Japan Issues Recommendation to Knorr-Bremse Japan for Violating Subcontracting Act

The Japan Fair Trade Commission (JFTC), in collaboration with the Small and Medium Enterprise Agency, has issued a formal recommendation to Knorr-Bremse Commercial Vehicle Systems Japan Co., Ltd. (KBSJ) for violations of the Act on Prevention of Delays in Payment of Subcontract Proceeds, etc. to Subcontractors (Subcontracting Act).

The investigation found that KBSJ unlawfully reduced subcontractor fees in breach of Article 4, Paragraph 1, Item 3 of the Subcontracting Act.

Findings of the Investigation

Following an investigation initiated by the Small and Medium Enterprise Agency, the Commissioner of the agency formally requested the JFTC to take action on January 31, 2025, pursuant to Article 6 of the Subcontracting Act. The investigation determined that KBSJ engaged in the following illegal activities:

1. Unlawful Deduction of Subcontractor Fees: Between September 2023 and April 2024, KBSJ deducted amounts labeled as “One Time Bonus” from subcontracting fees without justification, affecting nine subcontractors.
2. Total Reduction Amount: The total unlawful deductions amounted to 67,386,092 yen ( $ 450,523.20)
3. Restitution of Deductions: On February 21, 2025, KBSJ repaid the deducted amounts to the affected subcontractors.

Details of the Recommendation

The JFTC’s recommendation mandates that KBSJ take the following corrective measures:

1. Board of Directors’ Resolution
   • Acknowledge that the reduction of subcontracting fees constitutes a violation of Article 4, Paragraph 1, Item 3 of the Subcontracting Act.
   • Commit to refraining from similar violations in the future.
2. Internal Compliance Measures
   • Implement internal training programs for ordering personnel on compliance with the Subcontracting Act.
   • Establish systems to prevent future breaches of subcontracting regulations.
3. Notification and Communication
   • Inform all officers and employees about the violation and remedial measures taken.
   • Notify subcontractors of the restitution of unlawfully deducted fees and the measures adopted to ensure compliance.
4. Reporting to the JFTC
   • Submit a detailed report to the JFTC on the implementation of the above measures.