[1] Standard for determining whether an employee is a worker under the Labor Standards Act

[2] In a case where Gap corporation entered into a sales service contract with Gap corporation, and Eul et al. who was dispatched to the department store and worked as a sales salesperson sought retirement allowances from Gap corporation, the case holding that the contract entered into by Eul et al. is a labor contract relationship in which Eul et al. provided labor

[1] Determination as to whether a worker is a worker under the Labor Standards Act ought to be based on whether a labor provider provided labor in a subordinate relationship with an employer for the purpose of wages at a business or workplace, rather than whether a contract is an employment contract or a delegation contract. Determination of whether a labor provider is a subordinate relationship ought to be made by comprehensively taking account of the economic and social conditions such as the content of the work, whether the employer determines the work hours and the place of work, and whether the employer is bound by the rules of employment or the rules of service, whether the employer is capable of operating his/her business on his/her own account, whether the labor provider is able to own equipment, raw materials, work tools, etc., or have a third party employ and act on behalf of the employer, and whether the employer has a superior economic status, such as the creation of profits and losses through the provision of work, whether the nature of remuneration is the subject of the work itself, whether the nature of remuneration was determined, whether the wage was withheld at source, and whether or not the status of the employer has been recognized as an employee under the statutes on social security system.

[2] In a case where Eul et al. entered into a sales service contract with Gap et al. and dispatched to the department store and sought retirement allowances against Eul et al. from Gap, the case held that the judgment below erred by misapprehending the legal principles on the grounds that sales clerks including Eul et al. entered into a sales service contract with Gap et al. to sell only designated goods during the department store business hours at the designated price; Gap et al. demanded to maintain the normal level of service quality required by the department store while complying with the guidelines for sales management at the time of the department store work; Gap could have real-time identified inventory status of each store through the computer system; Gap company made various public announcements related to Eul et al.'s business through the internal computer network after entering into the sales service contract; Eul et al. reported after or after the fact that sales clerks including Eul et al. used for the store; provided all goods and tools used in the store as sales to Gap et al. as Gap's owner, but it does not constitute a labor contract with Gap for the purpose of wages.

[1] Article 2 (1) 1 of the Labor Standards Act / [2] Article 2 (1) 1 of the Labor Standards Act

[1] Supreme Court Decision 2004Da29736 Decided December 7, 2006 (Gong2007Sang, 104) Supreme Court Decision 201Da44276 Decided June 27, 2013 (Gong2013Ha, 1291) Supreme Court Decision 2013Da77805 Decided November 13, 2014 (Gong2014Ha, 2339)

See attached Table 1, 200,000,000

Arenl Co., Ltd. (Law Firm Barun, Attorneys No Man-Gyeong et al., Counsel for the defendant-appellant)

Seoul High Court Decision 2014Na49083 decided September 4, 2015

The judgment below is reversed and the case is remanded to Seoul High Court.

The grounds of appeal are examined.

1. Determination as to whether a worker is a worker under the Labor Standards Act ought to be based on whether a labor provider provided labor in a subordinate relationship with an employer for the purpose of wages in a business or workplace, rather than whether a contract is an employment contract or a delegation contract. Determination as to whether a labor provider is subordinate relationship ought to be made by comprehensively taking account of the following factors: (a) the employer’s content and the employer is determined; (b) the employer is subject to the rules of employment or service regulations; (c) the employer is bound by the employer; (d) whether the employer is capable of operating his/her business on his/her own account; (e) whether the employer owns equipment, raw materials, working tools, etc.; and (e) whether the employer has a superior economic and social status, such as the creation of profits and losses from the provision of labor; (e) whether the nature of remuneration was the subject of the labor contract; and (e) whether the continuous provision of labor and the provision of labor withheld income tax; and (e) whether the status of an employee is recognized as an employee under the statutes on social security system.

2. The lower court, based on its stated reasoning, determined that it is difficult for the Plaintiffs to regard the Plaintiffs as workers under the Labor Standards Act who provide labor for the purpose of wages in subordinate relations with the Defendant.

3. However, in light of the above legal principles, it is difficult to accept the above judgment of the court below for the following reasons.

A. The reasoning of the lower judgment and the record reveal the following facts and circumstances.

(1) The Defendant, who runs the business of importing, manufacturing, and selling KONEX, scarf, and bags, concluded a “special contract purchase agreement on department stores” with companies operating department stores, such as lot department stores, new world department stores, and each department store operating company, which shall purchase and sell on credit goods imported and manufactured by the Defendant on sales in department stores, and pay the remainder after deducting fees from the sales revenue, to the Defendant. The Defendant agreed to dispatch the manpower engaged in sales business within each department store.

(2) The Defendant initially employed the department store sales clerks including the Plaintiffs (hereinafter referred to as “department sales clerks”) as regular employees belonging to the department department. Around August 2005, the Defendant received a written resignation from the department sales clerks en bloc and paid retirement allowances at the end of 2005, and entered into a sales service contract with the above department sales clerks, and subsequently filled the department sales clerks in the manner of concluding sales services contracts, rather than employment contracts. However, it seems that the content of the affairs of the department sales clerks prior to and after the conclusion of sales services contracts does not vary.

(3) The sales services contract entered into between the sales clerks and the Defendant include the term of contract (1 year), ② the place of work, ③ the sales brand, ④ the sales services fee, etc., and the sales services contract for some of the sales clerks did not include the fee or contained annual salary, which is not the fee, and even if the contract is renewed every one year, it appears that they do not prepare a new sales services contract.

(4) When concluding a sales service contract with the Defendant, sales clerks have sold only goods designated during the business hours of the department store (goods supplied by the Defendant to the department store) at a designated place (mainly). According to the “standard purchase transaction contract entered into with the Defendant,” which was concluded with the Defendant and the department store operating companies, the dispatched employees, etc. shall perform business affairs related to the Defendant’s sales of goods and sales promotion activities such as display, storage, management, etc. of goods to the extent that they comply with the guidelines for sales management of the department store operating companies (Article 13(3)). The Defendant is obligated to have dispatched employees, etc. maintain the quality of services above the level expected that the customer would normally receive from the department store (Article 14(1)), and the department store operating companies are required to provide customer service improvement education to the dispatched employees (Article 14(2)), and employees, etc. are not capable of possessing ordinary goods, information and sales capabilities, or demand replacement of employees, etc. from the department store operating employees to the Defendant (Article 14(3).

(5) The Defendant was able to real-time grasp the inventory status of each store through the computer system, and the employees of the business division of the Defendant’s head office visited stores at approximately one week at intervals to verify the sales status, etc., and did not provide separate education regarding the performance of their duties, except for the presentation of goods related to the introduction of new products twice a year. This seems to have no significant difference between the sales clerks before and after entering into a sales service contract with the Defendant.

(6) After entering into a sales service contract, the Defendant also made various official announcements to the sales clerks through the internal computer network. A representative of the Defendant: (i) the time of attendance and the time of attendance; (ii) the notice of the submission of the list of the arche Work Conditions; (iii) the public notice of the repair room; (iv) the public notice of the goods’ law, return, price, and discount events; (v) the public notice of the inventory room; (vii) the public notice of the inventory room; and (vii) the public notice of the goods DP volume survey (the instructions of the President), etc. The Defendant asserted that the management of the foregoing work or the public notice of the work related to the work was temporary, but the period is not clear.

(7) After entering into a sales service contract, the sales clerks appear to have not obtained prior approval through the form of “temporary leave” used by the employees of the Defendant’s head office when using leave, sick leave, etc., but if using leave, sick leave, etc., they would have reported to the Defendant in advance or later, and reported to the Defendant by preparing a list of work status of part-time students, long-term employees’ work status list, etc., and the Defendant prepared and kept a list of “the status of sick leave and maternity leave.”

(8) Each department store store may have a number of sales clerks, and each sales clerks entered into a sales service contract with the Defendant respectively (each department store's sales clerks refer to each other in terms of career, age, etc., i.e., management (1), management (2), management (2), management (3), but it appears that they are not official positions), and the Defendant paid fees in proportion to their respective rates of fees from the total sales of the store. The Defendant paid fees to each sales store. The sales clerks may employ part-time employees according to the needs of the store, but the expenses ultimately seem to have been borne by the Defendant. However, if the sales clerks are unable to work in the store on their own account for reasons such as personal childbirth and leave, they seem to temporarily substitute for work through a third party on their own account.

(9) All equipment, working tools, etc. used in each store were provided as owned by the Defendant without compensation. Sales deposit (5% of the base annual salary) was accumulated in preparation for the loss, damage, theft, or loss, etc. caused by the cause attributable to the sales clerks, but it is unclear whether the actual accumulated sales deposit was deducted by the Defendant due to the loss of equipment, etc. (see, e.g., Supreme Court Decision 2006Do328, Apr. 1, 2006). Furthermore, the Defendant dispatched the head office human resources in charge of the interior of the headquarters to each store at a certain time to newly put the sales display without compensation.

(10) After entering into a sales service contract with the Defendant, until September 2008, sales clerks were paid within the scope of the upper limit (120% or 130% of the existing annual salary), the lower limit (85% of the existing annual salary and the lower limit refer to the fixed rate of the existing annual salary, not the specified ratio of the annual salary, but the actual fixed rate of the existing annual salary). However, in light of the fact that the sales service contract for some sales clerks does not include the fee ratio in the sales services contract, and that even if the fee ratio is changed upon termination of the contract period, it is unclear whether the sales services contract and the Defendant agreed upon the sales clerks in consultation with each other.

In addition, from September 2008 to the end of 2011, the sales clerks received fixed wages, such as before the conclusion of sales services contracts, and from 2012, it appears that they received fees again from 2012, but the specific status of payment of fees after 2012 is unclear (in 2012 and 2013, there are some sales clerks who received fixed wages).

However, while the remuneration system changes as above, there was no reason to conclude a new contract between the sales clerks and the Defendant, or to newly prepare the previous sales services contract. The Defendant appears to have not obtained the consent of the sales clerks, and there was no change in the duties of the sales clerks. Moreover, some of the Plaintiffs were employed at the time when the Defendant pays fixed pay as above.

(11) The Defendant paid regular payments to all sales clerks on a specified day, such as life saving, Workers’ Day, etc.

(12) On August 13, 2012, the Defendant exercised the authority to take disciplinary action against some sales clerks on the grounds of embezzlement due to false claims for wages of temporary employees and false claims for meal expenses, and appears to have taken measures to move to other sales clerks in certain cases.

(13) The sales clerks were not subject to the Defendant’s rules of employment, and paid business income tax other than wage and salary income tax, and were not recognized as workers in social security systems such as the fourth insurance. However, as seen earlier, there is room to view that the Defendant, while changing the method of dispatching sales clerks to each department store, was arbitrarily determined by taking advantage of economic superior position as an employer in the course of concluding a sales service contract after receiving a written resignation from the sales clerks en bloc.

B. In light of the above facts and circumstances in light of the legal principles as seen earlier, although the sales clerks including the Plaintiffs enter into a sales service contract with the Defendant and the forms of the contract are the same as the delegation contract, it is reasonable to view that the substance of the contract is a labor contract that provides labor to the Defendant in subordinate relationship for the purpose of wages.

C. Nevertheless, the court below held that it is difficult for the plaintiffs to be deemed workers under the Labor Standards Act on the grounds of its stated reasoning. This decision is erroneous by misapprehending the legal principles on the criteria for determination of worker status under the Labor Standards Act.

4. Therefore, the lower judgment is reversed, and the case is remanded to the lower court for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices on the bench.

[Attachment] List of Plaintiffs: Omitted

Justices Kim Shin (Presiding Justice)