Unit test edgenuity answers

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Korean labor law: Disguised Outsourcing Cases and Criteria for Judgment
Bongsoo Jung / KangNam Labor Law Firm
I. Introduction
Issues surrounding the use of irregular workers in Korea began with the introduction of two legal provisions during the Asian economic crisis in 1998: ‘dismissal for managerial reasons’ in the Labor Standards Act and the Employee Dispatch Act. The increased use of irregular workers by companies hoping to save on labor costs and ensure flexibility in management of personnel has resulted in greater polarization of society. As this polarization has worsened, laws designed to protect and benefit irregular employees began coming into effect in July 2007, with the aim of encouraging employers to hire them as regular employees. The main thrust of the laws is to limit the use of irregular employees to two years, and eliminate any discrimination between them and regular employees doing the same work. Even though the laws have restricted the increase in the use of irregular workers, many companies have been using loopholes in the laws to continue hiring irregular employees. There have been two recent cases heard by the Supreme Court which provide good examples of this. In this article, I would like to look at the details of the Supreme Court rulings and review the criteria used in making their decisions.
II. Dismissal of Employees Outsourced to Hyundai Mipo Shipbuilding Company
1. Summary
Hyundai Mipo Shipbuilding Company (hereinafter “the Shipbuilder”) terminated its service contract with Yongin Company (hereinafter “the Subcontractor”) when a labor union was established inside the Subcontractor. Right after termination of this contract, all 30 employees (hereinafter “the applicants”) of the Subcontractor were dismissed, and the company closed down on January 31, 2003. The applicants filed a “claim for confirmation of employee status” against the Shipbuilder. Busan Appellate Court rejected this claim on the grounds that the service agreement between the Shipbuilder and the Subcontractor could be recognized as an outsourcing contract, but the Supreme Court overturned the Appellate Court’s decision, stating that it was possible to recognize the Shipbuilder and the Subcontractor’s employees as having an implied employment contract.
2. Supreme Court Ruling (July 10, 2008, Supreme Court 2005da75088)
A. Legal principles for implied employment: As a person hired by the original employer provides labor service for a third party at the third party’s location, to be regarded as an employee of the third party, his employment shall satisfy the following: 1) The original employer does not have independence in management and works as an agent of the third party in managing employees; 2) The original employer’s business entity is nothing more than formal and nominal, and the employee shall be subordinate to the third party in reality; 3) The party that actually pays wages to the employee is the third party; 4) The party to which the person provides labor service is the third party. Based on these criteria, it should be concluded that there was already an implicit employment contract made between the employees and the third party (Supreme Court, Sep 23, 2003 2003du3420).
B. Confirmed facts: The Subcontractor where the applicants had been employed had worked exclusively for the Shipbuilder as an outsourcing partner to inspect and repair marine engine heat exchangers, safety valves, etc. for the previous 25 years. The Shipbuilder required that employees who wished to work for the Subcontractor pass a skills test before being hired by the Subcontractor. They were then qualified to receive an additional allowance directly paid by the Shipbuilder. Furthermore, the Shipbuilder had substantive authority for employment and promotion of the Subcontractor’s employees, including the ability to demand disciplinary action or choosing candidates for promotion.
In addition, the Shipbuilder directly monitored the applicants’ attendance (including if they left work early), leaves, overtime, hours worked, and their work attitude. The Shipbuilder also determined the volume of work, working methods, work orders, and when and how the applicants would cooperate, and directly assigned work duties or placed applicants for substantive work duties through the Subcontractor’s responsible manager. The Shipbuilder required the applicants to complete its own work assignments in addition to work given by the Subcontractor, paying a certain wage even when there was no work from the Subcontractor by assigning other duties such as receiving education, cleaning of the workplace, and assisting other departments in their work. The Shipbuilder directly supervised and managed the applicants.
Furthermore, the Subcontractor was, in principle, supposed to receive a service fee calculated by multiplying each time unit by the volume received, to which the Shipbuilder added the wages paid when Subcontractor employees were engaged in other Shipbuilder-assigned work not directly related to the Subcontractor duties (such as fixing the marine engines). The Shipbuilder also paid bonuses and severance pay directly to the applicants.
While the Subcontractor handled income tax deductions, income reports, and bookkeeping for its employees under its own business name and registration, it used offices provided by the Shipbuilder, as well as all required facilities such as rooms for its own employee education.
C. Judgment: Upon review of the confirmed facts in B above, and based on the legal principle mentioned in A, it can be determined that even though the Subcontractor had made a formal outsourcing contract with the Shipbuilder and had a formal structure in which its own employees (the applicants) performed the necessary labor service, the Subcontractor did not substantially manage itself in terms of work performance or management of its business. The Subcontractor worked just like a department of the Shipbuilder would, or as a labor management agency for the Shipbuilder. Rather, as it is assumed that the Shipbuilder received subordinate labor service from the applicants and decided their working conditions (including wages), an implied employment should be estimated to exist between employees of the Subcontractor and the Shipbuilder, just as if the Shipbuilder had hired the applicants directly.
III. Disguised Outsourcing Case of Hyundai Motors Company
1. Summary
While Yesung Company (hereinafter “the Subcontractor”), an in-house outsourcing company of the Hyundai Motors Factory – Ulsan (hereinafter “HMC”), was engaged in assembling automobile parts, it dismissed its 15 employees (hereafter “the applicants”) on February 2, 2005, due to union activities. The applicants then filed for ‘remedy for unfair dismissal and unfair labor practices’ against HMC and the Subcontractor, immediately after the Subcontractor closed down. The applicants’ claims were not accepted in the lower courts, who determined that the Subcontractor, who had already closed down, was their real employer, and not HMC. While the Supreme Court did not determine an implied employment relationship existed between HMC and the Subcontractor, it determined that a dispatch relationship did. According to the Employee Dispatch Act before its revision, in cases where a dispatched employee has served more than two years, the applicant is determined to be a direct employee of the using employer.
2. Supreme Court Ruling (February 23, 2012, 2011du7076)
A. Legal principles for employee dispatch: Whether employment is employee dispatch or not shall, regardless of the formal and nominal contract made between the two parties, be determined by collectively considering the purpose of the contract or job characteristics, specialty and technology, business registrations of the contracting parties and managerial independence, and the using employer’s actual command and control.
B. Confirmed facts: Of the work processes directly and indirectly necessary to produce cars, assembly on the conveyer belt system does not require the Subcontractor to possess much in the way of technological or specialized skills, and the Subcontractor can give few instructions to its employees in this process.
The applicants were placed on either side of the conveyor belt assembly line together with regular employees of HMC, carrying out simple and repetitive tasks according to the various instructions prepared and distributed by HMC, and using HMC’s own facilities, parts, and supplies. In this manufacturing process, the Subcontractor did not supply its own unique technology or make capital investment.
HMC possessed the general rights to give the applicants their work duties and change their work area, and determined the volume of work to be finished, working methods and working procedures. HMC directly managed the applicants or indirectly gave them substantial work orders through an on-site manager of the Subcontractor. In considering the characteristics of the applicants’ work, the responsibility of the on-site manager was simply as the messenger of HMC orders to the applicants.
HMC decided the starting and finishing times of each work shift, recess hours, overtime and night work, shift duties, the pace of manufacturing, etc., for the applicants, and in cases where HMC’s regular employees were absent due to occupational accidents or leaves, the applicants would fill in.
C. Judgment: The Appellate Court ruled that, based upon legal principles for employee dispatch and the confirmed facts, the employees were, in actuality, working under HMC’s direct supervision after hiring by the Subcontractor and dispatch to HMC.
IV. Criteria for Evaluation
1. Guidelines for determining “employee dispatch”[1] A. Employment relations: 'Employee dispatch' refers to a business situation where the 'Sending Employer', who acts as an employee dispatch agency, hires an employee and sends him/her to a third party (the ‘Using Employer’) according to the employee dispatch contract. The dispatched employee carries out his/her duties in accordance with the using employer’s directions at the using employer’s workplace.
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B. Judgment method
1) Whether employment is subject to rules under ‘employee dispatch’ shall be determined by whether the sending employer who made the employment contract with the employee can retain the substantive entity of “employer”.
2) In cases where the sending employer is not considered to have the substantive entity of “employer”, the using employer (who did not hire the dispatch employee) shall be judged as having directly hired the dispatch employee.
3) In cases where the sending employer is considered to have the substantive entity of “employer”, the situation of the corresponding employee shall be investigated as to whether he/she is under the direction or authority of the using employer. The corresponding employment contract shall also be evaluated to determine whether his employment is direct or dispatch.
C. Criteria for judgment
1) Determination of a sending employer as having the substantive entity of “employer”
If the sending employer does not have authority over the following items, it is unlikely that he/she shall be considered as having the substantive entity of “employer”: ① Rights to hire, dismiss, etc.; ② Responsibility to raise funds and make the necessary expenditures; ③ An employer’s legal responsibilities (the four social security insurances, corporate taxes, etc.); ④ Responsibility for providing machinery, facilities, tools and instruments; and ⑤ Responsibility and authority to make plans related to professional skills and experience.
2) Judgment on directions and orders from the using employer
If the using employer has authority over the following items for a dispatched employee, the sending employer has engaged that employee in work under the direction and authority of the using employer: ① Decision-making regarding work assignments and transfers; ② Directing and supervising work; ③ Monitoring sick leaves and other types of leave etc. and the right to take disciplinary action; ④ Evaluating work performance; and ⑤ Decision-making regarding assignment of overtime, holiday and night work.
2. Guidelines for auditing internal outsourcing (July 2004, The Ministry of Labor)
A. Employment relations: Outsourcing is a business situation where one party promises to complete a particular work, and the other party promises to pay compensation in return for completing that work (Civil Law, Article 664). Internal outsourcing (subcontracting) is a type of outsourcing where a company (the Contractor) assigns a certain task or tasks at its workplace to a Subcontractor, who is to complete the work.
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B. Method and criteria for judgment
If the Subcontractor’s situation does not satisfy the criteria of both ‘independence in personnel management’ and ‘independence in management of business,’ the Subcontractor shall be regarded as an ‘employee dispatch business.’
1) “Independence in personnel management” refers to the Subcontractor being the source of work instructions to its employees and being the exclusive manager of the following items: ① Hiring, dismissing etc.; ② Decision-making regarding work assignments and transfers; ③ Directing and supervising work; ④ Jurisdiction over working methods and evaluation of work performance; ⑤ Whether the Subcontractor’s employees work with the Contractor’s employees, and the difference of work between them; ⑥ Monitoring sick leave and other forms of leave, etc.; ⑦ Decision-making regarding assignment of overtime, holiday and night work; ⑧ Other conditions determining status as an employer according to the Labor Standards Act and the Labor Union Act.
2) “Independence in management of business” refers to the Subcontractor carrying out its work duties independently from the Contractor in terms of the following:
① Responsibility to raise funds and make the necessary expenditures; ② Retention of an employer’s legal responsibilities; ③ Responsibility for providing machinery, facilities, tools and instruments; and ④ Planning, professional skills and experience.
V. Conclusion
The two cases in this article are typical examples of disguised outsourcing. The first, with Hyundai Mipo Shipbuilding, shows the most common disguised subcontract where, despite the fact that an outsourcing service contract was made between the two parties, an implied employment relationship existed, in light of the lack of Subcontractor independence in personnel management or management of business. The second, with Hyundai Motors, deals with an illegal employee dispatch. Even though a service contract was evidently recognized between the two parties, the Contractor was the one who directed and supervised both its own and the Subcontractor’s employees while they worked together in the conveyor belt assembly line, which, again, means there was no subcontractor independence.
[1] Joint guidelines of the Ministry of Labor and the Ministry of Justice, April 19, 2007

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