The franchising market in Japan has recorded a steady and continuous growth since 2010. The Japan Franchise Association reported that, in 2016, the number of franchise systems had increased by 0.5 per cent to over 1,335 systems, and the number of establishments had increased by 0.8 per cent to over 263,109 franchise establishments. Franchise establishments generated over ¥26 trillion in sales in 2016.2

The franchise scheme is often seen in the industries of convenience stores, bakeries and pastries, fast food restaurants, Japanese pubs, dry cleaners and private preparatory schools.

Convenience store franchise systems such as 7-Eleven, FamilyMart and Lawson are uniquely dominant in the Japanese franchising market. Sales from convenience store franchise systems account for approximately 43 per cent (over ¥10 trillion) of all sales generated from franchise establishments in 2016.3

In addition to the universally known American franchise systems such as McDonald’s, Subway, Burger King and KFC, Japanese franchise systems also have significant presence in the franchising market in Japan. Examples of franchise systems originating in Japan are: Sukiya, Yoshinoya and Matsuya (beef bowl restaurants); MOS Burger (hamburger restaurant); and Doutor Coffee, Café de Crié and UCC Ueshima Coffee Co (coffee shops).

In recent years, responding to the growing popularity of Japanese cuisine, Japanese franchise systems have ventured overseas. These franchise systems have proactively expanded their businesses in Asian countries, including China, Taiwan and other ASEAN countries.

The Japanese laws relevant to the franchise business include the Small and Medium-Sized Retail Business Promotion Act, the Anti-Monopoly Act, the Civil Code and the Consumer Contract Act. In addition, franchise businesses may be subject to the ethic general plan, guidelines and independent standards of the Japan Franchise Association.

There are many franchisees that have left their jobs as corporate employees to start their own business. These franchisees tend to lack sufficient knowledge to conduct franchise businesses, and a number of problems have emerged as a result. These problems often involve franchisors’ obligation under franchise agreements to provide sufficient explanations to franchisees, franchisees’ obligation to report and franchisees’ anti-competition obligation, as well as franchisors’ abuse of dominant position. There are many cases where these problems have developed into disputes and litigation.


i Restrictions

In Japan, there are no restrictions on foreign investment specific to franchises. In addition, there are fundamentally no restrictions on foreign companies granting master franchise rights and similar rights to Japanese corporations.4

On the other hand, under the Foreign Exchange and Foreign Trade Act, if a foreign company (1) acquires the shares or equity of a company other than a listed company, etc.5 (including when acquiring new shares as a result of formation), or (2) will be acquiring 10 per cent or more of the shares of a listed company, etc.,6 a prior notice or a subsequent notice will be required depending on the business type of the investing company.

Moreover, under the Foreign Exchange and Foreign Trade Act, since prior notice is required for instances of investments in restricted business types, such as those that have affect Japan’s national security (aeroplanes, satellites, etc.), those concerning public order (telecommunications businesses, broadcasting businesses, passenger transportation businesses, etc.), those regarding public safety (security services, etc.), and investments from countries considered to require examination with regard to the principle of reciprocity, a franchise business is not likely to require a prior notice.

Furthermore, no special regulations have been prescribed with respect to foreign companies acquiring real property in Japan.

ii Foreign exchange and tax

There is no obligation to seek approval nor a reporting obligation imposed on local franchisees regarding the payment to foreign franchisors as long as the amount of the payment is not more than ¥30 million. Tax issues are discussed in Section V.


i Overview

In franchising, a well-known brand is the most valuable asset of the business. It is, therefore, essential to protect and reinforce brand trademarks when expanding the franchise business.

If a franchisor fails to apply for and register its trademarks, and if a third party who conducts a similar business using commercial indications that are similar to the franchisor’s trademarks emerges, the franchisor will need to claim its rights under the Unfair Competition Prevention Act (UCPA). Under the UCPA, a plaintiff must prove that an indication is well known or famous among consumers, and proving such a fact could be time-consuming. Furthermore, if the third party has already registered a trademark similar to the franchise system brand or trademarks, and has already been using the trademark in products or services similar to those of the franchisor, there is a possibility that the third party may seek an injunction preventing the franchisor from using the franchisor’s own brand and trademarks.

In fact, in the decision rendered on 10 September 2012 (see the website of the courts in Japan for the INAIL case), the Tokyo District Court granted an injunction suspending use of signage and other materials and ordered the destruction of the signage and other materials, among other orders, based on the third party’s infringement of the registered trademark of the plaintiff, against the defendant who operated a franchising business using a similar mark.

Based on the foregoing, a franchisor should apply for and register its brand or trademarks after deliberating whether it is possible to register the brand or trademarks. Most franchisors follow these practices.

ii Brand search

A ‘trademark right’ means an exclusive right to use a trademark, registration of which has been accepted by the Japan Patent Office following an examination by the Japan Patent Office (registered trademark), for certain products or services (designated products or designated services) (Articles 25 and 37(i) of the Trademark Act) that arises as a result of registration of establishment of such a right (Article 18 of the Trademark Act). A trademark holder has the exclusive right to use the registered trademark for the designated products or the designated services without any interference by others (exclusive right to use), and, in cases where others use the registered trademark or a similar trademark for identical or similar designated products or designated services, a trademark holder also has the right to suspend such acts and claim damages (prohibition right) (Article 37(i) of the Trademark Act).

The common method of determining whether a trademark has been registered is to use a database such as that available from the Japan Platform for Patent Information (formerly the Industrial Property Digital Library). However, because there is a time lag between actual registration and the updating of the database, a prospective applicant often obtains a copy of the trademark registry for important trademarks. A copy of the trademark registry may be applied for and obtained at the Japan Patent Office by submitting an issuance request in a designated form and paying a fee of ¥800 per case in ordinary cases. If, in relation to the trademark that a franchisor uses in its franchise business, the franchisor desires to register a new trademark or considers the registered scope to be insufficient, the franchisor should investigate whether there are any trademarks of other companies that have already been registered, and consult with experts (such as patent attorneys and attorneys) about the possibility of infringement based on the result of the investigation.

Franchisors often use domain names when carrying out a franchise business. Japan Registry Services manages the database of Japanese domain names comprehensively, and multiple registrars accept applications for the registration of individual domain names.

iii Brand protection

A person who desires to register any trademark must submit to the Commissioner of the Japan Patent Office an application for registration that provides the applicant’s address, name (or name of its representative if the applicant is an entity), date of submission, designated products or designated services and categories of the designated products or designated services, together with documents indicating the trademark and necessary written explanations thereof.

In Japan, if there has been any application for registration of a trademark that is identical or similar to another trademark, the person who first applied for registration is entitled to the trademark, not a person who has simply started using the trademark first. For details of the procedures for registering trademarks, please refer to the website of the Japan Patent Office (www.jpo.go.jp/tetuzuki_e/t_gaiyo_e/tr_right.htm).

iv Enforcement

Infringement of a trademark refers to an incident where a person without authorisation (1) uses (2) a trademark identical or similar to any registered trademark (3) for designated products or designated services (the designated products or services). The infringement of a trademark may be organised as follows:

Designated products or services












In the Kozo Sushi case (Judgment of the Supreme Court, 11 March 1997, Minshu Vol. 51, No. 3, Page 1055), in which a third party filed an action against a franchisor, the Court rendered a decision on standards to determine similarity between trademarks, which relate to factor (2) above. With respect to similarity between the Plaintiff’s ‘Kozo’ (in Japanese) trademark and the Defendant’s ‘Kozo Sushi’ (in Japanese) and ‘KOZO SUSHI’ trademarks, the Supreme Court opined that similarity between trademarks must be observed comprehensively in consideration of impression, recollection and association that business partners and consumers may have with respect to a trademark based on its appearance, concept and designation and that actual circumstances of transactions of such products must be investigated and similarity between trademarks must be determined based on specific transactions. The Court further opined that similarity in appearance, concept or designation of trademarks may provide certain standards to determine whether products using such a trademark cause misunderstanding or confusion as to the origin of the products; however, trademarks may be said to be dissimilar if, despite similarity in their appearance, concept or designation, there are other aspects of the trademarks that are significantly different or there is no misunderstanding or confusion as to the origin of the products based on the specific circumstances of the transactions. In actual practice, when finding similarity of combined trademarks, as in the Kozo Sushi case, examination of similarity with other trademarks by extracting part of the combined trademarks may often become an issue (Tsutsumino Ohinakkoya case, Judgment of the Supreme Court, 8 September 2008). According to the precedents, when examining ‘specific circumstances of the transactions’, the Court tends to take into account not only the manner of the handling of products and other general aspects of the business environment, but also the degree of fame of trademarks, existence of other trademarks, use and manner of use of trademarks, and other unique circumstances of trademarks.

v Data protection, cybercrime, social media and e-commerce

In recent years, while social networking sites have become increasingly popular, there have been many cases where the brand reputation of restaurants and other franchise systems were damaged because of information posted by employees and customers with malicious intent.

Because under the law the personal, economic and social reputation of an entity is protected just like honour of any individual (Judgment of the Supreme Court, 28 January 1964, Minshu Vol. 18, No. 1, Page 136), an entity may file an action for defamation. However, it is extremely difficult to restore a brand reputation once it has been damaged. Therefore, it is important to prevent such an incident by providing seminars for employees of franchisors and franchisees, as well as establishing internal rules and guidelines.


i Legislation

There are no separate laws that relate specifically and solely to franchising in Japan. The general laws of Japan apply equally to franchise-related issues. Among relevant general laws, the Small and Medium-Sized Retail Business Promotion Act (SRPA) and the Anti-Monopoly Act (competition law) particularly affect the franchisor–franchisee relationship, while the Japanese Civil Code governs basic contractual relationships. With regard to the Anti-Monopoly Act, the Japanese Fair Trade Commission (JFTC), which is a government department that enforces the Anti-Monopoly Act, has issued a guideline from an anti-monopoly perspective for franchise businesses (the Franchise Guideline). The Franchise Guideline provides the JFTC’s attitudes to franchising. Although it is not mandatory, many franchisors follow the Franchise Guideline.

ii Pre-contractual disclosure

There are no general requirements for pre-contractual disclosure imposed on franchisors in general. However, for franchisors running retail or restaurant-related franchise businesses, there is a mandatory pre-contractual disclosure obligation set forth in the SRPA. This disclosure should be in writing. Although franchisors operating services outwith the retail or restaurant sectors are not required to provide pre-contractual disclosure, in practice many franchisors voluntarily perform this pre-contractual disclosure to avoid misunderstandings with franchisees.

The items required to be disclosed are as follows:

  • a the name, address, number of employees, and titles and names of directors of the franchisor;
  • b the capital amount, the names of major shareholders of the franchisor, and the contents of other operating business, if any;
  • c the names of subsidiaries and the contents of their business;
  • d balance sheet and profit and loss of the past three years;
  • e when the franchisor began its franchise business;
  • f the changes in the number of franchisees’ stores in the past three years;
  • g the amount of litigation relating to franchising in the past five years;
  • h store hours, business days and holidays;
  • i whether the franchisor may operate its store or permit others to open a store around the franchisee’s store;
  • j details of any non-competition clause that applies after the termination of the franchise agreement;
  • k details of any non-disclosure clause that applies during and after the term of the franchise agreement;
  • l details of fees regularly charged on franchisees;
  • m if the franchisor requires franchisees to regularly transfer sale proceeds, the timing and measure;
  • n if the franchisor provides loans to franchisees, the interest rate and other conditions;
  • o if the franchisor takes interest from the offsetting amount that arises from the transaction between franchisor and franchisees, the interest rate and other conditions;
  • p if the franchisor imposes special duties regarding the structure or decorating of a store on franchisees, the contents thereof;
  • q penalties for the violation of the franchise agreement;
  • r details of the initial fees;
  • s sales conditions for franchisees;
  • t details of the franchisor’s management and training of franchisees;
  • u trademarks; and
  • v the term, renewal and termination of the franchise agreement.

In addition, the Franchise Guideline recommends that franchisors (not limited to retail or restaurant franchisors) disclose some items.

There is no general requirement for the disclosure of sales forecasts. However, once a franchisor discloses sales forecasts to a candidate franchisee, a court may review the accuracy of the disclosure. Then, if the forecast is based on inaccurate information or the analysis process is unreasonable, a franchisor may be responsible for damage suffered by the franchisee, on the basis of the ‘fair and equitable principle’ set forth in the Japanese Civil Code.

iii Registration

There is no registration requirement for a franchisor or franchisee in Japan.

iv Mandatory clauses

There is no mandatory clause requirement to be included in a franchise agreement. Parties are free to negotiate the terms of the deal.

Having said that, as discussed further below, some clauses imposed on franchisees, such as non-competition clauses or pre-fixed penalty clauses, may be rendered void by a court on the basis of the general ‘public policy principle’ set forth in the Japanese Civil Code, or the Anti-Monopoly Act, even if the franchisee agreed to the clauses.

A non-competition clause, especially one that imposes a non-competition obligation after the termination of a franchise agreement, may be rendered void by a court. A typical situation is that a franchisor seeks injunctive relief or damage compensation against a breaching franchisee and the franchisee raises a counter-argument that the clause is void, arguing that the restriction is too excessive. A court determines whether the restriction is excessive or not, considering the scope of the business, place and term of the non-competition clause. In terms of the scope of the business, in a franchise agreement, franchisors typically prohibit franchisees from operating ‘same or similar’ businesses. In general, such a restriction is not likely to be considered excessive. In terms of the place of non-competition, the absence of any limitation on the scope of the place would have a high risk of being deemed an excessive restriction. The term of a non-competition clause is normally set forth as two years, which is not likely to be considered excessive.

Many franchisors provide a pre-fixed penalty clause in their franchise agreement. Under such a clause, in the event that a franchisee violates each term and condition of the agreement, a franchisee must pay the fixed amount as damages to the franchisor. Franchisors prefer such a clause since it may be difficult to prove the amount of their damages, especially damages resulting from the violation of a non-competition or non-disclosure obligation. An excessive fixed-penalty amount may be voided by a court. In general, as long as the amount is not more than the equivalent of 30 months’ royalty fees, the risk of such a pre-fixed penalty being deemed void would be low.

v Guarantees and protection

Guarantees from individuals and companies to the franchisor are generally enforceable. It is relatively common practice for local franchisors to require a director of a franchisee’s business to guarantee the franchisee’s obligation under the franchise agreement.


i Franchisor tax liabilities

A franchisor may choose its business structure when operating in Japan, such as establishing a corporation (subsidiary) or a branch in Japan. Income of corporations established in Japan is subject to corporate income tax, regardless of where the income is sourced, whether in Japan or foreign countries, but where the income includes profits earned in foreign countries that are taxed in the source countries of that income, foreign taxation deductions are applied. On the other hand, for branches of foreign corporations, only income earned in Japan (domestic-sourced income) is taxable.

Japanese corporate income taxes consist of:

  • a corporate tax (national tax);
  • b local corporate tax (national tax);
  • c corporate inhabitant tax (local tax);
  • d enterprise tax (local tax); and
  • e special local corporate tax (national tax).

Transactions that include the transfer or lease of assets, or the provision of services as a business in Japan by an enterprise for consideration, are subject to consumption tax, which works like VAT. The rate of consumption tax is currently 8 per cent and is scheduled to be raised to 10 per cent in October 2019. Since the royalty fees paid by franchisees are deemed taxable for consumption tax, a franchisor must collect from franchisees and pay the consumption tax to the tax office.

ii Franchisee tax liabilities

Local franchisees are also subject to corporate income taxation.

Withholding income tax is assessed against payments of certain taxable income made in Japan. Whether certain payment is subject to withholding income tax is determined in accordance with the type of income and the classification of the recipient of that payment. As long as the recipient is a domestic corporation, payments of only interest and dividends are subject to withholding tax at source. On the other hand, if the payment is made to foreign corporations, tax should be withheld.

iii Tax-efficient structures

There is no single, optimal structure from a tax perspective. There are merits and demerits in choosing business structure options. For example, if establishing a corporation, the transfer of profits to the foreign parent company is subject to withholding tax, while withholding tax is not applicable to the transfer of profits by a Japanese branch to the main company.


i Good faith and guarantees

Where equitable principles or public policy under the Civil Code are violated, the exercise of rights will be restricted, or there is a possibility that a part of a contract will be determined as invalid. The question of whether there is a violation of equitable principles or public policy in a franchise agreement may, therefore, be at issue. Since there is no explicit standard as to what constitutes a violation of equitable principles or public policy, determinations must be made while referring to the accumulation of past court precedents.

For example, with respect to penalties determined on the basis of a franchise agreement, if the penalty amount is too high, special attention is required as there may be a risk of a violation of public policy and of the agreement being deemed invalid.

While there have been court precedents recognising penalties of 60 months’ worth of royalties7 and precedents recognising a penalty of three times the admission fee,8 in general, most examples are of penalties being limited to approximately 30 months’ worth of royalties.9

Furthermore, in many instances where a penalty is deemed invalid, only a part of the penalty will become invalid, rather than all of it; and even from the perspective of the Anti-Monopoly Act, there are issues that make it appropriate to limit penalties to approximately 30 months’ worth of royalties.

ii Agency distributor model

While in practice it may seem unlikely that a franchisee would be deemed to be an agent or distributor, since the theoretical possibility cannot be eliminated it should be set forth in the franchise agreement that the franchisee will not correspond to an agent or distributor.

iii Possibility that the franchisor will bear responsibility for the franchisee

In addition, as long as the franchisor and franchisee are individual entities, the principle is that the franchisor will not be liable to third parties for the acts of the franchisee. However, under the franchise system, the renown and reputation of the franchisor become important determinants for customers when choosing to purchase products. Therefore, if a third party that transacts with the franchisee incurs damage because of the acts of the franchisee, from the perspective of the third party, not only the franchisee, but also the franchisor should be thought to bear certain liability.

In particular, in many instances, franchisees are individuals or companies lacking financial resources and third parties incurring damage may take into consideration the recoverability of damages and think to pursue liability against the franchisor that does have financial resources. In this context, issues resulting from the acts of franchisees come to be disputed between franchisors and third parties, and while the numbers are low, court precedents have affirmed the basis of liability of lending trade name, joint tort or respondeat superior. Therefore, it would be prudent to determine from precedents, etc. any potential areas of difficulty and take corresponding preventative measures, such as substantiating the provisions of manuals, etc., for the franchisor to avoid being sued for defective guidance to franchisees.

iv Employment law
Nature of ‘workers’ under the Labour Standards Act

Under the Labour Standards Act, a ‘worker’ is defined as ‘one who is employed at an enterprise or office and receives wages therefrom, without regard to the kind of occupation’.10 Notwithstanding the form of the agreement, if a person corresponds substantially to a worker, that person will receive protection under the Labour Standards Act; the following factors have been raised as a standard by which to determine this nature of workers.11

Core standard of determination

Factors for determining whether it is labour under direction and supervision

Whether there is freedom to accept or refuse requests to work, instructions for work to be engaged in, etc.

Whether there is direction and supervision in the execution of services

Whether there are restrictions of workplace and work times

Whether it is permitted to let another person perform the services on behalf of the person

Nature of consideration for remuneration of labour

Whether the method of calculation of remuneration has a nature of being consideration for labour provided (for example, hourly pay basis, payment of overtime pay would be in the direction of recognising the nature of workers)

Factors reinforcing the determination of the nature of workers

Whether there is the nature of enterprises

Whether the worker him or herself is bearing the expenses, such as for the equipment and facilities

Whether there is exclusivity

Whether it is permitted to engage in other work at the same time

Awareness of the user side

Whether withholding is made at the source as earned income or labour insurance is enrolled in

In a franchise agreement, a franchisee is an independent enterprise and it should be deemed that there is (1) freedom to accept or refuse requests to work, instruction for work to be in engaged in, etc. In addition, it is reasonable to consider that there is no (2) direction and supervision in the execution of services. Although there is guidance, training and provision of know-how by the franchisor, these are the performance of obligations by the franchisor in conducting a joint business and mutually raising profits, and they can be thought to be fundamentally different in nature from directing and supervising in an employment relationship. With respect to (3) restrictions on workplace and work times, there may be times when workplaces will actually be restricted, for shops, etc., and these are obviously necessary for executing business and are different in nature from restrictions on the workplace in employment relationships. Even though there are cases where working time is actually restricted (for example, in the form of shop business hours), the working time of individual workers is not being restricted. All these factors, including those that reinforce a determination of the nature of workers, tend towards denying that a franchisee in a franchisee agreement has the nature of a worker. Accordingly, a franchisee in a franchisee agreement is considered not to correspond to the definition of a worker under the Labour Standards Act.

‘Workers’ under the Labour Union Act

Under the Labour Union Act, ‘workers’ means ‘those persons who live on their wages, salaries, or other equivalent income, regardless of the kind of occupation’.12

Since the purpose of the Labour Union Act is to promote and protect the composition of labour unions that have been guaranteed the right to collective bargaining, the determination of the nature of ‘workers’ under the Labour Union Act is different from that under the Labour Standards Act; and this nature is decided from the perspective of whether or not workers are subject to be granted protection by collective bargaining. Determinations are made by comprehensively taking into consideration the standard as follows:13

Fundamental standard of determination

Incorporation into business organisations

Unilateral and regular decisions on contract contents

Nature of consideration for remuneration of labour

Factors reinforcing the determination of the nature of workers

Relations requiring compliance with requests for service

Provision of labour under direction and supervision in a broad sense, with certain temporal restriction on location

Conspicuous nature of businesses

In a case concerning this point, the Okayama Labour Committee issued an order on 13 March 2014, to Seven-Eleven Japan, which was going to develop a convenience store, to comply with collective bargaining with the labour union. Since this order was the first order of the Labour Committee to recognise franchisees in franchise agreements as having the nature of workers under the Labour Union Act, it has attracted considerable attention (at the time of writing, this matter is being deliberated in the higher Central Labour Committee).

This order raised the aforementioned six factors as determining the nature of workers under the Labour Union Act, and each is being applied in the direction of recognising the nature of workers on the franchisee side. Thereafter, on 16 April 2015, in a similar type of case in which FamilyMart was a party, the Tokyo Labour Committee found against FamilyMart in respect of unfair labour acts, with a framework similar to that in the aforementioned order of the Okayama Labour Committee, and issued an order to comply with collective bargaining.

In these determinations, it seems that the fact of franchisees being independent enterprises was not given so much weight and, following strong criticism from franchisors, the results of the decisions of the Central Labour Committee are awaited with interest.

When executing agreements, therefore, it will be important to construct and operate transactional relationships, paying sufficient attention to the nature of workers.

v Consumer protection

The Consumer Contract Act will be applied to contracts other than labour agreements and with consumers other than business operators. Since a franchisee is an individual business operator and does not correspond to a consumer, the Consumer Contract Act is not likely to be applicable.

vi Competition law

The franchisor–franchisee relationship is one of the major targets of the Anti-Monopoly Act. The Franchise Guideline issued by the JFTC identifies actions by franchisors against franchisees that raise issues from an anti-monopoly perspective.

According to the Franchise Guideline, practices that may be considered anticompetitive include:

  • a enticing a candidate franchisee into the franchise business by creating a false impression that the franchise business is more advantageous than it really is, by failure to disclose important facts, or by false or exaggerated explanation;
  • b demanding franchisees trade only with the designated supplier, and prohibiting franchisees from trading with other suppliers who can provide better conditions than the designated supplier without good cause;
  • c requiring franchisees to purchase a certain volume of goods and rejecting the return of excess goods;
  • d where royalties are calculated based on the gross profit on sales including the cost of loss, prohibiting franchisees from discounting prices to avoid disposal without good cause; and
  • e where the suggestion of the retail price is lawful, imposing restrictions on the retail price of goods.
vii Legal principle of continuous contracts

With respect to continuous contracts such as franchise agreements, from the perspective that the expectation of the party (mainly the franchisee in franchise agreements) to continue the contract should be protected, the cancellation of the agreement is generally restricted.

On the other hand, by focusing on the principle of the freedom of contract, opinions recognising the freedom to cancel continuing contracts have been asserted. For example, in a case regarding the exercise of a right to terminate an agreement in a special store agreement for cosmetics, the Tokyo High Court held that an ‘unavoidable reason’ was not required in exercising the right to terminate an agreement.14 In addition, regarding rejections of renewal of franchise agreements, there have been cases in which it was held that the franchise agreement would end with the expiration of the term of the agreement unless there were special circumstances such as the rejection of renewal violating public policy or the principle of good faith.15 Moreover, with respect to franchise agreements in particular, there are many court precedents that restrict the cancellation of contracts.

viii Applicable anti-corruption laws and regulations

First, bribing public servants in Japan conflicts with the Penal Code, and imprisonment of three years or less or a fine of ¥2.5 million will be imposed.16 In addition, bribing foreign public officials conflicts with the Unfair Competition Prevention Act, and imprisonment of five years or less or a fine of ¥5 million will be imposed, and it should be noted that if the company fails to give necessary warnings, a fine of ¥300 million or less will be imposed thereon.17


The House of Representatives passed an amendment to the Civil Code on 4 April 2017 and the House of Councillors subsequently passed it on 26 May 2017; it was then promulgated on 2 June 2017. Moreover, the Act on the Arrangement of Relevant Acts Incidental to Enforcement of a Part of the Civil Code, in which the law concerning the obligations changed to a large extent, was also promulgated on the same day. The new Civil Code will become basically effective from 1 April 2020.

In light of the introduction of the Civil Code amendment on franchising, franchisors will have to consider modifying their franchise contracts and related documentation.

An employee of convenience-store giant FamilyMart died during work and the bereaved family sought damages from the franchisee and franchisor on the basis of tort and joint tort, because the employee died as a result of an accident that occurred during overtime work. On 22 December 2016, the Osaka District Court reached a settlement requiring the franchisor, along with the franchisee, to pay ¥43 million.18

It is extremely unusual for a franchisor to be found liable for a settlement payout in relation to matters concerning a franchisee’s employees who do not have a direct employment relationship with the franchisor. The Court opinion was not made publicly available because the case was settled privately, but this seems to be the first case in which the issue of joint employment liability has arisen in Japan.


1 Yoshihiko Fuchibe is a partner and Kentaro Tanaka is an associate at TMI Associates.

2 Website of the Japan Franchise Association.

3 Ibid.

4 Further, strictly speaking, under the Foreign Exchange and Foreign Trade Act, there is a restriction that a prior or subsequent notice must be made if a technology introduction contract relating to aeroplanes, weapons, explosives, nuclear energy or space development will be made with technology that is likely to impair Japan’s national security, disturb the maintenance of public order or hinder the protection of public safety; however, we believe this will not become an issue since, fundamentally, one cannot consider engaging in those types of business through franchises.

5 ‘Listed company, etc.’ means a company that issues shares listed on a stock exchange and shares that have been registered or designated as those for which the selling prices are announced for over-the-counter sale.

6 This includes instances where 10 per cent or more will be acquired when shares acquired are combined with those that the acquirer already owns, and by combining the shares owned by a person in a special relationship with such an acquirer (for example, a corporation that owns 50 per cent or more of the voting rights through such an acquirer and the like).

7 Tokyo District Court, 12 January 1994, Hanrei Times No. 860, p. 198.

8 Tokyo District Court, 27 January 2009, unpublished.

9 Tokyo District Court, 12 January 1994, Hanrei Times No. 860, p. 198; Tokyo High Court, 28 March 1996, Hanrei Jihou No. 1573, p. 29, etc. Further, if the penalties for some franchisees, when compared with those imposed on other franchisees, are found to be set at relatively high amounts, the possibility of these being deemed as violating public policy and becoming invalid increases relatively.

10 Article 9 of the Labour Standards Act.

11 Labour Standards Act Study Group Report, ‘Standard of Determination of the “Worker” of the Labour Standards Act’ (1985).

12 Article 4 of the Labour Union Act.

13 See the Employer and Employee Relations Study Group Report, ‘Standard of Determination of the Nature of Workers under the Labour Union Act’.

14 Tokyo High Court, 31 July 1997, Hanrei Jihou No. 1624, p. 55 [Kao Cosmetics Distribution Case]. Further, in this case, the Supreme Court did not indicate an express determination in this regard.

15 Nagoya District Court, 31 October 1989, Hanrei Jihou No. 1377, p. 90.

16 Article 198 of the Penal Code.

17 Articles 18(1), 22(2)(vii) and 22(1) of the Unfair Competition Prevention Act.

18 Asahi-shinbun Digital news (www.asahi.com/articles/ASJDZ6VN2JDZUBQU003.html).