Criteria for Determining the Employee Status of Non-Registered Executive Officers under the Labor Standards Act
Bongsoo Jung (Korean labor attorney, KangNam Labor Law Firm)
I. Introduction
Recently, there has been a surge in cases involving the determination of employee status under the Labor Standards Act. On March 20, 2025, the Supreme Court ruled that a “caregiver from a staffing agency” qualifies as an employee according to that Act. On March 24 of the same year, the Busan District Court ruled that the “coach and manager of a professional youth football team” also fall under the category of employees. On March 26, the Gyeongbuk Regional Labor Relations Commission determined that a “senior instructor who teaches singing and dancing” is also an employee under the Act.
Recently, I was asked to take on a case where the head of a research institute at a cosmetics manufacturing SME requested, upon resignation, payment for unused annual leave over the past four years. The company denied the request, arguing that although the individual was a "non-registered director," he was not an employee and therefore had no entitlement to annual leave under the Labor Standards Act. This is because if a non-registered director is recognized as an employee under the Act, all provisions of the Labor Standards Act would apply. If not, even unused annual leave compensation cannot be claimed.
To prove the employee status of a non-registered director under the Labor Standards Act, it is necessary to (i) refer to key precedents related to employee status, (ii) consider the criteria used in similar cases, and then (iii) make a comprehensive judgment based on the facts specific to the case at hand. These criteria are not only applicable to determining the employee status of non-registered directors, but also apply equally to other occupations.
II. Understanding the Criteria for Determining Employee Status in Court Precedents
1. Criteria in Precedents for Recognizing Employee Status
Article 2, Paragraph 1 of the Labor Standards Act defines a “worker” as a person who, regardless of the type of occupation, (1) provides labor for the purpose of earning wages (2) to a business or workplace. In a 2006 Supreme Court ruling concerning a “full-time Hagwon instructor,” the Court introduced the concept of subordinate relationship (i.e., control and dependency). In practice, this standard is applied case-by-case, depending on the specific occupation and job characteristics, to determine whether an individual qualifies as an employee. In essence, courts derive judgment criteria from this standard and apply them accordingly. In particular, the precedent establishes three main points:
(1) First, the judgment must be based on the substance of the relationship, not merely the form of the contract. (2) Second, the Court proposed 10 specific criteria for assessing a subordinate relationship. These can be categorized into: ① Personal subordination, related to the execution of duties; and ② Financial subordination, related to the characteristics of remuneration. (3) Third, if any of these criteria arise solely from the employer’s superior economic position, they should not be heavily weighted in determining employee status.
(1) Whether a person qualifies as a worker under the Labor Standards Act should be judged based on whether, in substance, the person provided labor to a business or workplace under a subordinate relationship for the purpose of earning wages—rather than whether the contract is formally a labor contract or a service contract.
(2) The existence of a subordinate relationship is assessed by comprehensively considering factors such as: ① Whether the employer determines the content of the work; ② Whether the person is subject to internal workplace rules or personnel regulations; ③ Whether the employer exercises significant supervision and control over the work process; ④ Whether the employer designates working hours and workplace location, and whether the worker is bound by these designations; ⑤ Whether the service provider independently owns equipment/materials or hires third parties to perform the work, thus operating a business at their own risk; ⑥ Whether the service provider bears the risk of profit or loss from their work; whether compensation is tied directly to the labor provided; ⑦ Whether a base salary or fixed wage has been determined; ⑧ Whether wage income tax is withheld at the source; ⑨ The continuity and exclusivity of the labor relationship with the employer; and ⑩ Whether the person is recognized as a worker under social security laws. All these financial and social conditions must be considered comprehensively.
(3) However, factors such as whether a base salary or fixed wage has been set, whether income tax is withheld, or whether the person is recognized as a worker for social security purposes should not, by themselves, lead to a denial of employee status—because such conditions can often be unilaterally determined by the employer due to their superior economic position.
2. Applicability of the Labor Standards Act to Executive Officers
In determining whether someone is protected under the Labor Standards Act, court precedents have considered whether the person is a registered or non-registered executive as the most important factor. For registered executives, unless there are special circumstances otherwise, they are generally not considered employees. This is because registered executives are delegated specific business affairs by the company and possess the authority and responsibilities stipulated under the Commercial Act. Therefore, they are not regarded as individuals who provide labor under the direction and supervision of an employer in exchange for wages. Registered executives are granted, by law, the right to participate in the company’s key decision-making body—the Board of Directors—and thus have sufficient authority and responsibility to participate in company management. As such, they are not seen as workers in a subordinate relationship with the employer. In contrast, non-registered executives are not granted such legal authority and responsibility under the Commercial Act and typically serve a role similar to that of middle management. In such cases, they are often deemed to be engaged in actual labor under the direction and supervision of those with actual executive authority.
In one lower court ruling, it was held that: “The status of ‘director’ was only formal and nominal, and the individual continued to carry out departmental duties under the direction and supervision of the CEO. In return, he received a fixed monthly salary and bonuses. Therefore, a non-registered director in such a position qualifies as a worker under the Labor Standards Act.” Additionally, the Supreme Court has ruled: “Whether a person is considered an employee subject to the Labor Standards Act must be determined based on the substance of the working relationship, not the form of the contract. That is, it depends on whether the person provides labor to the employer in a subordinate relationship for the purpose of earning wages. Therefore, even if someone is titled a director or auditor of a company, if that title is merely formal or nominal, and the individual actually reports to work daily, provides labor under the direction and supervision of the CEO or employer, and receives remuneration in return—or, besides handling delegated affairs, also performs certain labor tasks under such supervision—they shall be deemed a worker under the Labor Standards Act.”
III. Criteria and Related Cases for Determining the Employee Status of Executive Officers
1. Whether the Executive Holds Managerial Authority (Work Execution Rights)
If an individual does not, in substance, have the authority of an executive director and performs duties under the supervision and control of a representative director who holds executive authority, the courts may recognize employee status—even if the individual is registered as a director. In this regard, the Supreme Court ruled: “There is room to consider that, even after the plaintiff’s status changed from non-registered director to registered director, he continued to perform his existing duties under a subordinate relationship with the representative director beyond the delegated matters defined under the Commercial Act. Therefore, he falls under the category of a worker under the Labor Standards Act.”
However, the Supreme Court has also ruled: “An executive officer, such as a director, who holds the company’s ‘managerial authority’ (i.e., work execution rights), even if not a shareholder of the company, is deemed to have been delegated specific tasks by the company. Unless there are special circumstances otherwise, such an officer is not considered to be in an employment relationship in which he provides certain labor under the direction and supervision of the employer in return for prescribed wages. Therefore, he cannot be regarded as a worker under the Labor Standards Act.”
This ruling presents a clear criterion for determining the employee status of executives. The term "work execution authority" refers generally to the power to make important decisions about company management or business operations and to carry out those decisions. Such authority goes beyond merely giving instructions or supervision—it means having substantial influence over the company’s decision-making process or taking ultimate responsibility for implementing those decisions.
However, even a non-registered executive may be denied employee status if they effectively exercise managerial authority within the company. In these cases, “work execution authority” may include: (i) executing the company’s budget; (ii) holding personnel authority or approval authority and supervising subordinates; or (iii) representing the company in external contractual relationships. If a non-registered executive is found to be carrying out such managerial tasks with independence and responsibility in the company’s operations, the courts regard them not as a “worker” in the general sense under the Labor Standards Act, but rather as an “employer.”
The Supreme Court also ruled:
“The plaintiff was promoted to the position of 'director' while serving as the plant manager of the defendant’s Pyeongtaek plant. Even after the promotion, he continued to commute daily to the plant and performed the same duties as before. Therefore, even though he held the title of director, he was in fact engaged in the same work as a plant manager on a daily basis and received fixed compensation in return. As such, he still qualifies as a worker under the Labor Standards Act.”
2. Significant Preferential Treatment in Compensation and Benefits
In the case of a non-registered executive (Managing Director) in the overseas sales department at K Airlines, one of the key standards used to acknowledge the existence of a delegation relationship (rather than employment) was the significantly different level of compensation and benefits compared to ordinary employees. Regarding severance pay, the court stated: “In terms of treatment, unlike general employees, the severance pay was provided under the company’s executive severance pay regulations, and the severance rate per year of service under these regulations was at least three times higher than that of ordinary severance pay. Additionally, the remuneration system was structured differently from that of regular employees, and the annual salary was KRW 300 million, which was two to three times that of other employees.” This ruling used the special treatment given to executives as a criterion in determining the absence of employee status.
In general, there is a strict distinction between general employees and executive officers, and such differentiated working conditions serve as a major factor in denying employee status. The Supreme Court stated that according to the company’s rules of employment and executive personnel regulations: “The positions of executives and other employees of the defendant are strictly distinguished. If an employee is appointed a non-registered executive, it is deemed a resignation from the employee position, and severance pay is provided accordingly. Non-registered executives receive compensation equivalent to that of registered executives, which is significantly higher than that of employees, and severance pay is calculated only for the executive tenure. All welfare and benefit treatments are also provided in accordance with those given to registered executives. In line with this, the plaintiff, holding the title of Managing Director, received treatment equivalent to a registered executive, including significantly preferential salary compared to ordinary staff, and differentiated benefits such as a company car and sports club membership.”
IV. Conclusion
In determining the employee status of non-registered directors, the most important factor is whether they possess work execution authority. Assessing this authority is based on whether the individual acts as a de facto employer with supervisory and managerial control over the work and workers. In addition, executive compensation and treatment should be considered as secondary factors. If an executive performs duties independently and receives significantly higher compensation and benefits than ordinary employees, employee status is generally denied. However, if the executive works under the direction and supervision of the CEO and there is no substantial difference in treatment compared to regular employees, employee status may be recognized regardless of whether the individual is a registered or non-registered director. Therefore, in evaluating the employee status of executives, it is essential to focus primarily on whether the executive held work execution authority, while also taking into account their compensation and treatment.
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