Recently, the employee status of various job types in service relationships with insurance companies, such as insurance agents (in-person/telemarketing sales), (training/coaching) managers and branch managers, became an issue.
In general, insurance companies have insurance agents, managers who train and coach insurance agents, and branch managers who operate branches, and in many cases, insurance companies enter into service agreements with such individuals instead of employment agreements. Despite entering into service agreements, a number of disputes have arisen recently over whether such individuals are deemed employees under the Labor Standards Act (the “LSA”). In such context, we provide below a summary of relevant court decisions based on the contract type.
1. Insurance Agents
(1) In-Person Insurance Agents
In its 2000 decision, the Supreme Court of Korea denied the employee status of insurance agents who conduct in-person sales activities1, and subsequently, no case precedent that recognizes the employee status of in-person insurance agents can be found. The major grounds for the above Supreme Court decision in denying the employee status of the insurance agents are as follows:
- In-person insurance agents are not obligated to attend morning or evening work meetings and do not have to comply with pre-determined working hours.
- Training programs which are provided by insurance companies are only training and minimal directions which insurance companies provide as a delegator to facilitate the smooth performance of in-person insurance agents’ delegated services.
- In-person insurance agents received commissions based on their sales performance irrespective of the services provided or hours of service.
(2) Telemarketing Insurance Agents
The employee status of telemarketer insurance agents who conduct sales activities over the phone (“TMRs”) has been previously recognized by an appellate court decision. Nonetheless, after the Seoul High Court ruled that such insurance agents were not employees in November 20182, the court’s determination of employee status have differed based on substantiation of relevant facts. Recently, there have been several lower court decisions that denied employee status, and the decisions were based on the following grounds:
- TMRs’ working hours cannot be viewed as being controlled by insurance companies as TMRs worked based on their personal schedules during center operation hours.
- Except areas in which restrictions are required by the Insurance Business Act, insurance companies cannot be viewed as exercising significant supervision or control over TMRs.
- TMRs received commissions based on their sales performance irrespective of the services provided or hours of service.
2. (Training/Coaching) Managers
Most insurance companies have professional training or coaching managers for insurance agents. In a recent case where the employee status of such managers was at issue, the lower court ruled that the managers cannot be deemed as employees under the LSA.3 The court rendered its decision based on the fact that overall, the managers independently determined the method, location, and degree of their services in light of the facts that (i) separate rules of employment or code of conduct do not exist for managers, and only standards concerning the scope of service, selection criteria and commission exist, (ii) in addition to providing training/coaching for insurance agents, managers could also perform sales activities as insurance agents, and (iii) most of the commissions were paid in proportion to the sales performance.
Nonetheless, since significant differences exist among insurance companies regarding the methods or standards for operations of managers, different lower court precedents exist on recognizing employee status for similar job types. Accordingly, in cases where (training or coaching) managers’ employee status is at issue, it appears that the key issue will be whether specific facts can be substantiated.
3. Branch Managers
Insurance companies’ branch managers recruit insurance agents, encourage their performance through training and coaching to successfully operate their branches, and receive commissions in proportion to the performance of the branches. Lower court decisions have been conflicting on the employee status, but recently the courts denied the employee status in several cases.4 The major grounds for denial of employee status are as follows:
- Branch managers do not have pre-determined working hours, and they can work outside the office and are not bound by work hours or locations.
- Various training or meeting programs that were provided by insurance companies to branch managers were to encourage their performance and can be provided under a service agreement relationship.
- Branch managers received commissions in proportion to the performance of the branch operations.
Under the LSA, employee status is determined on a case-by-case basis and in light of the overall circumstances such as the services performed and method of work performance of the individual concerned. As such, despite the above case precedents, courts may render different decisions, and recently there have been conflicting decisions regarding similar job types. Nonetheless, to prevent legal disputes, we advise that you analyze the factors which courts mainly consider in determining employee status and review potential issues in the existing contractual relationships in advance.
2 Seoul High Court Decision 2017Na2071254 rendered on November 13, 2018 (underlying case), 2017Na2071261 (counteraction), the appellate trial is ongoing.
3 Seoul High Court Decision 2009Na58694 rendered on January 29, 2010.
4 Seoul High Court Decision 2019Na2004029 rendered on May 22, 2020 and several others.