It is common practice in Korea for a company to bring in the employees of a subcontractor to work at the company's facilities along with its own regular employees. However, this practice can expose a company to legal risks, including labour disputes with the subcontractor's employees, an obligation to hire such employees directly and/or criminal liability.

Under certain circumstances, obtaining the services of an employee of a subcontractor can be deemed the same as using a dispatched worker. Regardless of whether the relationship with the subcontractor is based on an outsourcing contract, the use of the subcontractor's employee may be interpreted by the court as an employment relationship or an illegal dispatch relationship. Under the old Act on the Protection of Dispatched Workers, an employer was required to employ a dispatched worker directly when the term of the dispatch (whether legal or not) exceeded two years. However, the amended Act on the Protection of Dispatched Workers, which came into effect on August 2 2012, requires an employer to employ the dispatched worker directly if the dispatch is deemed to be illegal, even if the term of dispatch does not exceed two years. In fact, the Korean courts have found in favour of employees in several recent cases. Notably, in a case filed against Hyundai Motor Company, the court ordered Hyundai to employ directly employees of its subcontractors who had been working at Hyundai for more than two years. Furthermore, the Korean labour authorities recently ordered five companies to hire the employees of their subcontractors who had been working at the companies for less than two years in accordance with the amended act.

In light of the amended act and the current enforcement trends, employers should pay special attention when obtaining the services of employees of a subcontractor and should implement changes in phases to address the risks described above. For example, for companies with an existing outsourcing scheme:

  • a long-term goal should be to change old customs and perceptions regarding the use of a subcontractor's employees and to select subcontractors with sufficient capability to manage their own employees;
  • a medium-term goal should be to separate the company's own employees from the employees of its subcontractors so that they do not work on the same assignment in the same physical area; and
  • a short-term goal should be to seek advice from a legal expert to review and amend, if necessary, existing outsourcing contracts so that the substance of such contracts cannot be interpreted as creating a direct employment relationship with the employees of its subcontractors.

At the very least, an employer should take immediate action to evaluate the risks associated with its outsourcing scheme in order to determine whether such scheme constitutes a legal outsourcing practice, or whether it could be deemed by a court to be illegal dispatching of employees. In determining whether an illegal dispatch of employees has occurred, the court will examine whether the subcontractor has substance as a business owner. In this respect, the court may consider whether the subcontractor has its own hiring standards, criteria and procedures, or whether the subcontractor's job postings are made in the name of the subcontractor.

The court must consider a number of other factors in its review. In order to evaluate such factors properly, an employer should use a systematic evaluation system in which each factor that may be a characteristic of an illegal dispatch relationship is given a certain number of points; if the scheme scores a high total of points, this indicates that there is a high risk of the court deeming its relationship with its subcontractors to be an illegal dispatch of employees. However, in such an evaluation system the points to be assigned to each characteristic should be carefully determined based on a professional review of relevant precedents. Although the use of such a systematic evaluation system is not yet established practice in Korea, it is expected to be more commonly used in the near future, considering the rapid rise in demand by employers for a precise evaluation of their risk exposure before taking corrective action.

For further information on this topic please contact Sang Wook Cho or Raymond Kang at Yulchon by telephone (+82 2 528 5200), fax (+82 2 528 5228) or email (swcho@yulchon.com or rkang@yulchon.com).

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