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Court Ruling in Favor of Company in Employee Status Confirmation Lawsuit Filed by Car Dealership Sales Employees

2020.02.03

In this case, an auto manufacturer (the “Company”) executed a dealership agreement (the “Agreement”) with a dealer, and the employees of the dealer filed suit seeking a confirmation of their employee status with the Company.  Kim & Chang’s Labor & Employment Practice successfully represented the Company by winning the case at the district court level. 

Case Details

The plaintiffs, who are sales employees of the dealer, claimed that they had a worker-dispatch relationship with the Company.   If the plaintiffs’ claim were accepted by the court, the Company could have faced enormous legal/economic burden such as having to directly employ thousands of employees who are employed by the dealer.  Further, all Korean auto manufacturers, including the Company, are currently using a network of dealerships to sell their vehicles and the number of sales people employed by these dealerships is more than 16,000 throughout the nation.  The entire auto manufacturing industry paid close attention to this case because the outcome of the case would have significantly affected the industry as a whole.

After more than three years of trial proceedings, the Seoul Central District Court finally ruled in favor of the Company and dismissed the plaintiffs’ claim in its entirety.  

Where, as in this case, a worker-dispatch relationship is at issue, it is critical to determine whether supervision and control (giving directions and orders) over employees of the service provider by the third party receiving such services exists or not.  The plaintiffs in this case claimed that the Company gave directions and orders through the dealer, which was only a sub-organization of the Company, and the employees were directly or indirectly bound by such directions and orders.  Accordingly, from a legal standpoint, evaluating the status of the dealership and the Company’s various conduct against the dealership were the most important factors for the court to consider.

Our Representation

Kim & Chang focused on the fact that the Agreement constituted a commercial agency agreement.  Kim & Chang emphasized that the Agreement is a typical agreement that is recognized under the Commercial Act, and therefore well established legal framework should not be discarded or undermined.  And the Company’s conduct with the dealership, which the plaintiffs characterized as exercise of supervision and control, (i) constitutes an exercise of reasonable rights based on the characteristics of the agency agreement under the Commercial Act, or in the alternative, (ii) is related to regulations under public law principles (the Consumer Protection act, the Personal Information Protection Act and the like) which naturally accompany auto sales transactions; and thus, the Company’s interactions with the dealership should not be considered as indicators of worker-dispatch relationship.

After an extended court hearing process, the Seoul Central District Court accepted Kim & Chang’s arguments and ruled that (i) the Agreement satisfied the requirements of a commercial agency agreement under the Commercial Act, and that (ii) it is difficult to recognize that there indeed exists a dispatch relationship solely based on the circumstances alleged by the plaintiffs.  

Recently the courts have recognized worker-dispatch relationships across various industries, and this decision by the Seoul District Court is meaningful in that it clarified the scope of recognition of worker-dispatch, and in particular, the case should serve as an important precedent in interpreting what is meant by “supervision and control,” which is one the most important factors in determining worker-dispatch issues. 

Generally, in worker-dispatch cases, employers tend to take a defensive stance and focus mainly on the existence of “supervision and control” (directions and orders) by relying on factual arguments.  However, Kim & Chang took a different approach and instead actively rebutted the plaintiffs’ claim using creative and carefully thought-out legal arguments.  We conducted an in-depth analysis on the substance of the Agreement and on how to evaluate the Company’s interactions with the dealership based on the underlying Agreement—this resulted in our successful representation of the client and ultimately the court ruling in favor of the Company. 

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