The Seoul Administrative Court has upheld an award of punitive damages against both a worker-dispatch agency and the company using the workers

For the first time, a Korean court has approved the imposition of punitive-damages against both a worker-dispatch agency and the company using the dispatched workers, for discrimination prohibited under the Dispatched Worker Protection Act (the “DWPA”).

Under the DWPA, both a worker-dispatch agency and the company using its workers are prohibited from subjecting the dispatched workers to discriminatory treatment. However, in past cases involving discriminatory payment of wages to dispatched workers, the worker-dispatch agency alone has more often been held liable.

Moreover, for willful or repeated violations of the anti-discrimination rule, the Labor Relations Commission (“LRC”) can impose damages of up to three times the actual damages suffered, as a punitive measure. The punitive-damages system was adopted in September 2014 by amendments of the Protection of Fixed-Term and Part-Time Employees Act and the DWPA, and it applies to unjustified discrimination against fixed-term, part-time, or dispatched workers. But this case is the first instance when its application has been approved by a court.

The present decision disposed of a challenge, before the Seoul Administrative Court (the “Administrative Court”), seeking to overturn a ruling by the Central Labor Relations Commission (the “CLRS”). The dispatched workers who brought the initial claim had received lower bonus compensation compared to regular employees of the using company, and had not been compensated for unused annual leave. The CLRS found that there had been discriminatory treatment against the dispatched workers, and it held both the worker-dispatch agency and the using company jointly liable and ordered them to pay the dispatched workers double damages.

The Administrative Court agreed that the dispatched workers had been subject to discriminatory treatment due to differential payment of bonuses. And the Administrative Court further upheld the CLRS’s decision that both the using company and the worker-dispatch agency were jointly liable for double damages. See Case No. 2015Guhap70416 (Seoul Admin. Ct. Nov. 18 2016).

However, the Administrative Court found that other Labor Standards Act violations, such as failure to compensate for unused annual leave, did not constitute discriminatory treatment prohibited by the DWPA; and thus the using company could not be held liable because the worker-dispatch agency, as the legal employer, is solely responsible for compliance with those requirements (as opposed to non-discrimination).

In another relatively recent case involving a major automobile company, the employees of a contractor of the company sought civil damages on the basis that the contractor was in substance providing dispatched workers, and they were subject to discriminatory treatment proscribed by the DWPA. See Case No. 2010gahap112481 (Seoul Cent. Dist. Ct. Sept. 18, 2014) (appeal pending). The court found there to be, in substance, a worker-dispatch relationship between the contractor and the automobile company, and imposed liability for discriminatory wage payment not only on the contractor but also on the using company. However, that case was a civil tort case, and thus the court could not consider imposing additional penalties beyond awarding compensation for actual damages.

It is possible that these cases may signal that imposition of liability for discrimination on both worker-dispatch agencies and using companies will be a continuing trend.

Companies that use contractors whose employees could potentially be characterized as dispatched workers should carefully assess whether there is any risk of discrimination claims, which can lead to liability greatly in excess of workers’ actual damages.