|Criteria for Determining Whether a Truck Owner/Driver is an Employee
Understanding the criteria for determining whether employee status exists is becoming more important. There is little confusion when an employee provides work under an employment contract or if a freelancer provides a service independently. In general, there are a lot of problems when looking at those whose status lies somewhere between employee and freelancer. When a truck owner/driver who owns his delivery truck provides labor service together with his truck, this creates an issue of whether the truck owner/driver is an employee or not. In the case of a driver who is engaged in the delivery of goods with his own vehicle, he is not an employee but a self-employed person because he provides transportation services and charges service fees. However, in recent years, truck owner/drivers have often been recognized as employees if they have been registered as truck owner/drivers and provided considerable work as a driver under a company’s specific work directions. On the other hand, if a truck driver charges a service fee according to the number of transport instances, he is not recognized as an employee, even if he has been working for a long time and on an exclusive basis. In other words, this truck owner/driver can be recognized as an employee if there has been a strong subordinate relationship involving supervision and control between the employer and the service provider, but not if there have been only strong economic dependencies between them and no subordinate relationship.
Herein, I will look into the criteria for determining whether a truck owner/driver can be deemed an employee, and consider the criteria for judging their employee status based upon the details in selected cases.
II. Determining Whether a Truck Owner/Driver Has Employee Status
1. Common criteria for determining employee status
A definition of 'worker' in Article 2 paragraph 1 of the Labor Standards Act stipulates, "A worker means a person who provides work to a business or a workplace for the purpose of wages, regardless of the type of occupation." It is said that the employee ① receives wages in return for labor service, ② must be exclusively engaged in the employer’s business or workplace, and ③ must provide labor service. All three criteria must be met for determination as an employee. Missing one of them excludes someone from being an employee.
The courts used to judge on a case-by-case basis when determining employee status, until the Supreme Court provided specific criteria (2004 Da 29736). This Supreme Court ruling has served as the standard for dealing with cases related to employee status. The criteria set by the Supreme Court include the following general principles. First, regardless of whether the contract is a service contract or not, the actual relationship is what matters. Second, there are nine enumerated criteria for determining a subordinate relationship (see the following paragraph), which are divided into three groups: subordinate relations, economic dependency, and weighting factors. Third, in determining the criteria for determining a subordinate relationship, the factors that can be determined from the superior position of the employer in the relationship are the weighting factors to increase the argument for existence of an employee status, but they cannot be regarded as negative factors for judgment.
In this case, the Supreme Court ruled, “Whether a person is considered an employee under the Labor Standards Act shall be determined by whether, in actual practice, that person offers work to the employer as a subordinate of the employer in a business or workplace to earn wages, regardless of the contract type, such as an employment contract or a service contract. Whether or not a subordinate relationship with the employer exists shall be determined by collectively considering: ① whether the rules of employment or other service regulations apply to a person; whether that person’s duties are decided by the employer, and whether the person has been significantly supervised or directed during his/her work performance by the employer; ② whether his/her working hours and workplaces were designated and restricted by the employer; ③ who owns the equipment, raw materials or working tools; ④ whether the person can be substituted by a third party hired by the person; ⑤ whether the person’s service is directly related to business profit or loss as is the case in one’s own business; ⑥ whether payment is remuneration for work performed or ⑦ whether a basic or fixed wage is determined in advance; ⑧ whether income tax is deducted for withholding purposes; whether the person is registered as an employee in accordance with the Social Security Insurance Act or other laws; ⑨ whether work provision is continuous and exclusive to the employer; and the economic and social conditions of both sides. Provided, that as whether basic wage or fixed wage is determined, whether income tax is deducted for withholding, and whether the person is registered for social security insurances can be determined at the employer’s discretion by taking advantage of his/her superior position, the characteristics of “employee” cannot be denied because of the absence of these mentioned items.”
2. Truck owner/driver and determining employee status
A truck registration system represents a contract signed between a truck owner/driver and a delivery company. Externally, the truck owner/driver entrusts his/her truck to the delivery company, who in turn controls the ownership and operation of the truck. But internally, the delivery company receives a certain amount in management fees from the truck owner/driver driving the registered truck for their delivery operations. The truck owner/driver is deemed not to have employee status when he/she governs/controls actual ownership or operation of the truck.
The following four items constitute the key factors in determining employee status for the truck owner/driver, whose characteristics differ from those of ordinary employees. These individual factors are considered comprehensively.
First, does the employer command and supervise the truck owner/driver? If the employer directly instructs the truck owner/driver about work orders, the route, and work assignment, this represents a strong argument for employee status.
Second, how is the truck owner/driver paid? This is determined by whether compensation is paid by the number of trips or the content of the deliveries, or whether the worker is provided a fixed monthly wage. In general, if receiving a fixed salary, there is no risk in business, and their employee status is considered to be strong because the salary is fixed regardless of their personal efforts.
Third, the subordinate relationship is strong when the truck owner/driver provides labor according to the employer's business purpose, not when the truck owner/driver decides whether to provide the labor by his own calculation.
Fourth, the continuity of work provision and whether the truck owner/driver works exclusively for the employer are important references for determining employee status.
III. Items for Judging a Truck Owner/Driver Has Employee Status
1. Criteria for judging truck owner/drivers’ employment status
According to the Labor Standards Act, a judgment that employee status exists shall consider the following items: first is the actual labor supply relationship, not the type or name of the contract; second is that the items for determining the labor supply relationship shall be considered comprehensively; and third is the factors that exist or not at the employer's discretion should be classified separately. These items for judgment criteria are classified into three groups: 1) subordinate factors, 2) economic dependence factors, and 3) weighting factors. The reason for classifying them is that the Supreme Court's judgment standards are arranged in parallel, which is causing confusion in the judgment of employee status. Therefore, objectivity can be maintained in different cases by grading each factor according to these standards for determining general employee status. In particular, weighting factors are matters that can be determined unilaterally by the employer due to his/her superior position in the relationship. So the items can add weight to determining employee status, but the absence of these items does not mean no employee status exists.
2. Checklist for determining employment status
Supreme Court Ruling
(9 items: details for judgment) Factual Grounds for the Truck Owner Judgment
Subordinate factors 1) Direction & supervision from the employer ① Application of rules of employment Whether the rules of employment apply o/x o/x
② Arrival/departure from work, annual leave No control over arrival/departure time, no annual leave granted
③ Work direction, supervision Considerable supervision during work performance
2) Working hours and
workplaces ④ Working hours Whether working hours are controlled
⑤ Workplace Whether the workplace is mandated
Economic dependence factors 3) Equipment, working tools, expenses ⑥ Ownership of equipment, working tools Who owns equipment, tools, etc.
⑦ Expenses Whether operating costs are subsidized, expenses reimbursed, etc.
4) Substitution ⑧ Substitution with a 3rd party Whether work is exclusive or person can be substituted in the event of absence
5) Earning ⑨ Pursuit of profit Whether pursuit of profit through individual effort is possible
6) Characteristics of wage ⑩ Remuneration for labor Whether wage is decided by evaluation of total deliveries, or paid at a fixed amount in return for work provided
7) Continuous service, exclusive work ⑪ Continuous work Long-term service
⑫ Exclusive work Whether the driver can work for another company during employment
Weighting factors 8) Basic pay ⑬ Whether basic pay is fixed Whether the majority of pay is based on basic wage or incentive pay
9) Income tax and social security insurances ⑭ Income tax and social security insurances Whether corporate tax or income tax is deducted; whether premiums for social security insurances are deducted
Evaluation & Opinion total total
* In the review, weighting is divided into two stages: employee status and employer status. The more items that are calculated in the total sums, the stronger the consideration of the relevant status.
IV. Application of Judgment on Whether a Truck Owner is an Employee
1. Court cases that deny employee status
(1) Supreme Court ruling on July 11, 2013: 2012 Da 57040 (Truck owner/driver)
It was ruled that the truck owner/driver could not be seen as an employee as he repeatedly carried out a specific transportation task according to a fixed transportation schedule and transportation route for a considerable period of time according to the transportation service contract. The district court (Suwon District Court 2011 Na 20352) admitted the truck owner/driver’s subordinate relationship and economic dependence and recognized him as an employee. However, the Supreme Court decided that the plaintiff could not be seen as an employee because he signed a contract for the transportation of goods with the transportation company and provided services. However, this ruling has been criticized as going against the criteria set by the Supreme Court for judgment of employment status.
(2) Supreme Court ruling on Oct. 6, 2000: 2000 da 30240 (Individual business owner)
A truck owner/driver registered a business entity under his own name and while he was injured at the workplace, it was while conducting a personal transportation job under his own responsibility. As a result, he was regarded as an individual business owner, not an employee.
(3) Seoul Administrative Court ruling on Apr. 7, 2016: 2015 Guhap 76254 (Individual business owner)
The employer assigned cargo delivery services to certain truck owners/drivers, but did not supervise them individually. The truck owners/drivers were able to receive the promised amount of money simply by completing the assigned cargo deliveries, regardless of whether they performed the cargo delivery themselves or hired a third party.
(4) Supreme Court ruling on June 24, 2005: 2005 doo 3875 (Truck owner/driver under a goods transportation contract)
A truck owner/driver regularly delivered the goods of a specific company designated by the employer in accordance with a goods transportation contract, and received a fixed monthly payment. In this case, the employer did not control the truck owners/drivers regarding their commute, did not ask them to report their work, nor gave direct work instructions for the truck.
(5) Supreme Court ruling on June 9, 2011: 2009 doo 9062 (Truck owner/driver who received service fees according to the volume of goods delivered)
Certain truck owners/drivers signed a goods transportation contract, maintained their vehicles at their own cost, and could have the goods delivered by a third party without prior permission. As they received service fees according to the volume of goods delivered, they were deemed business owners for the purpose of transportation services.
2. Court cases recognizing employee status
(1) Supreme Court ruling on April 26, 2013: 2012 do 5385 (Directly-hired truck owner/driver)
In a subordinate relationship to a specific company, truck driver/owners used their own vehicles to provide work and received a comprehensive set of fixed wages, including expenses for maintaining their trucks. They delivered iron wire products manufactured by the employer to the suburbs of Seoul in accordance with the employer's instructions.
(2) Seoul High Court ruling on April 4, 2018: 2017 Noo 67843 (Delivery fee paid monthly by the company)
There are two types of delivery jobs in the transportation company. Some truck owners/drivers were paid transportation fees for each trip while others received a fixed amount each month. The truck owners/drivers who received a transportation fee for each trip had to take their own risks due to the change in the volume of delivery goods. However, the truck owners/drivers who received a fixed amount paid monthly always had to be ready to make urgent or unscheduled deliveries for the company. Accordingly, the truck owners/drivers who received monthly fixed fees were deemed eligible for severance pay.
(3) Seoul Administrative Court ruling on July 20, 2018: 2018 goodan 57660 (Truck owner/driver directly hired by the company)
An employee’s status changed from employee to truck owner/driver, and worked in the same way as before. He delivered goods and also conducted errands as requested by the company.
(4) Seoul Administrative Court ruling on Nov. 29, 2007: 2007 goohap 2241 (Truck owner/driver under the employer’s supervision)
Although the truck owner/driver appeared to be a private business owner that had entered into a cargo transportation service contract with the company, he actually provided work in a subordinate relationship to earn wages. The details supporting the existence of this subordinate relationship included a fixed monthly salary, fixed commuting time, application of off-day rules and retirement regulations, exclusive work for the company, and preparing and delivering a report on daily operations, and application of other company regulations.
The employment status of a truck owner/driver should be determined according to the actual work characteristics rather than the contents of an external transportation service contract. In the field, it is common for a truck owner/driver working according to subordinate relations to still be considered an individual business owner in accordance with the transportation service contract, and so in many cases, they do not benefit from the Labor Standards Act. Therefore, it is necessary to have a clear understanding of the criteria for judging employment status to avoid running afoul of Korean labor law.