Is your Korean Employee a Dispatched Worker and Thus a De Facto “Employee” under the Korean Labor Standards Act?

In 2015, the Korean Supreme Court detailed standards in determining if a Subcontracted Worker in Korea is actually a Dispatched Worker and, thus, a de facto employee of your Korean Company.  The designation has implications for retirement benefits, employment security and the payment of benefits.

Dispatched Workers vs. Subcontracted Workers
Companies employ, in Korea, often workers via manpower supply companies and via subcontracting agreements.  These employees are not retained directly by the Company, but are retained via a manpower company (“Dispatched Worker”) or a subcontracting agreement (“Subcontracted Worker”).

The difference in these two type of relationships lies in the control over the workers – not in the mere nature of the retention according to the Korean Courts.  If the Company has a sufficient degree of control over the worker, in the eyes of the specific Korean court, the worker is deemed a Dispatched Worker and, thus, an employee of the Company.  The courts, in Korea, have been all over the place and, prior to a recent ruling by the Supreme Court had, seemingly, no unified test to determine if a worker is a Dispatched Worker or a Subcontracted Worker.

The difference makes a profound impact on a Company, since a Subcontracted Worker is, typically, not deemed to be an “employee” of the Company under Korean Labor Law, while a Dispatched Worker is deemed to be an employee of the Company.  The designation has, often, serious ramifications (e.g. retirement benefits, life-time employment, bonus etc.)

Supreme Court Criteria for Determining is a Worker is a Dispatched Worker
In two major decisions (Hyundai Motors/Korea Railroad), the Supreme Court set out a detailed, yet still vague, set of standards/criteria in determining if a worker is a Dispatched Worker.  The Korean Supreme Court noted that the lower Korean courts should consider the following in determining is a worker is a Dispatched Worker:

  • if the Worker was integrated into the Company alongside other workers.
  • if the Company exercised “substantial supervision” over the Worker via direct and indirect orders.
  • if the work of the Worker was limited in scope via a Subcontracting Agreement.
  • if the Company, in reality, managed the hiring, training, firing and  education of the Worker.
  • if the Outsourcing Company has a separate legal entity, an office and separate staff from the Company.
  • if the work of Worker is distinguishable from the work of the workers directly employed by the Company. For example – the Worker have specialized skills that the workers directly employed by the Company do not have.

Please have your subcontracting agreements reviewed, immediately, by a proactive Korean employment attorney that is aware of the nature of your business and the recent changes in Korea’s Labor & Employment Law.  This issue can have a lasting impact on your company.

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