The Korean Court System has been less reluctant, in recent years, to deem a Korean independent contractor an “employee” under the Labor Standards Act (LSA). This fact remains true even when an employer establishes that the independent contractor is aware that he/she was contracted as an independent contractor, thus, not a regular employee of the Korean company.
Upon the establishment of the status as “employee” in Korea, the individual is entitled to all of the benefits of an employee including, inter alia, severance and employment security, thus, increasing the compliance, tax, payroll and other risks to the foreign-capital invested Korean company.
The obligations to employees under the LSA are extensive and beyond the scope of this short article. The more significant and obvious are the Korean legal requirement to provide severance benefits and employment security.
This independent contractor LSA risk often arises when a company retains an independent contractor to perform essential functions for the company in Korea. These functions often include delivery, repair, special engineering services and sales services. The risks increase when the independent contractor’s main source of income is from this one company, the independent contractor is “dependent” on the company and the company imposes substantial control over the independent contractor.
We have seen, in recent years that the more elderly of independent contractors, since they are increasingly cash strapped, are more willing to assert that they have a right to severance. We have also seen a few aggressive labor agents (quasi-lawyers with the right to take cases to the Labor Commission) file to the Labor Commission and aggressively promote the law and their services to independent contractors and others through blogs.
Limiting Korean Independent Contractors Risks
Understanding these factors by the Korean Supreme Court in determining if one is an “employee” under the Korean Labor Standards Act and related acts is essential for limiting the risk.
- Does the company have decision power over the content of work of the individual?
- Are company work rules applied to the individual?
- Does the company have considerable control over the work processes of the individual?
- Does the company set the time and date and other specifics of work?
- Does the company own the work assets?
- Can individual use a third party to replace the work of the individual?
- Does individual have business risks associated with work with company?
- Are earning based on work and, thus, not success?
- Does individual near exclusively depend on payment from the company?
- Is the work with the company continuous and, thus, not temporary?
- Is the individual an employee under the Korean Social Security System?
The courts may also consider the relevant social and economic situation between the employer and the employee. As always, deep understanding, creativity, and experienced and proactive employment law guides will get most companies over the unique challenges apparent in doing business in Korea.
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