1. Introduction
Hair shops can be seen almost everywhere in Korea. Many are small, but recently, 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. For the sake of those interns in apprenticeship, the Youth Union filed a lawsuit in February 2013 against hair shop franchise companies for violation of labor laws. 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.

2. 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.
A comparison between judicial ruling and MOEL guidelines will make it possible to properly establish the criteria for determining working relations between hair designers and the related companies.

(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) Even though the contract stipulated that the hair designer was described as an individual business owner, the actual owner of the hair shop (the employer) determined the hair designers’ working place, working hours, working dates, and working methods, and urged them to observe these determinations. In addition, if the rules were violated, the hair shop owner took such action as charging a penalty or excluding the relevant designer from receiving customers.
2) The hair designer could not choose the off days that she wanted, and when taking days off (excluding specified holidays), had to submit documents proving to the hair shop owner why she had needed the days off.
3) The hair designer could not, according to the contract, work for other hair shops as a hair designer without the hair shop owner’s written consent, and exclusively worked for the employer’s hair shop. Furthermore, her contract had been renewed automatically and continuously.
4) As hair designers could not substitute themselves with third parties, the possibility for substitution did not really exist.
5) The employer provided most hair-cutting tools, equipment, and other items used in hairdressing.
6) The hair designer had been paid a monthly fixed amount for the first few months at this hair shop, but was later paid an amount related to her own sales, even though there was no difference in work structure.
7) The contract described the reasons for termination, which are the same as the reasons for disciplinary dismissal of workers. It was strongly forbidden for hair designers to reveal customers’ individual information obtained at this hair shop or take them to their new place of business if they left to work elsewhere.
8) In consideration of the aforementioned matters, and regardless of the fact that the hair designer received remuneration strictly according to her sales, paid corporate tax based upon her business registration, and was not registered for national pension, national health insurance, employment insurance, or industrial accident compensation insurance, the hair designer offers work as a subordinate of the employer in order to earn wages in actual practice, which means that the hair designer is an employee according to the Labor Standards Act.

1) Even though the contract stipulated that the hair designer was described as an individual business owner, the actual owner of the hair shop (the employer) determined the hair designers’ working place, working hours, working dates, and working methods, and urged them to observe these determinations. In addition, if the rules were violated, the hair shop owner took such action as charging a penalty or excluding the relevant designer from receiving customers.
2) The hair designer could not choose the off days that she wanted, and when taking days off (excluding specified holidays), had to submit documents proving to the hair shop owner why she had needed the days off.
3) The hair designer could not, according to the contract, work for other hair shops as a hair designer without the hair shop owner’s written consent, and exclusively worked for the employer’s hair shop. Furthermore, her contract had been renewed automatically and continuously.
4) As hair designers could not substitute themselves with third parties, the possibility for substitution did not really exist.
5) The employer provided most hair-cutting tools, equipment, and other items used in hairdressing.
6) The hair designer had been paid a monthly fixed amount for the first few months at this hair shop, but was later paid an amount related to her own sales, even though there was no difference in work structure.
7) The contract described the reasons for termination, which are the same as the reasons for disciplinary dismissal of workers. It was strongly forbidden for hair designers to reveal customers’ individual information obtained at this hair shop or take them to their new place of business if they left to work elsewhere.
8) In consideration of the aforementioned matters, and regardless of the fact that the hair designer received remuneration strictly according to her sales, paid corporate tax based upon her business registration, and was not registered for national pension, national health insurance, employment insurance, or industrial accident compensation insurance, the hair designer offers work as a subordinate of the employer in order to earn wages in actual practice, which means that the hair designer is an employee according to the Labor Standards Act.

(3) MOEL Guideline: Hair designer determined as not an employee (Labor Standards-6228, Nov 18, 2004)
The Minister of Employment and Labor determines that it would be difficult to regard the hair designer as an employee in cases where the hair designer is contracted as an individual business owner with the hair shop and receives an amount in proportion to his/her sales.

A hair designer shall not be considered an employee if the following is true:
1) The hair designer who made a freelance contract with the hair shop owner is engaged in such hair designing work as perms, cutting, and dyeing at a designated hair shop, but is not subject to the hair shop’s rules of employment. Each hair designer works independently and free of the hair shop owner’s direction or supervision;
2) The hair designer receives a commission in proportion to his/her sales without a basic pay rate or fixed pay (like 20% to 25% of his/her monthly sales);
3) The hair designer is not exclusively engaged in one particular hair shop. After finishing 8 hours work per day, he/she is free to work at other hair shops;
4) In cases where the hair designer cannot work for personal reasons, it is possible to substitute him/herself with others who hold the same level of hair design skills;
5) Despite violations to the contract, there is no disciplinary action except for termination of the contract;
6) The hair designer pays corporate tax and is not registered for the four social security insurances.
Considering the above facts, the hair designer cannot be determined as an employee. Regardless of the fact that the hair designer works for a particular hair shop, submits work reports twice a week for the calculation of commissions, and receives all working tools except for scissors, the hair designer concerned does not provide labor service as a subordinate under the employer’s supervision to earn wages.

(4) Opinion
In evaluating a hair designer’s employee characteristics, the criteria behind the MOEL 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.

3. 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’ à ‘dry’ à ‘color’ à ‘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.
MOEL 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 (MOEL Guidelines-826, Apr. 7, 2009).

(3) Working standards under the Labor Standards Act
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 not only has a civil obligation to pay but may also face criminal charges.

(4) Desirable resolutions
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.

4. 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.