JAPAN Trends and Developments Contributed by: Yuhei Sakao, Ryota Saito and Shunsuke Ebihara, Miura & Partners
Amendment of the Subcontract Act Background and reasons for the amendment On 16 May 2025, a bill to amend part of the Act Against Delay in Payment of Subcontract Proceeds, etc to Subcontractors (the “Subcontract Act”) was enacted, and it is scheduled to take effect on 1 Janu - ary 2026. This amendment changed the official title of the “Subcontract Act to Subcontractors” into the “Act Against Delay in Payment of Fees, etc to Small and Medium-sized Entrusted Business Operators in Manufacturing and Other Specified Fields”. The primary objective of this amendment is to ensure “structural price pass-through” by promoting appro - priate price adjustments across the entire supply chain, based on fair relationships between contrac - tors and subcontractors, in response to recent sharp increases in labour, raw material and energy costs. As a result, transactions that were previously outside the scope of the Subcontract Act will now be subject to regulation. Companies engaging in such transac - tions, as well as managers and officers responsible for negotiations within supply chains, will need to take appropriate measures in line with the amendments, as these changes may affect their business opera - tions. This amendment will have a significant impact on a wide range of businesses, and business opera - tors face an increased risk of criminal penalties and administrative sanctions. Prohibition on determining contract prices without appropriate consultation In Japan, issues had arisen in connection with price pass-through, such as maintaining prices without consultation or unilaterally setting prices that did not reflect increased costs. This amendment prohibits the unilateral determination of contract prices with - out consultation and without providing the necessary explanations and information during consultation in covered transactions. Prohibition on payment by promissory notes and similar instruments In Japan, the practice of using promissory notes and similar securities as a means of payment had been criticised for imposing cash flow-related financial burdens on contractors. This amendment therefore prohibits payment by promissory notes and pay -
ment methods that hinder receipt of the full payment amount by the due date. Inclusion of transportation commission transactions within the scope of the Subcontract Act Previously, commissions from shippers to primary transportation contractors were excluded from the scope of the Subcontract Act. However, issues have arisen in the logistics sector, such as logistics com - panies being required to perform cargo handling or waiting services without compensation. Accordingly, this amendment includes transportation commission transactions in addition to existing regulations on subcontracted transportation of goods as a regulated category. Addition of employee-based criteria Prior to this amendment, attempts to adjust capital to circumvent the Subcontract Act had been regarded as problematic. In practice, certain businesses with a substantial operational scale but reduced capital had fallen outside the scope of the Subcontract Act. To remedy this, the amendment introduces employee- based criteria in addition to the capital-based thresh - old, in the form of more than 300 employees for manu - facturing commissions and more than 100 employees for service commissions. Strengthening extensive enforcement The amendment establishes new guidance and advice from the relevant administrative agencies. In addition, the “Prohibition of Retaliatory Measures” has been extended to include reporting to the relevant adminis - trative agencies, in addition to the current reporting to the Japan Fair Trade Commission and the Small and Medium Enterprise Agency to ensure an environment in which small and medium-sized entrusted business operators can easily report violations. As a result, companies violating the Subcontracting Act are more likely to be prosecuted. Commitment Procedures Under the Amended AUPMR On 10 May 2023, the Act Against Unjustifiable Premi - ums and Misleading Representations (AUPMR) was amended, and the amended AUPMR came into force on 1 October 2024. As the AUPMR broadly regu -
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