The National Labor Relations Commission (“NLRC”) recently ruled that “department stores in this case are not required to engage in collective bargaining with the trade union (composed of sales employees from the tenant stores), as such department stores are not considered employers under the Trade Union and Labor Relations Adjustment Act (“TULRAA,” commonly known as the Yellow Envelope Act)” (NLRC Decision 2024Buno36, May 14, 2024).

In terms of background, the Union of Korean Department Stores and Duty-Free Shops Sales Service Workers (the “Union”) demanded collective bargaining negotiations with six companies that operate large department stores in Korea (the “Department Stores”). The Union argued that the Department Stores are employers under Article 81 (1) 3 of TULRAA. When the Department Stores refused to respond to the Union’s demand, the Union filed an unfair labor practice petition with the Seoul Labor Relations Commission (“SLRC”).

The Union’s main argument was that, according to the “substantive dominance theory,” the Department Stores have substantial and specific control and decision-making power over the working conditions of the sales employees from the tenant stores. However, the SLRC dismissed the petition based on the following reasons (SLRC Decision 2023Buno73-78, January 22, 2024):
 

In response to the SLRC Decision, the Union objected and filed an appeal to the NLRC. However, on May 14, 2024, the NLRC also dismissed the appeal and upheld the SLRC Decision.

The above SRLC and NLRC decisions are significant, as this is the only case where the employer status of a principal company was denied to a third party (a subcontracting union) that did not have an employment relationship, and the principal company was not required to bargain collectively with the subcontracting union despite the Union raising the substantive dominance theory. This case has broader implications as many cases seek to recognize the “employer” status of principal companies based on the substantive dominance theory, regardless of the specific industry. Recent examples include those involving a courier company, a steel company, a logistics company and a shipbuilding company.

Notably, the decisions emphasized that the scope of employers under the TULRAA cannot be expanded indefinitely even under the substantive dominance theory, and clarified that there are requirements and limitations for recognizing the employer status of principal companies. While the final decision by the court in this case is still pending, it is expected that the decisions will serve as significant precedents for similar issues in the future.

In other words, even if the Supreme Court renders decisions in pending cases related to the substantive dominance theory or if an amendment to the TULRAA is passed, the scope of employers under the TULRAA will be determined on a case-by-case basis, considering the specific facts of each individual case.

Kim & Chang represented the Department Stores in this case at the SLRC and NLRC stages and will continue to monitor and provide updates on the progress of disputes regarding the employer status of principal companies under the TULRAA.

[Korean Version]