill and experience, rather than merely supplying labour.

Article 3 of the notice adds that a structure which formally meets both conditions is still treated as dispatch if it is a deliberate disguise to avoid the Act. The labour bureaux apply the criteria to practice: who the client emails with tasks, who approves leave, who decides which individual sits where. The paperwork matters only as evidence of what actually happened.

Three structures compared

The Worker Dispatch Act, since its 2015 amendment, applies a licensing system to every dispatch business, limits the period for which a workplace may receive dispatched workers and for which an individual may be placed, prohibits dispatch in certain sectors and requires equal treatment on pay. The deeming provision treats a client that receives workers through illegal dispatch, including disguised contracting, as having offered them direct employment on the same terms. Secondment is lawful where it is not conducted as a business and serves a recognised purpose such as career development, intra-group personnel exchange or employment maintenance; repeated fee-earning secondments to customers are labour supply.

The immigration consequences

Every work status in Japan names a contracting organisation and describes duties. Under Engineer/Specialist in Humanities/International Services, a dispatched worker's contracting organisation is the agency and ISA examines the duties at the client site; a contractor's employee's contracting organisation is the contractor and the duties are those of the deliverable. Under Intra-company Transferee, the transferee must work for the receiving group office; placement at an unrelated client under that client's direction is inconsistent with the status, and is usually unlicensed dispatch as well. Under Business Manager, the manager must manage the business, not be placed with a customer.

A structure that drifts, with the client starting to direct a contractor's assignee, creates a gap between the immigration file and the facts. At extension ISA asks what the person did and for whom. A labour-bureau finding of disguised contracting is shared with ISA. The assignee's Highly Skilled Professional and permanent-residence prospects depend on an employment history that can be evidenced, and a disguised placement cannot be evidenced without exposing the breach.

A planning sequence

• Classify before anyone starts. Apply the Notice No. 37 criteria to the planned facts: who instructs, who manages hours and leave, who assigns, who funds, who supplies the means. Record the answer.
• Choose the structure that matches the answer. If the client must direct the work, use a licensed dispatch business and the dispatch contract. If the employer will direct, draft a statement of work defined by deliverables, name the on-site manager and route all client requirements through that manager. For group secondments, document the purpose and the worker's consent.
• Align the immigration application. The contracting organisation and duties described to ISA must be the ones the structure produces. Do not apply for Intra-company Transferee for a person who will sit under a customer's direction.
• Operate the direction channel visibly. Contractor staff receive tasks from their manager; client staff raise requirements with that manager; attendance and overtime are managed by the employer under its Article 36 agreement.
• Review the practice quarterly. Check email, task tools and leave approvals for drift. Correct it in writing. The labour bureau examines practice, and so does ISA.
• Treat changes as dated events. A new client, site or role may require an organisation notification within 14 days, a change-of-status application or a new dispatch contract.

Group companies are not exempt. An intra-group supply of labour directed by the receiving company and run for a fee is dispatch. Agile projects are not exempt either: joint stand-ups are acceptable; the client assigning tickets to individual contractor staff is direction. The structure that survives inspection is the one in which the answer to "who directs?" is the same in the contract, in practice and on the immigration file.