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Korean Supreme Court Issues Decision Denying a Worker Dispatch Relationship Between Tier 2 Vendors and a Manufacturing Company

2022.11.03

The Supreme Court of Korea issued a decision on October 27, 2022 concerning in-company subcontracting at Hyundai Motor Company (“HMC”).  The court found that there was no illegal worker dispatch involving certain subcontracted workers of “Tier 2” vendors (i.e., vendors who did not enter into contracts with HMC) who performed logistics tasks for HMC.

Background
 

In this case, certain subcontracted workers of Tier 2 vendors filed claims against HMC, alleging that the company had engaged in illegal worker dispatch (i.e., exercised supervision and control) and that subcontracted workers should be considered regular employees of HMC.  The High Court agreed with this claim, finding the subcontracted workers to be regular employees of HMC.

However, the Supreme Court reversed the High Court’s decision, finding the relationship between HMC and the employees of certain Tier 2 vendors (who had entered into subcontracting agreements with HMC’s parts suppliers or other Tier 1 vendors providing integrated logistics services to HMC) who performed parts sorting and line feeding tasks, constituted lawful subcontracting as opposed to regular employment arrangements.
 

Key Takeaways
 

It is worth noting that this decision still affirmed the High Court’s ruling that there was illegal worker dispatch with respect to the subcontracted workers of Tier 1 vendors engaged in indirect processes as well as to subcontracted workers of Tier 2 vendors who had not engaged in parts sorting and line feeding.  In this regard, it is difficult to definitely infer that the Supreme Court completely reversed the High Court’s decision, which found there was illegal worker dispatch between HMC and its Tier 2 vendors.

However, this decision may be regarded as highly significant in the following respects:
 

  • The Supreme Court recognized that parts logistics in the automobile industry - by virtue of its varied assortment of activities, including transportation, storage and unloading, which create value added - constitutes a type of logistics activity that stands separate as a line of business activity from other tasks performed in the automobile industry.

  • HMC’s provision of information pertaining to parts sorting does not constitute an exercise of supervision and control by the service recipient company but can rather be interpreted as a provision of information needed to perform the subcontracted tasks.
     

Following the 2015 Supreme Court decision, which enumerated the five-factor test for distinguishing illegal worker dispatch from legitimate subcontracting arrangements, this October 27, 2022 decision represents the first major decision rendered by the Supreme Court in approximately eight years.

Moreover, this decision reversed the High Court’s decision and concluded that the use of subcontracted workers for transportation and logistics tasks – for which in-company subcontracting is widely used in Korea – does not constitute illegal worker dispatch but legitimate subcontracting.  We anticipate that this decision will have a significant impact on the future direction of illegal worker dispatch cases pending before Korean courts.

Our litigation experts in the Labor & Employment Practice were instrumental in obtaining a positive outcome in this key decision while acting as counsel for HMC and being in charge of developing the litigation strategy for this challenging case.  We enabled our client to mount an effective stance before the Supreme Court by drawing on an in-depth analysis of applicable facts and laws concerning subcontracting arrangements, and presenting with persuasive arguments showing that work-related instructions given by the service recipient company to the subcontracted workers can have different legal implications depending on the actual substance of the subcontracted work and the related work processes, and that parts logistics in the automobile industry is an independent line of business that requires expertise and should be distinguished from other types of tasks.

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