Supreme Court Recognizes Native English Instructors as Employees, not Freelancers
Bongsoo Jung (Korean labor attorney, KangNam Labor Law Firm)
I. Introduction
1. Supreme Court ruling: On June 11, 2015, the Supreme Court ruled that native English instructors (hereinafter referred to as the Plaintiff) working for C Language Institute (hereinafter referred to as the Defendant) are employees rather than freelancers, and are entitled to severance pay, annual paid leave allowance, and weekly holiday allowance (Supreme Court ruling 2014da88161).
2. Summary of the case: The case began when 17 instructors submitted a petition to the Labor Office for unpaid severance pay, weekly holiday allowance and annual paid leave allowance against the Defendant on February 22, 2011. Upon receipt of the petition, the Labor Office did a thorough investigation over 18 months, and concluded that the Language Institutes 17 instructors were freelancers, not employees (Labor Team 4 of GangNam Labor Office, September 28, 2012). Upon this conclusion, 24 instructors (the original 17 and 7 new applicants), began a civil action. On October 17, 2013, the Seoul Central District Court determined that C Language Institutes native instructors were employees under the Labor Standards Act (2011gahap121413). After this, the Language Institute filed an appeal against the District Courts decision, but the Seoul High Court maintained its first ruling (Seoul high court 2013na68704) and the Supreme Court also maintained the same ruling on June 11, 2015.
3. Main dispute: The main point of this case was whether native instructors are employees or freelancers. The courts used the legal criteria for determining whether someone is an employee or not in their judgment. The Defendant claimed that the Plaintiffs 1) signed an Agreement for Teaching Services voluntarily, not an employment agreement, and also paid a business tax; 2) that the Defendant paid remarkably high benefits in consideration of there being no severance pay; and 3) that, as the Plaintiffs agreed that this agreement would not include severance pay, if the Plaintiffs requested additional severance pay, it would be a violation of the good-faith principle. Hereunder, after reviewing the legal criteria for the concept of employee and the Defendants claims, I would like to evaluate the validity of the Supreme Courts judgment of this case.
II. Facts
1. Parties: The Defendant, one of the largest language institutes in Korea, operates 157 branches and employs 1,300 native English instructors. The Plaintiffs are 24 native English teachers from foreign countries (including some with residency in Korea), except 2 who are Korean nationals.
2. Details of the Institutes Operations
(1) The Defendant signed an Agreement for Teaching Services with native instructors to provide foreign-language teaching services.
(2) The Plaintiffs used textbooks as determined by the Defendant. As needed, the Plaintiffs participated in developing textbooks for which they received additional compensation.
(3) The instructors did other work in addition to teaching, such as meeting students parents, etc., for which they also received additional compensation.
(4) There were no other rules of employment or personnel rules applying to the Plaintiffs, but they had to observe the Instructors Code of Conduct by adhering to the teachers service regulations.
(5) The CCTV cameras installed in each classroom were designed to supplement and improve the instructors lessons, to simplify dispute resolution with the students, and to protect the Language Institute and its instructors.
(6) The Defendant hired a Head Instructor to train the Plaintiffs in both teaching methods and techniques.
(7) The teaching hours and teaching locations were basically determined by the students requirements as they pertained to the Institutes characteristics, but the actual teaching times and places were decided after input from the Plaintiffs.
(8) The Plaintiffs did not own the tools and materials necessary for teaching, but used those provided by the Defendant, and were not able to substitute a third party to cover his/her classes.
(9) The Plaintiffs were paid hourly wages starting at ₩30,000 per hour in proportion to the number of teaching hours, and did not use a performance-based pay system related to the number of students.
(10) The Agreement for Teaching Services between the Plaintiffs and the Defendant was signed annually.
(11) The Plaintiffs could not work for or be employed by other language institutes or companies in accordance with the restrictions of the E-2 work visa that only allows them to teach at the designated workplace.
(12) The instructors paid business tax but not income tax, and were not registered for the four social security insurances.
3. The Plaintiffs Claims: The Plaintiffs worked for the Defendant as employees and quit their jobs, and the Defendant did not pay the severance pay stipulated in the Labor Standards Act, weekly holiday allowance, or annual paid leave allowance despite the obligation to do so. Therefore, the Plaintiffs entered their claim for payment.
III. Legal Criteria for Determining Employee Status
1. Legal Criteria
Article 2 (Paragraph 1) of the Labor Standards Act stipulates the definition of an employee as a person who offers work to a business or a workplace for the purpose of earning wages, regardless of his/her occupation.
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. Whether or not a subordinate relationship with the employer exists shall be determined by collectively considering: whether the rules of employment or other service regulations apply to a person; whose duties are decided by the employer, and whether the person has been supervised or directed during his/her work performance significantly by the employer; whether his/her working hours and workplaces were designated and restricted by the employer; who owns the equipment, raw materials or working tools; whether ones position can be substituted by a third party hired by the person; whether ones service is related to creating business profit or causing loss directly like ones own business; whether payment is remuneration for work performed or whether a basic or fixed wage is determined in advance; whether income tax is deducted for withholding purposes ; whether work provision is continuous and exclusive to the employer; whether the person is registered as an employee by the Social Security Insurance Acts or other laws, and the economic and social conditions of both sides.
2. Understanding the legal criteria
The legal criteria for employee status is based upon 12 items, substantial criteria for determining subordinate relations, suggested by the above court ruling. The judgment method is to review each particular case individually and comprehensively, and when a persons situation satisfies the majority of items, he/she is regarded as an employee to whom the Labor Standards Act applies. These 12 items can be divided into three parts: subordinate employment factors (,,,), independent business factors (,,, ,), and double standard factors (,,).
The subordinate employment factors look at how much the employer supervises the worker in the process of performing his/her duties. Recent judicial rulings show that considering the occurrence of various jobs and more independent work performances, being supervised and directed during his/her work performance specifically and directly by the employer has changed to being supervised or directed considerably
The independent business factors are decided by whether the person can create profit by his/her efforts while working. For part-time instructors, the institute used a performance-based salary system that divided profit according to the number of students attending each part-time workers classes. In this case, part-time instructors were not recognized as employees.
The double standard factors deal with an item which is decided unilaterally by the employer and may result in the worker being taken advantage of by the employer due to the employers superior position: whether a basic or fixed wage is determined in advance; whether income tax is deducted for withholding purposes and whether the person is registered as an employee by the Social Security Insurance Acts or other laws. When these items are present, the courts can easily determine the person is an employee, but the absence of these items shall not mean that the person is not an employee.
IV. Major Points in the Defendants View & the Courts Judgment
1. Type of contract
The Defendant called the contract for native English teachers an Agreement for Teaching Services and designated the Plaintiffs as instructors. In particular, the Defendant claimed, the plaintiffs, mainly from famous colleges of advanced countries such as the United States, are people who will return to their home countries after working for a short time at a high level of remuneration while experiencing Korean culture and retaining their freedom at the same time as foreigners. Because of these special characteristics, their economic and social conditions are equal or superior in the relationship with the Defendant. In reference to this, the contracts with native English instructors were delegation contracts or lecture service contracts, which are similar to subcontracts.
As for this, the court recognized as employees those who signed a contract entitled Service Contract Regarding Instructions at the Institute & Instruction and Management of Students or Lesson Service Offer Contract . In addition, even though some plaintiffs working for the Defendant consider themselves freelancers, not employees, the essence of the relationship between the Plaintiffs and the Defendant does not change. Whether a person is considered an employee under the Labor Standards Act shall be decided by whether that person offers work to the employer as a subordinate of the employer in a business or workplace to earn wages in actual practice, regardless of the type of contract.
2. Salary including severance pay & agreement excluding severance pay
The Defendant claimed the possibility of recognizing the status of employee is slim because the Plaintiffs monthly salary, which was between 3,469,128 won and 3,979,976 won, is higher than the average Korean teachers monthly salary, which is 1,030,000 won, the salary of other regular employees of the Defendant, and the monthly salary of native English teaching assistants who work for the Education Office, which pays them 1,800,000 won to 2,700,000 won. According to the Agreement for Teaching Services, The Instructor agrees and understands that he/she shall not receive any benefits available to full-time employees including but not limited to severance pay, health insurance, and pension payments, all of which are the sole responsibility of the Instructor.
As for this, the Court explained that The Defendants claims lack legal grounds because not only are the duties dissimilar to those of the Korean teachers, regular employees, and native English teaching assistants who work for the Education Office, the amount of salary does not determine whether or not they are employees. The Court also stipulated that Severance pay is the deferred remuneration to be paid in return for continuous employment to an employee who leaves employment after serving a certain period of time. The concrete right to request severance pay occurs on the condition of the fact of termination of continuous employment. It is null and void due to it being a violation of the Labor Standards Act, compulsory regulation, if an employee previously signed a special contract that the employee would give up the right to request severance pay at the time of resigning from his/her job.
3. Judgment on whether or not the requests are a violation against the principle of good faith
The Defendant claimed that the Plaintiffs claims were not acceptable because they violated the principle of good faith in light of justice and the principle of equity for the following reason: If the Plaintiffs claims were validated, the Defendant would have no choice but to bear additional loss from the burden of paying severance pay, other legal allowances and social security insurance premiums, etc, while the Plaintiffs will enjoy unintended additional benefits. This would result in unexpected, excessive cost to the Defendant, and consequentially, have serious impact on the Defendants stock price, and seriously threaten the growth of the Defendant as an ongoing business.
As reviewed, the Court ruled that attempting to restrict the basic rights of an employee guaranteed by compulsory provisions such as the right to claim severance payment by applying the principle of good faith is to go against the constitutional value and the nature of compulsory provisions of the Labor Standards Act. Therefore, it is unacceptable, as long as there are no special circumstances that would affect the judgment, to give priority to the wrongful belief of the employer over the legitimate right of the employees by categorizing the Plaintiffs claims as a violation of the principle of good faith even though the Labor Standards Act guarantees the employees definite rights as compulsory provisions. If the Defendants claims were accepted with only the evidence the Defendant had submitted, it is unlikely that it will lead to severe managerial difficulties for the Defendant or be a menace to the Defendants existence. In addition, it cannot be recognized that the Plaintiffs claims for severance payment, etc, is illegitimate and goes against the principle of good faith due only to the claims the Defendant has submitted.
V. Conclusion
C Language Institute has contracted native English instructors, not as employees, but as freelance contractors for the past twenty years, and has not paid any statutory allowances like severance pay required under the Labor Standards Act. Recently, court rulings have gradually widened the realm of employee status, changing the criteria by which employee status is judged. Items such as the outsourcing of contracts or use of commission contracts instead of employment contracts, payment of business tax and non-registration of the four social security insurances (all of which are easily determined by the employer due to his superior position), are considered to be unimportant factors in determining employee status. The most important factor is how much supervision the instructor receives while providing labor service for money. On this point, the Supreme Courts rulings can be expected to be based on actual employment relations in the future.
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