I. Necessity for a Criteria

The greater utilization of dispatched employees has benefited Companies in maintaining labor flexibility and in reducing labor cost. However, the ban of hiring dispatched employees for more than two consecutive years has consequently forced Companies to seek internal outsourcings. Although the Company may offer an outsourcing contract, it treats the employee like a dispatched employee in practice. Addressing this issue, the Supreme Court clearly distinguished the difference between a dispatched employee and outsourcing employee with its judicial ruling on July 10, 2008. This article will review the main contents from the ruling that outlined dispatch and outsourcing and the criteria for ‘Worker Dispatch’ (Joint guidelines of the Ministry of Labor and the Ministry of Justice, April 19, 2007).

II. Criteria for Distinguishing Dispatch and Outsourcing – Judicial Ruling

“When Youngin Company—outsourced by Hyundai Mipo Shipbuilding Company—declared bankruptcy, its 30 employees filed a suit to seek their employment status, claiming that they had been employed by Hyundai Mipo Shipbuilding Company since July 2000, according to the Provision of the ‘Worker Dispatch Act’. Upon careful review, the Supreme Court ruled, “Youngin Company performed a subsidiary role as one of business departments of Hyundae Mipo Shipbuilding Company or as a substitute organization to manage workforce, and its employees provided labor service under subordinate relations with Hyundai Mipo Shipbuilding Company. Therefore, it can be concluded that there was already an implicit employment contract as if Hyundae Mipo Shipbuilding Company directly hired the employees”

[]An employee who is hired by the primary employer, but engaged in providing labor service for the third party at its location, can be regarded as the employee of the third party. (July 10, 2008, Supreme Court 2005 da 75088)

The defendant (Hyunda Mipo Shipbuilding) signed a formal outsourcing contract with the third company (Youngin Company) and received labor service from the plaintiffs (employees of Youngin Company). However, the third company does not technically have any authority regarding work or business management, but merely serves a subsidiary role as one of business departments of Hyundae Mipo Shipbuilding Company or as a substitute organization to manage its workforce. Furthermore, the defendant received labor service from the plaintiffs while maintaining subordinate relations and determining their wages in addition to other working conditions. Therefore, it can be concluded that there was already an implicit employment contract between the defendant and the plaintiffs as if the dependent directly hired the plaintiffs.

III. “Guidelines to evaluate the criteria of ‘Worker Dispatch’

(Joint guidelines of the Ministry of Labor and the Ministry of Justice, April 19, 2007, Irregular Employee Handling Team-1303).

1. Purpose The purpose of setting guidelines is to stipulate the judgment criteria in distinguishing ‘Worker Dispatch” from non-worker dispatch in accordance with Article 2 (1) of ｢Act Relating to Protection, etc. for Dispatched Workers｣ (hereinafter called “Worker Dispatch Act” to maintain proper operations by regulating employment types in violation of the Worker Dispatch Act.

2. Subjects of Composition The ‘Worker Dispatch’ in accordance with Article 2 (1) of the Worker Dispatch Act is composed of tripartite relations: the ‘Sending Employer’ who performs as the dispatch employee agent, ‘Using Employer’ who hires the employee under a worker dispatch contract, and ‘Dispatched Employee’ who is hired by the Sending Employer and subject to worker dispatch.

3. The Structure of Judgment

(1) Order of Judgment

1) Whether it is subject to rules under ‘Worker Dispatch’ of Article 2 (1) of the Worker Dispatch Act shall be judged by whether the Sending Employer, subcontractor, etc. contracted with the employee (hereinafter referred to as “Sending Employer, etc.”) can remain as a substantial entity of the employer.

2) In the case where the Sending Employer, etc. is not admitted as a substantial entity of the employer, the Using Employer, contractor, etc. not contracted with the employee (hereinafter referred to as “Using Employer, etc.”) shall be judged for violations of relevant labor laws upon assumption that the corresponding employee has been directly hired.

3) In the case where the Sending Employer, etc. is admitted as substantial entity of the employer, the corresponding employee shall be investigated whether he/she is under direction or order of the Using Employer, etc, and the corresponding employment contract shall also be evaluated for compliance to rules of ‘Worker Dispatch’.

(2) Judging method (synthetic judgment) Whether rules of ‘Worker Dispatch’ of Article 2 (1) of the Worker Dispatch Act shall subject to each article of the following paragraph 4 (1) and (2) collectively. In this case, 1), 2) and 3) of the subparagraph B shall be important criteria to judge the worker dispatch.

4. Criteria of judgment (1) Judgment on substantial entity as the employer concerning the Sending Employer

Regardless of the name, form, etc. of the service contract made between the Using Employer and the Sending Employer, in the case where the Sending Employer does not have jurisdiction over the following items, it is difficult to admit the Sending Employer as a substantial entity of the employer, and cannot be regarded as “the Sending Employer who maintains the employment relations after hiring” in the definition of ‘Worker Dispatch’, from Article 2 (1) of the Worker Dispatch Act. Provided, that subparagraphs 4) and 5) are not applicable in the case where the employee provides simple physical labor.

1) Decision-making right for hiring, dismissal, etc.

[] ※ Interview-check list, rules of employment, labor contract, safety training for newly hired employees, and other dismiss-related document shall be confirmed.

2) Responsibility for raising and spending necessary money

※ Lease contract of the office, payment of the establishment expenses, in case of a stock company, ownership rate of stocks, allotment of shares, etc. shall be confirmed.

3) Employer’s responsibility according to laws

※ Certificate of joining four social security insurance, various tax related documents such as resident tax, corporate tax, etc. service contract made between the Using Employer and the Sending Employer, whether directors can be rotated, other collective agreement-related document, etc. shall be confirmed.

4) One’s own responsibility and burden for machine, facility, and tool and instrument

※ Details of machine, facility, and tool and instrument provided by the Using Employer, and whether they are provided or not shall be confirmed; and if provided free of charge, its necessity and justification shall be confirmed.

5) Planning responsibility and authority related to professional technology and experience

※ Planning-related document, contract made between the Using Employer and the Sending Employer and whether this contract is only to provide labor service or not, business plan, the business capacity or the employees’ qualification certificates of the Sending Employer, etc. shall be confirmed.

(2) Judgment on direction and order of the Using Employer Regardless of the name, form, etc. of the service contract made between the Using Employer and the Sending Employer, in the case where the Using Employer exercises the following authorities for the corresponding employee, it is determined that “the Sending Employer engages the employee in work under the direction and order of the Using Employer” in the definition of ‘Worker Dispatch’, from Article 2 (1) of the Worker Dispatch Act.

1) Decision-making right for work assignment and transfer

※ Working plan, manpower assignment plan, meeting materials, other work assignment-related documents and repeated practices, etc. shall be confirmed.

2) Right of work direction and supervision

※ Daily work order, safety training record, morning meeting minutes, method to deliver work-related direction, etc. shall be confirmed.

※ Especially, when dispatched employees perform identical or similar work to that of the directly hired employees, the right to implement work direction and supervision shall be carefully considered.

※ In the case where the contents or purpose of work are so abstract that the Using Employer’s direction can only clarify such contents and work assignments, or the terms are too broad to outline specific work, the Using Employer may be admitted for his/her right of work direction and supervision.

3) The right to manage attendance for leave, sick leave, etc. and the right of disciplinary action

※ Leave, absence, leaving early, work outside, tardiness, attendance record, other disciplinary action-related document shall be confirmed.

4) The right to evaluate work performance

※ Evaluation sheet concerning work performance or achievement, whether the employee of the Sending Employer supervises or evaluates or not, correction measures or repeated practice in case false work performance is found, etc. shall be confirmed.

5) Decision-making right for extended, holiday, night time work (provided, that it is excluded for jobs required by work characteristics.)

※ Details of used annual and monthly paid leave, daily work status, other working hours-related documents shall be confirmed.

IV. Conclusion

The criteria to distinguish dispatch and outsourcing are based on whether or not the contractor (company) implements the substantial right of personnel and labor management, and whether or not the subcontractor (company) maintains autonomy in management. The company often tries to evade employer’s responsibilities of labor laws through various types of the employment contract such as commission and outsourcing, but judicial rulings consistently scrutinize labor contract through substantial labor relations. Accordingly, when the company converts its dispatched employee into an outsourcing employee, it shall not direct or supervise work, but shall permit autonomous governance to the outsourcing company. Also, to continue to maintain the type of outsourcing contract, the outsourcing company shall manage and directly supervise its outsourcing employees as substantial employer and maintain separate governance in management from the contractor (company).