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 Institute’s 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 Institute’s native instructors were employees under the Labor Standards Act (2011gahap121413). After this, the Language Institute filed an appeal against the District Court’s 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 Defendant’s claims, I would like to evaluate the validity of the Supreme Court’s 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 Institute’s 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 ‘Instructor’s 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 Institute’s 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: ① whether the rules of employment or other service regulations apply to a person; ② whose duties are decided by the employer, and ③ whether the person has been supervised or directed during his/her work performance significantly by the employer; ④ whether his/her working hours and workplaces were designated and restricted by the employer; ⑤ who owns the equipment, raw materials or working tools; ⑥ whether one’s position can be substituted by a third party hired by the person; ⑦ whether one’s service is related to creating business profit or causing loss directly like one’s own business; ⑧ whether payment is remuneration for work performed or ⑨ whether a basic or fixed wage is determined in advance; ⑩ whether income tax is deducted for withholding purposes ; ⑪ whether work provision is continuous and exclusive to the employer; ⑫ 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 person’s 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 (①,②,③,④), independent business factors (⑤,⑥,⑦, ⑧,⑪), and double standard factors (⑨,⑩,⑫).
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