Amendments to Japan’s subcontracting law effective January 2026, studies from a French perspective.

Japan, a country pictured as an intricate coexistence of tradition and modernism, often adopts this approach in its legislative work. Perfect illustration is the recent revision of the law regarding subcontracting, the Act against Delay in Payment of Subcontract Proceeds, etc. to Subcontractors (the “Subcontract Act”) enacted in 1956, which has become the Act on the Optimization of Transactions with Small and Medium-sized Subcontracted Operators (the “Proper Transaction Act”), effective January 2026.  

As the more neutral and modified title suggests, the Proper Transaction Act shifts the focus from its traditional scope of application (subcontracts) towards a wider goal, i.e. prohibiting unproper transactions concluded between large enterprises acting as main contractors (the “Entrusting” previously called “oya-jigyosha”) and SMEs subcontractors (the “Entrusted” previously called “shitauke-gaisha”), in order to better ensure price pass-through and fair trade practices. 

Because the Proper Transaction Act, alike its predecessor, applies to all companies conducting business in Japan (regardless of their nationality), it has an impact on French companies, and it is worth for them to study the recent Japanese revision to assess whether they are already compliant or shall implement further measures before subcontracting relationships in Japan. 

Speaking of compliance, French companies are not unfamiliar with protection and duties applying to main contractors and subcontractors, mainly (but not only) through the Loi 75-1334 of 31 December 1975 (the “French Act”) which is uncodified, atypical by its shortness but heavily interpreted by French courts. This French Act presents a significant practical interest as it applies to foreign companies including Japanese, provided a “connecting link” with France exists. 

Offering an interesting comparative perspective with the French Act, this article aims to highlight the new extended scope of the Proper Transaction Act (I), and the strengthened obligations imposed on economic operators (II). 

I/ An extended scope of application 

The Proper Transaction Act now covers a larger number of subcontracting operations (A) as well of Entrusting and Entrusted enterprises (B). 

A/ More subcontracting operations targeted 

The Subcontract Act used to apply to four nominative categories of subcontracting operations which were deemed classic: manufacturing contracts, repair contracts, information-based product creation contracts (the “IBPC”), and service contracts (includes re-entrustment of the transportation of goods from a logistics company to another).  

Facing modern issues existing between shippers and logistic companies (such as weak logisticians forced to perform loading and unloading and to wait for cargo free of charge), specified outsourcing transportation services from shipper to logistics company, for any type of goods (sold, manufactured or repaired by the Entrusting) are now covered by the Proper Transaction Act (Brochure on the Proper Transaction Act). 

The scope of the French Act is also large. Even if not enumerating typologies of subcontracts, it defines subcontracting as the operation whereby a contractor entrusts under its responsibility, to a subcontractor, the performance of all or part of a works contract (“contrat d’entreprise”) concluded with a project owner (Art. 1), being specified that subcontracting as part of public procurement contracts is also covered by this definition.  

Throughout time, French judges have established the broad scope of the French Act to industrial and intellectual subcontracting, and the legislator has confirmed that outsourced transport services are also governed by such Act (Art. L.1432-13 of the French Transportation code). In short, only a few cases are out of its scope, mainly supply of standardized products. 

B/ A larger number of enterprises encompassed 

The Entrusting and Entrusted were originally subject to the Subcontract Act if their respective capital amount corresponded to one of the patterns which suggested that the first held a position of superiority over the second: (i) the Entrusting capital exceeds JPY 300 million (JPY 50 million for IBPC and service contracts) and the Entrusted capital is below JPY 300 million (JPY 50 million for IBPC and service contracts); or (ii) the Entrusting capital is between JPY 10 and 300 million (between JPY 10 and 50 million for IBPC and service contracts) and the Entrusted capital is below JPY 10 million. 

Now, to encompass the Entrusting which are large in scale but with small or reduced capital, the Proper Transaction Act adds to the above another pattern: the Entrusting employs more than 300 employees (100 employees for IBPC and service contracts) and the Entrusted employs less than 300 employees (100 employees for IBPC and service contracts).  

On the contrary, in France, as the French Act aims not only to protect subcontractors against bankruptcy but also to guarantee financial and contractual transparency in subcontracts, independently of any notion of superiority, any contractor and subcontractor is concerned, no matter its size. 

II/ Strengthened obligations for economic operators 

Not only the initial prohibitions and obligations are reaffirmed (A), but modern forms of unproper business behaviours become forbidden (B). 

A/ Reaffirmation of classic prohibitions and obligations in subcontracts 

Two obligations as already set by the Subcontract Act are maintained: (i) the Entrusting must formally deliver (and preserve) a written document to the Entrusted specifying details of the subcontract (nature of the work, price of the subcontracted work, payment due date, and payment method); and (ii) the Entrusting needs to set the payment due date as soon as possible and, in any case, no later than 60 days from the date of receipt of goods or completion of services. 

The Proper Transaction Act also confirms eleven prohibited practices for the Entrusting as already set by the Subcontract Act: unjustified refusal of acceptance, abusive prices, refusal of payment or delayed payment, unilateral price reduction, return of goods without justification, forced purchase/use of designated third-party goods and services, forced purchase/use of goods (semi-finished products, parts, accessories or raw materials) from the Entrusting, retaliatory actions (volume reduction, transaction suspensions, disadvantageous treatment), late changing of orders, request for redoing the performance after receipt, and request for undue benefits. 

Similarly, the French Act sets formal obligations and imperative key timeline. For instance, the main contractor shall, upon conclusion and throughout the duration of the subcontract, have the subcontractor approved, together with its payment terms, by the project owner (art. 3). Additionally, payments shall be made in compliance with French law (Art. L.441-10 of French Commercial code, applying also to subcontracts) and, in most cases, not exceed sixty days as from the date of issuance of the invoice, but must also be made within thirty days of receipt of the goods. 

Eventually, it is also worth noting that the French legislator also prohibits restrictive business practices such as creating a significant imbalance in the rights and obligations of the parties (Art. L.442-1 of the French Commercial code, applying also to subcontracts). 

B/ Modern forms of unproper practices targeted 

The Proper Transaction Act adds two forbidden practices for Entrusting: (i) failing to provide necessary explanations on price determination and refusing price negotiations in the event of cost fluctuations or other circumstances related to the SME contractor’s performance (indeed, face to rapid increases in labor, raw materials, and energy costs, it is important to achieve price pass-through based on an balanced contractual relationship, i.e. ensuring appropriate price shifting throughout the supply chain), and (ii) settling fees with promissory notes or other payments that make it difficult for the Entrusted to be paid on due date (as such practice could amount to overriding obligation of timely payment) (Official summary of the revised Act). 

In France, case-law has regularly characterized the refusal to negotiate as a restrictive business practice, for instance if it corresponds to the inclusion of clauses in a standard agreement which cannot be effectively negotiated. 

To conclude, by becoming broader in its scope and stricter in its obligations, the revised shape of Japan law as to subcontracting is getting closer to the French legal framework, thus becoming relatively easier for enterprises from both countries to understand and align their compliance strategies in term of subcontracts while doing cross-border business in these countries. 

However, various challenges lie ahead for legislators on each side. In Japan, voices are pressuring on how the government will practically enforce the new legislative reform and if such revision may have enough impact against modern unproper practices. In France, the legislator is facing criticism against the aging French Act, and more and more actors are pushing for harmonization at European scale or tougher criminal law framework to ensure a better legal efficiency. 

Disclaimer: This article has no vocation to advise in Japanese law but only to give an informative general comparative viewpoint between French and Japanese legislations.