• The Court’s Decision on Whether a Door-to-Door Water Filter Salesman is an Employee of a Company Engaged in the Business of Sale and Rental of Water Purifiers

On May 10, 2012, the Supreme Court rendered a decision that the team leader and branch manager of C Company are construed as employees under the Labor Standards Act. The team leader and branch manager serve to recruit and manage the so-called “planners” who are independent contractors providing regular check-up services, such as water purifier rentals and exchange of water filters for C company (Supreme Court decision on case no. 2010Da81407 rendered on May 10, 2012). Since then, a lower court has held that the team leader and branch manager of C Company are classified as employees under the Labor Standards Act according to the above Supreme Court decision, while planners of C Company are not (Seoul Central District Court decision on case no. 2010GaHap83217 rendered on October 30, 2012).

The following specific details otherwise suggest the possibility that the workers were closer to independent contractors: (i) all of the planners and the team leader and branch manager of C Company entered into separate subcontracting agreements with C Company and not employment agreements; (ii) C Company withheld business income taxes but not the earned income taxes; and (iii) the workers did not receive insurance benefits from four major social insurances (national health insurance, national pension, employment insurance, and industrial accident compensation insurance). However, the Supreme Court distinguished planners from the team leader and branch manager in its decision on whether those workers are classified as employees of C Company. The following table lists the standards that the Court set out in determining the classification of workers as employees based on specific facts.

Click here to view table.

It is noteworthy that the above two decisions suggest standards in detail regarding whether workers may be classified as employees, while holding different views for planners and the team leader and branch manager, respectively, and determining that planners were not employees and the team leader and branch manager were employees. In the event that a company intends to hire a worker as an independent contractor and not as an employee, it is advisable for the company to clearly state in the individual agreement that the agreement does not create an employment relationship. In addition, the company may need to contemplate ways to include specific work details or employment conditions, etc. in each subcontracting agreement, rather than in the internal regulations, and to not take any disciplinary actions other than the termination of contract.

As a reference, disputes have arisen until today over whether “coordinators” who provide regular check-up services such as water purifier rentals and exchange of water filters for W Company may be classified as employees under the Labor Standards Act, similar to the planners of C Company. A number of lower courts have refused to hold coordinators as employees, whereas some lower courts rendered decisions that such coordinators were employees. As a result, there has been confusion around the issue of how to classify those workers. However, on May 10, 2012, the Supreme Court decided that the coordinators of W Company do not qualify as employees under the Labor Standards Act (Supreme Court decision on case no. 2010Da5441), putting an end to the on-going dispute over the issue. This draws attention to how the higher court will adjudicate the issue regarding whether the planners of C Company may be classified as non-employees pursuant to the Labor Standards Act, similar to the coordinators of W Company.