From a purely employer’s perspective, foreign companies operating in Korea are often frustrated (or at times, even amazed) at some of the protections provided to employees under the Korean employment laws. A few of the most difficult legal requirements include the strict just-cause requirement for termination, the durational limits on the use of fixed-term (contract) employees, the statutory severance obligation, and the statutory allowances for overtime, night-time, and holiday works. In light of such requirements and to minimize the burden of potential employer liabilities, many foreign companies may naturally wonder: How can we structure our workforce so that we can preserve an increased degree of flexibility when managing our personnel?

Many companies are quick to rely on and immediately begin contemplating three engagement options to address this seemingly simple but deceiving complex question: the use of dispatch workers or subcontracted workers or independent contractors. But each of these options poses certain advantages and disadvantages that may render these options as impartial solutions.

For example, when considering the use of dispatch workers, although the engaging company (i.e., company that uses dispatched workers, etc.) may exercise supervision and control over them, the Act on the Protection of Temporary Agency Workers stipulates that dispatch workers may be engaged for only 32 job categories. These categories, as a general proposition, include primarily ancillary jobs. Furthermore, dispatch workers may only be engaged for up to two years before potentially having to be employed as direct employees of the engaging company. Meanwhile, subcontracted workers may be engaged for more substantive roles and periods longer than two years. However, the engaging company may not exercise much supervision and control without risking the subcontracted workers being deemed as an unlawful use of de facto dispatch workers in violation of the Act on the Protection of Temporary Agency Workers. Independent contractors (“IC”) may be a viable alternative to dispatch or subcontracted workers as the use of ICs is not restricted by any durational limit and may be retained for any job. But as with subcontracted workers, companies face the risk of inadvertently supervising, controlling, and treating ICs as if they were employees and blurring the critical distinction between ICs and their employees. This phenomenon is not unique to Korea, and courts in other jurisdictions such as in the United States have even developed legal tests such as the “economic realities” test for evaluating whether a person is an employee or an IC in substance after considering many non-determinative factors.

The New Wrinkle for Consideration - Risk of Joint Liability for Discrimination

Although, if properly implemented, all three of the abovementioned options may allow companies to mitigate certain employer obligations and liabilities, a recent Seoul Administrative Court case has added yet another important factor for companies to consider when seeking to engage dispatch workers. In November 2016, in a case involving dispatch workers who received less bonuses without justifiable reasons than their regular employee counterparts who performed the same or similar duties, the Seoul Administrative Court held that an engaging company may be held jointly liable under the Act on the Protection of Temporary Agency Workers with the direct employer of the dispatch workers (the “Dispatch Worker Agency”) for damages arising from the discrimination against the dispatch workers concerned.

More specifically, in the Seoul Administrative Court case, an engaging company used dispatch workers to help manufacture mobile phone parts and to carry out other permissible auxiliary work from October 1, 2011 to March 31, 2015. During this period, newly-hired regular employees of the engaging company received annual bonuses at a rate of [(Number of Days Worked/180) x (Base Salary)] for the first 180 days of employment, and experienced employees received annual bonuses at 400%. In contrast, dispatch workers (pursuant to their relevant dispatch contracts, which were executed anew every six months due to a regular but formalistic change in the dispatch worker agencies also every six months) received only 200% annual bonuses regardless of their respective total duration of service for the engaging company. As a result, dispatch workers who were engaged between April 12, 2012 and January 9, 2015, filed a claim against the engaging company and the Dispatch Worker Agency, alleging (1) that the dispatch workers suffered discrimination by receiving less annual bonuses than their regular employee counterparts at the engaging company; and (2) that the dispatch workers were denied annual leaves allowances. Please note that for this article, we will focus only on the former claim.

The Seoul Administrative Court held that the engaging company was jointly liable with the Dispatch Worker Agency for the bonus discrimination, and more importantly and for the first time, the court ordered damages of 200% of the actual damages amount (i.e., bonus discrepancies). The court reasoned that the engaging company knowingly and intentionally provided the Dispatch Worker Agency with information on a bonus policy that is only applicable to employees who are employed for less than 6 months despite, at times, engaging dispatch workers for longer than 6 months in total as some dispatch workers were continually retained even after the change in the relevant dispatch worker agencies. The court believed that the engaging company’s limited disclosure was a deliberate attempt to limit the annual bonuses of the dispatch workers to 200% regardless of the total length of their respective engagements. Therefore, as the engaging company served a material role in the bonus discrepancies between dispatch workers and their regular employee counterparts, the court found the engaging company to be jointly liable with the Dispatch Worker Agency for the discrimination without justifiable reasons against dispatch workers. Moreover for the first time since the introduction of the relevant penal provision in the Act on the Protection of Temporary Agency Workers in March 18, 2014, the court affirmed the Central Labor Relations Commission’s damages order of 200% of the actual damages amount when damages of only 100% are typically awarded by stressing the intentional aspect of the engaging company’s attempt to limit full disclosure of the annual bonus policy.

As a general proposition, the Seoul Administrative Court’s holding is a departure from the Ministry of Employment & Labor’s long-held position that although both an engaging company and the Dispatch Worker Agency are prohibited from discriminating against dispatch workers, the respective scopes of liability under the Act on the Protection of Temporary Agency Workers must be considered when determining the employing entity against which any corrective action in a discrimination case may be appropriately ordered. In the past, the Ministry of Employment & Labor stipulated that only the Dispatch Worker Agency may be named as defendants in matters related to discrimination in wages, etc. However, through this recent Seoul Administrative Court case, we see that if an engaging company contributed to the discrimination of dispatch workers on wages and working terms/conditions, the engaging company may not only be held liable but also face damage liability of up to 300% of the actual damages (in accordance with the relevant penal provision) if the engaging company’s involvement was intentional or repetitious.

Implication – Full Disclosure is Recommended

In light of the above, when considering whether to engage dispatch workers as a means to manage the burden of potential employer liabilities, the engaging company must make sure to fully disclose all information on the working terms/conditions and benefits that are applicable to its regular employees who are engaged in the same or similar work as the dispatch workers. And if the applicable dispatch contract is prepared based on such full disclosure, companies may increase the chance of successfully navigating the complex laws surrounding a successful implementation of the Act on the Protection of Temporary Agency Workers and help increase the degree of flexibility of managing their respective workforce.

If you have any questions regarding this article, please contact below:

Jae Hoon Kim ([email protected])

Chang Soo Jin ([email protected])

Ji Young Tae ([email protected])