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Newsletter | August 2015, Issue 2
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LABOR & EMPLOYMENT
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Supreme Court Decides on the Criteria for Distinguishing Worker Dispatch from Subcontracted Worker
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On February 26, 2015, the Supreme Court rendered decisions regarding subcontracted workers. In particular, the Court provided specific factors to consider when determining whether a subcontracting arrangement will be deemed worker dispatch, which can potentially result in an illegal dispatch relationship and create a de facto employment relationship.
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In the Hyundai Motor Company decision, the Supreme Court recognized that the workers of the service provider were de facto employees, holding that the “subcontract” arrangement between the service provider and the recipient was in fact a worker dispatch.
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On the other hand, in the Korea Railroad decision, the Supreme Court did not find a worker dispatch relationship between the KTX train crew and Korea Railroad Corporation. The Court held that the KTX train crew was employees of KTX (i.e., the service provider’s employees) and not of the Korea Railroad Corporation.
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In Korea, there are two general ways a company may employ workers other than its own:
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through workers dispatched from a licensed manpower supply company (hereinafter “Dispatched Workers”); or
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through workers of a service provider company under a subcontracting agreement (hereinafter “Subcontractors”).
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The primary difference between the two lies in who supervises and controls the Dispatched Workers and Subcontractors. The factors previously cited by the lower courts and labor authorities to distinguish worker dispatch from a subcontracting arrangement have been somewhat vague and abstract. These factors include service provider’s degree of independence, service recipient’s authority, service recipient’s degree of supervision and control, and the underlying purpose of the contract.
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Criteria
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However, in the February 26 decisions the Supreme Court provided clarification with more concrete criteria on the level of supervision and control exercised by the service recipient that would constitute worker dispatch versus a subcontracting arrangement.
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For instance, in the Hyundai Motor Company and the Korea Railroad decisions, the Supreme Court ruled that the following factors should be considered when determining whether a subcontracting arrangement between a service provider and recipient should be deemed worker dispatch:
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whether the service recipient exercised substantial supervision and control over the service provider’s workers, including issuing direct or indirect instructions;
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whether the service provider’s workers were in fact integrated into the workforce of the service recipient, and worked directly with the service recipient’s workers;
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whether the service recipient managed the service provider’s workforce, including hiring, training, educating, evaluating and monitoring attendance and/or leaves;
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whether the scope of work performed by the service provider’s workers was consistent with and limited to the specific scope set forth in the subcontracting agreement;
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whether the work performed by the service provider’s workers requires expertise and technical skills, and can be distinguished from the work of the service recipient’s workers; and
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whether the service provider maintains facilities or manpower as an independent legal entity in providing the required services.
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Based on the above, the Supreme Court ruled in the Korea Railroad case that the KTX train crew members were not Dispatched Workers, but Subcontractors, on the following grounds:
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the type of work performed by the employees of Korea Railroad (i.e., the service recipient’s employees) was clearly distinguishable from that of the KTX train crew members (i.e., the service provider’s employees);
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KTX independently managed and operated its customer service function; and
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KTX independently supervised and controlled its employees.
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This Korea Railroad decision is meaningful given the Seoul Central District Court’s 2014 decision in Hyundai Motors, where the court had recognized an illegal dispatch relationship between the Hyundai Motor Company and employees of its subcontracting company.
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As a reference point, failure to satisfy the legal requirements in a worker dispatch relationship will result in a finding of an illegal worker dispatch. In such event, the service recipient will have to hire the relevant worker(s) and pay any difference that arose in comparison to the service recipient’s employees. Furthermore, finding of an illegal worker dispatch may result in criminal liability for the service recipient.
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In light of the foregoing decision by the Supreme Court, to ensure full compliance with the law, it would be prudent for companies that have Subcontractors to carefully review their current practice, and where a practice may give rise to a finding of an illegal worker dispatch, to adjust accordingly.
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