Two separate cases involving the employment status of a hair salon’s hair designer and intern
Bongsoo Jung (Korean labor attorney, KangNam Labor Law Firm)

I. Introduction
Hair shops can be seen almost everywhere in Korea. Many are small, but recently, hair shops have been becoming larger, nicer, and more specialized as more franchises are moving into the market. As this has happened, labor disputes related to the working conditions of employees working at these shops have become more frequent. Many hair shops have contracted hair designers as individual business owners and excluded application of some labor laws by paying commissions according to their individual sales. Although this type of contract makes hair designers appear as individual business owners, their status has often been judged as employees because employers have direct managerial and occupational control. Another issue is interns who assist hair designers while learning the skills they will need as hair designers. In the course of becoming hair designers, candidates should go through internships for two to three years, during which they receive less than minimum wage and work longer hours than legally allowed. It can be an issue whether interns in such apprenticeship-like working relationships are considered employees or merely students purely learning technical skills. In relation to these issues, I would like to evaluate whether hair designers and interns are in fact employees, and, if so, review and suggest the most desirable solutions in terms of labor law.

II. Hair Designer’s Petition for Unpaid Severance Pay & Matters to be Considered
1. Case summary
Upon resignation from a hair shop franchise, a hair designer submitted a petition to the Labor Office for unpaid severance pay in June 2012. The hair designer claimed that she was entitled to severance pay since she had been an employee in reality even though she had signed an individual business owner contract when working relations began in January 2011, while the hair shop company contended that she was an individual business owner, not an employee, so severance pay could not occur. The company submitted related documents and persuaded the Labor Office to determine that the company did not have to pay severance pay to hair designers. The documents submitted by the company explained working relations regarding status, occupation and contract in terms of criteria for workers’ characteristics. In this regard, reviewing the relevant court decision suggests that it is possible to establish certain criteria for determining the employee status of hairdressers in such arrangements.

2. Judicial ruling: Hair designer determined to be an employee
(Seoul District Court 2010 gahap 11116 (Lawsuit): 2010kahap18407 (Cross action)
According to the contract made between Hair Shop A and a hair designer at the time working relations began, if the hair designer were to start up her own hair shop after resignation, she would compensate the company 20 million won in damages. The hair designer did resign and opened up her own hair shop 400 meters away. Hair Shop A filed a lawsuit with the court for compensation due to violation of the contract: prohibition of competitive business. To defend herself, the hair designer filed a cross action, claiming that she did not receive severance pay for her period of employment. As a result, the contract article prohibiting opening up a competitive business was declared null and void by the court, while the hair designer’s cross action was ruled as valid due to her status as an employee, making her eligible for severance pay.
 The court’s reasons for this ruling
1.        Although in the work agreement for this case the hair shop owner is described, like the hair designer, as an “independent business operator,” the hair designer determined the hairdressers’ place of work, working hours, number of working days, and methods of work, and not only encouraged the hairdressers to comply with these, but also imposed significant sanctions—such as fines and exclusion from customer assignments—when they failed to comply;
2.        The hairdressers, in some cases, were not allowed to take days off on dates of their own choosing, and if they were absent due to personal events or illness on days other than designated off-days, they were required to submit supporting documents to the hair designer;
3.        Under the work agreement, hairdressers were contractually prohibited from working as hairdressers in other salons without the written consent of the hair designer, and both by contract and in practice, they were exclusively affiliated with the salon in this case, working solely for the hair designer. The contract was also automatically renewed, showing continuity;
4.        It appears that the hairdressers could not have a third party attend the salon and perform their duties in their place, making it difficult to recognize any substitutability in their work;
5.        Most of the tools and equipment used by the hairdressers in carrying out their work were provided by the hair designer;
6.        The hair designer paid the hair shop owner a fixed amount each month during the first few months of work at the salon, and from a few months later, paid an amount calculated based on the shop owner's sales performance. However, there appears to have been no change in the shop owner’s actual working patterns before and after this change;
7.        The work agreement listed grounds that could be considered disciplinary dismissal as reasons for contract termination, and the hair designer prohibited the hairdressers from leaking or taking with them any customer information acquired while working at the salon when they left;
8.        Taking all these circumstances into account—even considering that the hair shop owner’s remuneration was calculated in proportion to sales without a fixed base salary, that the shop owner had registered as a business and had business income tax withheld, and that they were not enrolled in the National Pension, Health Insurance, Employment Insurance, or Industrial Accident Compensation Insurance—it is still reasonable to conclude that the hair shop owner qualifies as an employee under the Labor Standards Act, as they provided labor in a subordinate relationship to the hair designer for the purpose of receiving wages in return for their work.

3. Opinion
In evaluating a hair designer’s employee characteristics, the criteria behind the Labor Ministry guideline and judicial ruling show that whether a person is considered an employee or not shall not be decided only by the declared type of contract, but also in consideration of the amount of supervision that exists at work for the hair designer. Generally a person who provides labor service in return for a commission tends not to be considered an employee by this fact alone, but by considering many facts collectively and substantially about whether the person offers work to the employer under the employer’s supervision to earn wages in actual practice.

III. Hair Shop Interns and Internship Characteristics

1. Background
A person desiring to become an official hair designer does so after completing a two- to three-year internship at a hair shop, despite having already obtained a hair designing certificate. Most hair designers are working as individual business owners under commission contracts related to their own sales with the hair shop owner. Accordingly, the hair shop treats interns, in the course of becoming individual business owners, as trainees or apprentices, and pays ₩700,000 to ₩1 million as a training stipend. They are not registered for the four social security insurances and pay a corporate income tax of 3.3%. However, interns mostly provide actual labor service, not training, for 10 to 12 hours every day for 5 working days per week. Here, I would like to review the interns’ characteristics as employees, and if determined as employees, what should be done.

2. Determining whether interns are employees
Internship training at a hair shop includes different steps like ‘perm’  ‘dry’  ‘color’  ‘cut’ and involves approximately six months per step. As previously mentioned, in order to become a hair designer, a two- to three-year internship is required, during which interns learn hair designing skills from hair designers. In theory, the internship is spent learning work skills, but in reality interns spend their time cleaning, arranging, shampooing and drying customers’ hair, and assisting the hair designers. Accordingly, in reviewing their working relations, hair shop interns cannot easily be considered purely as trainees, but rather a combination of worker and intern.
Labor Ministry guidelines stipulate “in cases where those in internship become regular employees, whether internship period shall be regarded as consecutive service period” shall be determined in the following manner: “Whether a person is considered an employee under the LSA shall be decided by considering the subordinate relations with the employer collectively, regarding the details of the job, characteristics of supervision by the employer, disciplinary action, ability to ignore work instructions, and wage characteristics, etc. In cases where students provide labor service to gain academic credit without a promise to hire in accordance with the academic-industrial cooperation agreement, even though the agreement contains working hours, training stipend, application of social security insurances, etc., they are not generally considered employees. However, in evaluating the employment contract made with the company (work details and characteristics, payment of wages, etc), if their work is very similar to provision of labor service, and conducted under the employer’s supervision, the trainees can be considered employees. In this case, an internship period shall be considered a continuous working period (Labor Ministry Guideline-826, Apr 7, 2009).

3. Determination, corrective orders, and criteria used by the labor inspector
As long as interns are considered employees under the Labor Standards Act (LSA), hair shops shall observe LSA working standards. Let’s look at an imaginary intern’s working conditions at a hair shop where he/she works for 10 hours a day and five days a week.
(1) Minimum wage: the hourly minimum wage for 2013 is 4,860 won. In working 40 hours per week, the monthly minimum wage is ₩1,015,740.
(2) Overtime: Currently, the intern works 2 hours overtime per day, which equals 10 hours per week. When added with overtime allowance (50%), this equals an additional 15 hours per week. The monthly overtime pay would equal: 1 week (10 hours x 50% additional allowance) x 4.345 weeks = 315,900 won. Therefore, the monthly minimum wage plus overtime allowance would be ₩1,331,640.
(3) Recess hours: 30 minutes per 4 working hours / 1 hour for every 8 working hours
(4) Annual paid leave: Besides the above minimum wage, 15 annual paid leave days per year shall be granted on working days.
(5) Severance pay: for an intern who has served for one year or more, 30 days’ average wages shall be paid per consecutive service year.
(6) Extinctive prescription: As minimum wage, overtime allowance, annual paid leave, and severance pay have a three year extinctive prescription, the intern can claim unpaid wages for the past three years during his/her working period or after resignation. If the hair shop owner refuses to pay a legal claim, the owner may face not only criminal charges, but also has civil obligation to pay.

Even though hair shop interns have apprentice working relations, they shall be regarded as employees under the Labor Standards Act. It is therefore necessary to ensure number of working hours and payment are legally permitted according to the minimum working standards. As for wages, all allowances such as meal expenses and housing subsidies shall be included into basic pay so that their wages shall be equal to or greater than minimum wage. Training hours and working hours also need to be separated and managed differently. Once they are, paying wages for working hours only can be considered.

IV. Conclusion
Even though hair shops are relatively small businesses, they are still considered workplaces to which the Labor Standards Act applies. Regardless of the named type of contract or whether or not they are registered as employees (through application for the four social insurances), hair designers shall be considered employees if they provide labor service under the employer’s supervision. As for hair shop interns (whether they are called trainees or students), as long as they are employees, hair shop owners shall observe the Labor Standards related to wages and working hours.