Explaining the Points to Note in SES Contracts: What are the Keys to Preventing Trouble?

Engineers are in high demand due to their specialized skills, making it challenging to secure such talent.

Therefore, the conclusion of SES contracts is gaining attention as a solution to the chronic shortage of engineers.

However, while SES contracts have the advantage of potentially resolving the shortage of engineers, there is a downside. If the contract details are not carefully considered, it could result in illegal worker dispatch.

Furthermore, there are points to be aware of in SES contracts to prevent disputes between vendors and clients. It is necessary to carefully review the contract content before concluding the agreement.

In this article, we will explain the key points to check in SES contracts, using specific clauses as references, targeting vendors and clients who will be parties to the SES contract.

https://monolith.law/corporate/ses-contract-legal-notes[ja]

What is an SES Contract?

An SES contract, an acronym for System Engineering Service contract, is an agreement where a vendor arranges for an engineer to provide services at the client’s office or other workplaces. This contract is concluded between the vendor and the client.

What is the Legal Nature of SES Contracts?

The legal nature of SES contracts is determined by the content of the contract. Since the engineer provides services and is paid for these services, it is generally considered to be a quasi-mandate contract in Japanese law.

Key Clauses to Consider in SES Contracts

In the following, we will specifically highlight the clauses that should be carefully considered in SES contracts and explain the points to be aware of.

Clause on the Scope of Work

In an SES contract, if the scope of work is not clearly defined, there is a potential for disputes between the vendor and the client regarding the contract details.

Therefore, it is conceivable to stipulate the scope of work as follows:

Article ● (Scope of Work)
The Client (hereinafter referred to as “Party A”) entrusts the following tasks (hereinafter referred to as “the Work”) to the Contractor (hereinafter referred to as “Party B”), and Party B accepts this entrustment.
(1) Software development tasks
(2) Other tasks and matters specifically entrusted by Party A

Clause on Contract Fee

Monetary clauses can often lead to disputes between parties.

Therefore, it is necessary to clearly define the clause regarding the contract fee.

There are various ways to determine the contract fee for SES contracts, for example, the following provision can be considered.

Article ● (Contract Fee)
1. The contract fee that Party A pays to Party B based on this contract is set at ● yen (excluding consumption tax) as the standard monthly amount.
2. The standard hours in this contract are set with a minimum of 140 hours and a maximum of 180 hours.
3. If the actual working hours of the current month fall below the standard hours, ● yen (excluding consumption tax) per hour will be deducted, and if they exceed the standard hours, ● yen (excluding consumption tax) per hour will be added.

Provisions Regarding the Execution of Duties

In the case of a SES contract, the engineer will be performing duties at the client’s office or other workplaces. Therefore, it is necessary to clearly define how the duties will be performed.

Furthermore, the execution of duties is an important factor in determining whether or not it constitutes illegal worker dispatching. Therefore, care must be taken to ensure that the SES contract is legal.

For example, the following clauses can be considered.

Article ● (Execution of the Duties in Question)
1. The Party B shall send the engineers employed by them (hereinafter referred to as “Party B’s engineers”) to the office of Party A located in ●●, ●● Ward, Tokyo (hereinafter referred to as “Party A’s office”) to engage in the duties in question.
2. Party A and Party B have confirmed the following items:
(1) The procedure for executing the duties in question shall be directed by Party B, and Party B’s engineers shall perform the duties in question in accordance with such direction.
(2) The date and time for performing the duties in question can be designated by Party B.
(3) Other matters related to the duties in question shall be amicably resolved through discussions between Party A and Party B.
3. In relation to the execution of the duties in question, Party A shall not directly command Party B’s engineers.
4. The management of the working hours of Party B’s engineers shall be conducted by Party B receiving direct reports from the said engineers.

Clause on Expense Burden

The content of the clause on the burden of expenses is also an important factor in determining whether or not there is illegal worker dispatching.

Specifically, if the expenses are borne by the consignor, it tends to be judged as a legal SES contract, and if the expenses are borne by the consignee, it tends to be judged as illegal worker dispatching.

Therefore, it is necessary to clearly state that the consignor will bear the expenses.

For example, a clause like the following could be considered.

Article ● (Burden of Expenses)
The expenses required for the business processing based on this contract shall be borne by Party A.

Clause on Copyright Ownership

In SES contracts, copyrights may arise from the work performed by the engineer.

If a clause on copyright ownership is not stipulated, there is a possibility of disputes arising between the parties regarding the ownership of the copyright.

Therefore, it is necessary to stipulate a clause on copyright ownership.

Specifically, it is considered to stipulate the following clause.

Article ● (Copyright of Deliverables)
1. The copyright of the deliverables (including the rights under Articles 27 and 28 of the Japanese Copyright Law) shall, excluding the copyright of the works that the Party B or a third party has previously owned, be transferred from Party B to Party A upon completion of delivery. The consideration for such transfer of copyright from Party B to Party A is included in the contract fee. In addition, Party B shall not exercise or cause those affiliated with Party B to exercise the author’s moral rights against Party A.
2. Party B shall, with respect to the works for which the copyright has been reserved to Party B by the preceding paragraph, grant Party A and those designated by Party A the right to use such works to the extent necessary for Party A to use the deliverables, and Party B shall not exercise or cause those affiliated with Party B to exercise the author’s moral rights against Party A.

https://monolith.law/corporate/it-software-copyright[ja]

Clause on Confidentiality

It is conceivable that the vendor may obtain information about the client through the engineer.

Therefore, it is common for a clause on confidentiality to be stipulated in the SES contract.

For example, a clause like the following could be considered.

Article ● (Confidentiality)
Both Party A and Party B shall keep confidential any business and technical information disclosed by the other party in the course of performing this contract, and shall not disclose or leak it to third parties, not only during the term of this contract but also after its termination. However, this does not apply to the following information:
⑴ Information that was already publicly known at the time of disclosure.
⑵ Information that became publicly known after disclosure, without any fault on the part of the recipient.
⑶ Information legally obtained from a third party with legitimate authority.
⑷ Information independently developed by the recipient without using the confidential information.
⑸ Information that was compelled to be disclosed under the law.

Termination Clause

If there is no clause regarding termination, there may be disagreements between the parties about whether they can terminate the SES contract, which could potentially lead to trouble.

Therefore, it is common for a termination clause to be stipulated in an SES contract.

Specifically, the following clauses can be considered:

Article ● (Immediate Termination and Loss of Benefit of Term)
1. If either Party A or Party B falls under any of the following items, the other party may immediately terminate this contract without any notice or obligation to provide its own debt. In this case, the party exercising the right of termination shall not be prevented from claiming damages.
(1) If a violation of this contract is not corrected despite a notice given with a reasonable period.
(2) If a petition for commencement of bankruptcy proceedings, civil rehabilitation proceedings, corporate reorganization proceedings, or special liquidation proceedings has been filed.
(3) If a state of suspension of payment or insolvency has occurred.
(4) If a dishonored bill or check that was issued or accepted by oneself has been received even once.
(5) If a business suspension or cancellation of business license or business registration has been received from the supervisory authority.
(6) If a resolution for capital reduction, discontinuation or change of business, or dissolution has been made.
(7) If a provisional seizure, provisional disposition, compulsory execution or auction as an execution of a security right has been filed, or if a delinquency disposition for public dues has been received.
(8) If there has been a significant decrease in creditworthiness, or if there has been a significant change in business that affects it.
(9) If any other circumstances equivalent to the above items have occurred.
2. If either Party A or Party B falls under any of the items in the preceding paragraph, regardless of whether this contract has been terminated, they shall naturally lose the benefit of the term for all monetary debts owed to the other party and must immediately repay the debt in full to the other party.

Summary

We have discussed the key points to check in SES contracts.

As a vendor in an SES contract, it is necessary to consider not only the relationship with the client but also the relationship with the engineer when reviewing the contract.

As a client, you need to be careful not to get involved in illegal labor dispatch by the vendor.

Knowledge of labor law and IT is required for SES contracts, so we recommend consulting with a lawyer who has specialized knowledge.

Introduction to Our Firm’s Measures

Monolith Law Office is a legal office with high expertise in both IT, particularly the internet, and law.

When entering into an SES contract, it is necessary to create a contract document.

At our firm, we create and review contract documents for various cases, ranging from companies listed on the Tokyo Stock Exchange Prime Market to venture companies.

If you have any trouble with contract documents, please refer to the article below.