Recent Seoul High Court ruling:
On January 13, 2023, the Seoul High Court dismissed an appeal and upheld a partial victory for the plaintiffs in a lawsuit filed by freelancers who signed freelancer agreements with YTN to confirm their status as employees (case number 2022na2003033).
The plaintiffs entered into fixed-term contracts with YTN under the name of "freelancer agreements" and were responsible for tasks such as creating on-screen news materials, promotional materials, and working on virtual reality (VR) and augmented reality (AR) projects.
The court ruled that the plaintiffs were in the status of non-regular employees at YTN. The court stated, "Considering the circumstances surrounding A and others, it is reasonable to believe that they provided labor in a dependent relationship while being under substantial supervision and control from YTN," and "they fall under the category of workers subject to the Labor Standards Act." The court explained that, for one of the plaintiffs, YTN notified the termination of the contract on December 31, 2020, but this was effectively a dismissal, and "it is difficult to see that there was a valid reason for the dismissal, so B is still considered a YTN employee."
Difference between an employment contract and a freelancer contract:
Companies often enter into freelancer contracts instead of employment to save costs and flexibly manage their workforce. In other words, instead of hiring individuals A, B, C, D, etc., the company registers them as independent contractors and entrusts them with specific tasks.
By doing so, the company can save on the four major insurance contributions and have more freedom in termination (contract expiration). However, depending on the situation, this may be seen as merely "avoiding employment," and the substance may be deemed as "employment." If the substance is determined to be employment, issues such as severance pay, non-fixed-term employment (or regular employment), and the four major insurance contributions will arise.
From the company's perspective, they would want to include various clauses in the contract to avoid being deemed as employment, while from the standpoint of those entering into freelancer contracts, they would want to be cautious in order to gain job stability and guarantees for severance pay and other benefits by being recognized as employees later on.
Criteria for distinguishing between freelancers and employment
1. The Supreme Court's position (e.g., Supreme Court ruling on December 7, 2006, case number 2004다29736)
The Supreme Court holds that whether a person falls under the category of a worker under the Labor Standards Act should be determined not by the form of the contract as an employment contract or a freelancer contract but by whether the worker has provided labor to an employer in a dependent relationship for the purpose of earning wages in a business or workplace.
To determine whether a dependent relationship exists, the following factors should be considered:
- Whether the employer determines the job content
- Whether the worker is subject to employment rules or personnel regulations
- Whether the employer exercises significant supervision and control during the work process
- Whether the employer specifies the working hours and workplace, and the worker is bound by them
- Whether the labor provider owns equipment, raw materials, or work tools, or hires third parties to perform the tasks independently and conducts business at their own risk
- Whether the labor provider assumes the risks of profit and loss through labor provision
- Whether the nature of compensation is objectively related to the labor itself
- Whether a basic salary or fixed salary has been determined
- Matters related to remuneration, such as whether income tax has been withheld at the source
- The continuity and exclusivity of the labor-provider relationship with the employer, and their degree
- Whether the worker is recognized as an employee under social security laws and regulations, among other economic and social conditions
However, situations such as whether a basic or fixed salary has been determined, whether income tax has been withheld at the source, and whether a worker is recognized under social security laws should not easily negate the worker's status simply because these factors are not acknowledged. This is because there is a considerable possibility for the economically superior employer to arbitrarily determine these matters.
Examples where freelancers were denied and recognized as employment:
1. University entrance exam academy lecturer (Supreme Court ruling on December 7, 2006, case number 2004da29736)
In this case, university entrance exam academy lecturers worked as instructors for 10 to 15 years. Until 1994, they provided labor without a fixed term, and although the contract format changed to "service contract" afterward, the actual working conditions remained unchanged. They renewed their contracts every February, repeating this process 6-7 times. The employer refused to renew their contracts when they reached the age of 60, not due to work performance or other considerations that should be taken into account during contract renewal. The Supreme Court ruled that even though the lecturers entered into annual labor contracts, they were essentially in a position of indefinite-term workers, and the employer's refusal to renew the labor contract was equivalent to dismissal.
2. University part-time lecturer (Supreme Court ruling on March 29, 2007, case number 2005du3018)
Part-time lecturers appointed by the university operated by a school corporation were subject to regulations regarding their appointment, reappointment, dismissal, lecture hours, and fees, as well as the rights and obligations of part-time lecturers. They were appointed by the president and other officials, taught courses designated by the university in designated classrooms, and followed designated schedules. They submitted lecture plans and performed academic management tasks according to the university's academic management regulations and schedules, such as managing students' attendance, assigning and evaluating assignments, setting exam questions, supervising exams, and grading. They received remuneration calculated by multiplying a fixed amount per hour by the actual lecture hours (lecture fees). It was impossible, both legally and practically, for part-time lecturers to hire third parties to perform these tasks. In cases where part-time lecturers were negligent in performing these tasks or violated various university regulations and failed to maintain the dignity of a professor, they could be subject to non-reappointment or dismissal (termination), which has the same meaning as disciplinary actions, such as restriction on re-employment and dismissal or removal for full-time faculty (president, dean, professor, associate professor, assistant professor, and full-time lecturer).
Considering these factors, the Supreme Court recognized that part-time lecturers at universities were workers who provided labor to the school corporation in a dependent relationship for the purpose of earning wages.
3. Academy bus driver (Supreme Court ruling on September 6, 2007, case number 2007da37165)
This case involved a person who registered their own bus under the name of an academy and received significant supervision from the academy during its operation. The court determined that the individual qualified as a worker under the Labor Standards Act.
4. Beauty academy lecturer (Supreme Court ruling on September 7, 2007, case number 2006do777)
A beauty academy lecturer who was assigned lecture topics, hours, and locations by the academy operator and gave lectures according to a fixed schedule nearly every day. They were paid a fixed amount per unit time, regardless of the number of students, except when a class was canceled due to lack of students. Although their working hours changed depending on the lecture schedule, they did not receive specific or individual supervision from the operator regarding lecture content or methods. Despite paying business income tax instead of labor income tax and not being enrolled in the so-called "four major insurance" plans, the court ruled that they were considered a worker under the Labor Standards Act.
5. Credit card company debt collection workers
1) A debt collector who died of a subarachnoid hemorrhage while performing debt collection tasks on behalf of a credit card company was considered a worker who provided labor to the company in a dependent relationship for the purpose of earning wages (Supreme Court ruling on May 15, 2008, case number 2008du1566).
2) A debt collector who signed a "debt collection business consignment contract" with a credit information company that included multiple employment regulations and performed debt collection tasks was considered a worker under the Labor Standards Act (Supreme Court ruling on April 15, 2010, case number 2009da99396).
6. Company's Chief Technical Officer (Supreme Court ruling on April 23, 2009, case number 2008do11087)
A case in which the company's Chief Technical Officer (CTO), who received performance-based pay (incentives) in addition to a fixed salary, was considered a worker under the Labor Standards Act.
7. Individual paid only performance-based wages in a clothing manufacturing factory (Supreme Court ruling on October 29, 2009, case number 2009da51417)
An individual who performed sewing tasks in a clothing manufacturing process at a factory operated by a clothing manufacturer, registered as a separate business entity, and received only performance-based wages according to their workload without a basic salary was considered a worker under the Labor Standards Act.
Examples where individuals were recognized as freelancers:
1. Vehicle renter (Supreme Court ruling on June 9, 2011, case number 2009du9062)
In a case where the Korea Workers' Compensation & Welfare Service (KCOMWEL) disapproved a recovery application from a worker who was injured while working as a truck driver for a company, stating that the worker was not an employee but a vehicle renter in a business capacity. The court accepted the lower court's decision that the disapproval was legitimate, as it was reasonable to consider the worker a business operator who transported cargo under a consignment vehicle management contract, managed the vehicle at their own expense, and received freight charges based on the cargo volume in a relatively free state.
2. Sales agent recruitment and training (Supreme Court ruling on July 14, 2011, case number 2009da37923)
In a case where a team leader entered into an operation agreement with a company and recruited, educated, and managed digital sales agents, receiving commissions from the company based on the sales performance of the agents. The court accepted the lower court's decision that team leaders, including the applicant, were not considered workers under the Labor Standards Act as they were not providing labor to the company in a dependent relationship for the purpose of earning wages.
3. Postal insurance agent (Supreme Court ruling on June 27, 2013, case number 2011da44276)
In a case where a postal insurance agent sought severance pay after leaving their position, the court accepted the lower court's decision that the agent was not an employee under the Labor Standards Act. It was difficult to recognize that the agent, who had a consignment contract with the post office and mediated the conclusion of insurance contracts handled by the post office, provided labor to the post office in a dependent relationship for the purpose of earning wages while performing tasks related to contract maintenance, insurance premium collection, and other ancillary tasks, and receiving compensation and allowances according to the postal insurance agent operation guidelines.
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