Amid the expansion of scope in recognizing an employee dispatch relationship across all business sectors, a meaningful Supreme Court decision to be discussed below has been rendered regarding the interpretation of a “significant direction/order,” which is a key factor in determining the establishment of an employee dispatch relationship.

In this case, the defendant (an automobile company) entered into a distributorship agreement with an agency, which then hired sales agents (i.e., plaintiffs) and engaged them in marketing and sales activities.  As we understand that it is common for Korean automobile companies to operate the agency system, and since the number of sales agents who belong to such agencies throughout the country is approximately 20,000, acceptance of the plaintiffs’ claim for confirmation of employee status against the defendant in the above case due to a deemed employee dispatch relationship could have had an enormous ripple effect on automobile companies, including the defendant.

On May 26, 2022, the Supreme Court held that the High Court decision, which rejected to acknowledge an employee dispatch relationship between the plaintiffs and the defendant, was reasonable and thus dismissed the plaintiffs’ appeal (Supreme Court Decision 2021Da210102, May 26, 2022)¹.  Kim & Chang represented the defendant automobile company from the first level court (Seoul Central District Court) and obtained the aforementioned High Court and Supreme Court decisions for the company.

Throughout the course of the case, the defendant company prepared work standards and distributed them to the agency, requested the agency to perform promotional activities, informed the agency of matters to be observed, sale conditions, work methods, education plans, etc., while checking the status of their conformance to these standards, and also undertook sales education of the sales agents.  Thus, the primary issue in this case centered on whether such practices could be deemed to constitute a “significant direction/order” by the defendant company, a key factor in determining whether an employee dispatch relationship exists.

Emphasizing that the distributorship agreement constituted a commercial agency agreement, a typical agreement under the Commercial Act, our firm argued that the above defendant’s practices were necessary to achieve the primary purpose of the commercial agency agreement, and/or for compliance with the regulations of relevant public laws (the Consumer Protection Act, the Personal Information Protection Act, etc.), and therefore, they should not be taken into consideration to determine if there was an employee dispatch relationship.

Likewise, our firm stipulated that both Supreme Court decisions stood for the proposition that the defendant company’s practices were only part of its “direction as the consignor to the consignee under the distributorship agreement,” and thus should not be deemed as evidence of a direction/order on the sales agents. That is, a consignor’s direction to a consignee and a consignor’s direction to a consignee’s employees should be distinguished from each other, and even if the former indirectly affects the consignee’s employees, considering the content and purpose of the relevant agreement executed between the consignor and the consignee, there is no reason to hastily presume or conclude that the consignor directed/ordered the consignee’s employees.

Further, as mentioned above, both Supreme Court decisions deemed that the lower court decision (High Court), which denied the existence of an employee dispatch relationship, was reasonable, comprehensively considering that, although some of the defendant’s sales employees conducted similar duties to the agency’s sales agents, the two groups were in a competitive relationship regarding sales, and the agency owner had human or material resources as necessary to achieve the primary purpose under the distributorship agreement as he purchased supplies for the agency and paid the office rent, etc. at his own cost.

In light of the foregoing, the impact of both Supreme Court decisions is very significant in that they “put the brakes” on the recent trend of broadly recognizing an employee dispatch relationship and presented an important standard to interpret the existence of a “significant direction/order.”