The Supreme Court Ruled That a Hairstylist on a 100% Commission Contract with No Base Salary is an “Employee” under the Labor Standards Act (“LSA”)

On February 20, 2025, the Supreme Court held that a hairstylist who worked under a service commission contract with the beauty salon owner was deemed an employee under the LSA. The Supreme Court also upheld the lower court’s decision that found the owner to be in violation of the LSA and the Employee Retirement Benefit Security Act due to its failure to provide the hairstylist with statutory severance pay and thus imposed a criminal fine on the owner (Supreme Court Decision 2023Do18735, February 20, 2025).

In this case, the hairstylist was compensated under a 100% commission-based system without a base salary or fixed salary. However, taking into account various factors (e.g., set working hours, regular meetings for inquiries, obligation to perform cleaning tasks, imposition of late attendance penalties, etc.), it was difficult to assume that the hairstylist had substantial discretion over her work. Accordingly, the hairstylist was recognized as an employee under the LSA on the grounds that she was found to be subject to a subordinate labor relationship with the employer.

Implications of Court Trends on Employee Status under the LSA

As demonstrated by this Supreme Court decision, courts have recently relaxed the criteria for determining employee status under the LSA. The Court’s ruling in this case was significant as it reaffirmed the trend taken by the courts towards broadly recognizing employee status under the LSA not only for delegated debt collectors and freelance announcers but also for online platform workers, such as drivers for ride-hailing services.

Even if the form of an employment contract is that of a service commission contract, under which compensation is based solely on commissions without a base salary, the individual may still be classified as an employee under the LSA if a subordinate relationship is found where the employer retains a significant degree of supervision and control. This determination depends on various factors, including (i) whether the working hours and place of work are prescribed in practice, and (ii) whether the individual suffers any disadvantage by not complying with the employer’s supervision and control.

In light of the above, it is advisable for businesses to proactively consider strategies for mitigating and resolving potential risks arising from various types of agreements, including delegation and commission-based contracts.

[Korean Version]