The National Labor Relations Commission (the “NLRC”) has 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 (the “TULRAA”)” (NLRC Decision 2024Buno36, May 14, 2024).
In this context, the union representing sales service workers in Korean department stores and duty-free shops (the “Union”) demanded collective bargaining negotiations with six companies operating large department stores in Korea (the “Department Stores”). The Union contended that the Department Stores qualified as employers under Article 81 (1) 3 of the TULRAA. When the Department Stores declined to engage with the Union’s demand, the Union filed an unfair labor practice petition with the Seoul Labor Relations Commission (the “SLRC”).
The Union’s main argument was founded on the “substantive dominance theory,” which posits that the Department Stores maintain substantial control and decision-making authority over the working conditions of the sales employees at the tenant stores. However, the SLRC dismissed the petition based on the following reasons (SLRC Decision 2023Buno73-78, January 22, 2024):
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(1) |
The substantive dominance theory allows for an expansion of the scope of “employers” under the TULRAA when the existence of a subcontractor is determined based on a significant business relationship with the principal company, and such relationship is also de facto subordinate. |
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(2) |
In light of the overall facts in this case, it is difficult to conclude that the tenant stores (subcontractors) are subordinate to the Department Stores. It is also difficult to determine that the Department Stores have substantial and specific control and decision-making authority over the working conditions of the sales employees hired by the tenant stores or bear any responsibilities. |
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(3) |
It is difficult to consider that the Department Stores should be obliged to engage in collective bargaining as dictated by Article 81 (1) 3 of the TULRAA, because the Union’s demands (such as adjusting the business hours of the Department Stores) were not categorized as basic working conditions but were rather deemed to pertain more to business conditions. |
Following the SLRC Decision, the Union objected and filed an appeal to the NLRC. However, on May 14, 2024, the NLRC dismissed the appeal and upheld the decision reaffirming the aforementioned reasoning by the SLRC. Kim & Chang represented the Department Stores in this case at both the SLRC and NLRC.
The decisions from both the SLRC and NLRC are significant in that they represent a unique instance where the employer status of a principal company was denied to a third party (subcontracting union) lacking an employment relationship and the principal company was not required to bargain collectively with the subcontracting union despite the application of the substantive dominance theory. This landmark ruling has broader implications as numerous cases are currently advocating for the recognition of “employer” status of principal companies based on the substantive dominance theory. 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. This clarification sets forth specific requirements and limitations for recognizing the employer status of principal companies. Although the final decision in this case is still pending, it is anticipated that these rulings will serve as important precedents for similar issues in the future.
In essence, even if the Supreme Court renders decisions on pending matters related to the substantive dominance theory or if an amendment to the TULRAA (commonly known as the “Yellow Envelope Act”) is passed, the scope of employers under the TULRAA will likely hinge on the facts of individual cases.
