■ Introduction

In July 2026, the substantial manager of an urban-style hire car company “Phoenix International” and others were arrested on suspicion of violating the Road Transport Act. This case exemplifies how neglecting legal compliance amid significant business opportunities created by inbound tourism demand can result in severe legal consequences.

This article provides detailed analysis of legal points and practical considerations for business owners employing foreign nationals, HR personnel, and foreign residents in Japan and their families, drawing lessons from this case.

■ Case Overview: What Happened

On July 19, 2025, the Metropolitan Police Department arrested four Chinese nationals, including the substantial manager (age 41) of an urban-style hire car company, on suspicion of violating the Road Transport Act (lending business names and operating without permission).

【Case Structure】
・Period: November 2024 – May 2026
・Method: Converting private vehicles of approximately a dozen Chinese drivers with whom there was no employment relationship to business-use green number plates registered under the company’s name
・Amount: Received approximately 38 million yen in total as name-use fees
・Business Method: Acquired customers through Chinese-language ride-hailing apps and the Chinese SNS “WeChat”
・Fee Structure: Collected 20% of revenue as name-use fees

【Legal Violations】

  1. Lending business names (Road Transport Act violation)
  2. Operating without permission (Road Transport Act violation)
  3. Failure to conduct pre-operation inspections (safety management duty violation)
  4. Failure to check drivers’ alcohol consumption and health conditions

■ What is the Urban-Style Hire Car System?

The urban-style hire car system, established in 2014, was created to respond to the increase in foreign tourists and business visitors to Japan.

【Differences from Existing Taxis and Hire Cars】
✓ Complete reservation system (no street hailing permitted)
✓ Continuous operation of 2 hours or more required
✓ Relatively loose entry regulations

Due to this deregulation, the number of urban-style hire car operators has surged rapidly. In FY2024, there were 610 companies, approximately double the number from five years earlier.

However, this low entry barrier has allowed operators with weak legal compliance awareness to enter the market, creating a breeding ground for illegal activities such as this case.

■ Why This Business Model Emerged

【Benefits for Operators】
・Generate name-use fee income without actually performing driving duties
・Reduced burden of vehicle purchase and maintenance costs
・Transfer risks to drivers

【Benefits (and Misconceptions) for Drivers】
・Appears legitimate because operating with green number plates
・Can use their own private vehicles
・Efficient customer acquisition through ride-hailing apps

As an investigative official described it as a “win-win relationship,” the structure had short-term benefits for both parties, making awareness of illegality easily diminished.

■ Legal Risks in Foreign Employment

This case highlights important legal risks common not only to the transportation industry but to foreign employment in general.

【1. Obligation to Verify Residence Status】
When employing foreign nationals, employers must verify their residence status. Some residence statuses permit employment while others do not, and even permitted statuses have restrictions on work content.

Although the drivers’ residence statuses were not reported in this case, if they held statuses that did not permit employment, the crime of facilitating illegal employment (Immigration Control Act Article 73-2) could also apply.

【2. Appropriateness of Employment Contracts】
Lending business-use number plates when there is no employment relationship violates not only the Road Transport Act but also presents labor law issues.

If there is a substantial command-and-control relationship, even if formally designated as “independent contractors,” worker status may be recognized. In such cases, the following legal responsibilities arise:
・Minimum Wage Act violations
・Labor Standards Act violations (failure to specify working conditions, etc.)
・Social insurance non-enrollment issues

【3. Industry-Specific Regulations】
The transportation industry has strict regulations under the Road Transport Act:
・Duty to appoint operation managers
・Duty to manage driver health
・Duty to conduct pre-operation inspections
・Duty to create driver ledgers

Failure to comply with these can result in business license revocation or penalties.

■ Measures Companies Should Take

【1. Establish Appropriate Residence Status Verification Processes】
・Verify original residence card at time of hiring
・Confirm residence status permits employment
・Establish system to manage residence period
・Regularly confirm residence status renewal

【2. Proper Creation of Employment Contracts】
・Create in both Japanese and native language
・Specify working conditions (wages, working hours, holidays, etc.)
・Specifically describe job duties
・Confirm duties are within the scope permitted by residence status

【3. Industry-Specific Legal Compliance Systems】
・Transportation: appropriate placement of operation managers
・Construction: establishment of safety management systems
・Food service: compliance with Food Sanitation Act

【4. Utilize Specialists】
・Administrative scriveners (visa and residence status)
・Social insurance and labor consultants (labor management)
・Attorneys (overall legal risks)

Coordinating with multiple specialists enables multifaceted risk management.

■ Points Foreign Residents Should Note

【1. Verify Employment Contract】
・Always receive employment contract in writing
・Consult specialists about clauses you don’t understand
・Don’t begin work based only on verbal promises

【2. Confirm Consistency with Residence Status】
・Understand work content permitted by your residence status
・Consult immigration bureau or specialists if unclear
・Illegal employment can cause residence status cancellation or deportation

【3. Verify Specification of Working Conditions】
・Wage amount, payment method, payment timing
・Working hours, break times, holidays
・Social insurance enrollment status

【4. Beware of Suspicious Employment Forms】
・Forced to register as “independent contractor”
・Using company equipment and name but told there’s no employment relationship
・Demands for extremely high fees or name-use charges

In such cases, there may be illegal employment arrangements.

■ Future Outlook and Challenges

Professor Hirokazu Kato of Nagoya University (public transportation policy) points out the need for the following measures:

【1. Strengthening the System】
・Stricter requirements for urban-style hire car business licenses
・Enhanced screening when increasing business vehicle numbers

【2. Strengthening Supervision】
・Increase personnel at transport bureaus and branch offices
・Increase inspection frequency
・Strict penalties for violating operators

【3. Industry Self-Regulation】
・Industry associations develop voluntary guidelines
・Implement compliance training

■ Balancing Inbound Demand and Legal Compliance

The number of foreign tourists to Japan is recovering, on track to exceed previous records in 2024. To properly capitalize on this significant business opportunity, legal compliance is absolutely essential.

【Three Principles of Sustainable Business】

  1. Legal Compliance
  2. Appropriate Labor Management
  3. Thorough Safety Management

Pursuing short-term profits while disregarding laws will lead to serious consequences such as business suspension, arrest, and loss of social credibility, as seen in this case.

■ Conclusion

This urban-style hire car white taxi crackdown case has once again demonstrated the importance of legal compliance amid the trend of expanding inbound demand.

【To Business Owners and HR Personnel】
Utilizing foreign talent is an important option for resolving labor shortages and expanding business. However, sustainable business development is impossible without proper procedures and legal compliance. If you have any uncertainties, we recommend consulting specialists early.

【To Foreign Residents】
Working under a lawful employment relationship is essential to protect your residence status and stabilize your life in Japan. If you have any concerns, please feel free to consult specialists.

Appropriate foreign employment that complies with laws contributes to the development of Japanese society as a whole and the realization of a multicultural society.

Reference Article: https://news.yahoo.co.jp/articles/a504dcdf7aaac2fa968b7066a22c25a24b14c585

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