1. Summary
This case of unpaid wages started when 17 instructors submitted a petition to the Gangnam Labor Office for unpaid severance pay, weekly holiday allowance and annual paid leave allowance against “C” Language Institute on February 22, 2011. C Language Institute claimed that its native instructors were freelancers with an “Agreement for Teaching Services” contract signed, and were not employees to which the Labor Standards Act applied. Upon receipt of the petition, the Gangnam Labor Office thoroughly investigated over 18 months, and concluded that the Language Institute’s 17 instructors were indeed freelancers, not employees (Labor Improvement Team 4, Sept. 28, 2012). Upon this conclusion, 24 instructors (the original 17 plus 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), and ruled that the language institute was obligated to pay severance pay, weekly holiday allowance, and annual paid leave allowance. C Language Institute then filed an appeal. The main point of this case was whether native instructors are employees or freelancers. I will review the criteria for evaluating “employee” status, give a summary of C Language Institute’s practices, list the claims admitted by the Labor Office, and details of the Court’s judgment.

2. Change in Employee Status of the Institute’s Instructors
In a previous case, the Supreme Court ruled that the part-time instructors contracted with a preparatory institute were not employees in its judgment (96do732) and quoted, “Whether a person is considered an employee under the Labor Standards Act shall be decided by whether that person offers work to the employer as a subordinate of the employer in a business or workplace to earn wages in actual practice, regardless of the type of contract.” This ruling provided “concrete criteria to judge employee status under the supervision of the employer” for the first time, and since then the courts and the Labor Relations Commissions have judged employee status based on this criterion. However, this criterion was changed in a judicial ruling (2004da29736) regarding a preparatory institute’s instructors in 2006. The first change is that “being supervised and directed during his/her work performance specifically and directly by the employer” was adjusted to “being supervised or directed considerably.” This is because the instructors were not supervised or given specific or individual direction regarding the lecture content or methods by the institute as the lecture characteristics were composed of intellectual activities. The second change is that one additional sentence was included to the effect that the characteristics of “employee” cannot be denied because of the absence of items determined at the employer’s unilateral discretion by taking advantage of his/her superior position. Such items which may be determined by the employee’s superior position are the employer’s payment of basic wages, payment of business tax, income tax, and registration with the four social security insurances, and those items shall not be included in determining whether employee status exists or not. Supreme Court ruling on Sept. 7, 2007: Hairdresser Institute instructors’ employee status.
The following judicial ruling is the standard criterion used to determine instructor status under employer supervision:
“Whether a person is considered an employee under the Labor Standards Act shall be decided by whether that person offers work to the employer as a subordinate of the employer in a business or workplace to earn wages in actual practice, regardless of whether the type of contract is an employment contract or a service agreement under the Civil Act. Whether a subordinate relationship with the employer exists or not shall be determined by collectively considering: 1) whether the rules of employment or service regulations apply to a person whose duties are decided by the employer, 2) whether the person has been supervised or directed during his/her work performance considerably by the employer; 3) whether his/her working hours and workplaces were designated and restricted by the employer; 4) who owns the equipment, raw material, or working tools; 5) whether his/her position can be substituted by a third party hired by the person; 6) whether his/her service is related to creating business profit or causing loss directly like one’s own business; 7) whether payment is remuneration for work and whether a basic or fixed wage is determined in advance; 8) whether income tax is deducted for withholding; 9) whether work provision is continuous and exclusive to the employer; 10) whether the person is registered as an employee by the social security insurance acts and other laws, and 11) the economic and social conditions of both sides. Provided, that as whether a basic or fixed wage is determined, whether income tax is deducted for withholding, and whether the person is registered for social security insurances could be determined at the employer’s discretion by taking advantage of his/her superior position, the characteristics of an employee cannot be denied because of the absence of these mentioned items. Supreme Court ruling 2004 da 29736, on Dec. 7, 2007: Full-time instructors’ employee status.


3. Actual Facts
C Language Institute has used native instructors which it considered to be freelancers, not employees, for the past twenty years, with some characteristics as follows:
(1) Contract relations: The Language Institute signed an Agreement for Teaching Services with native instructors to provide foreign-language teaching services, and maintained contract periods of one year.

(2) Working types: ① The instructors used textbooks as determined by the Language Institute; ② The instructors did other work in addition to teaching, such as meeting students’ parents, etc.; ③ There were no other rules of employment or personnel rules applying to the instructors, but they had to observe the “Instructor Code of Conduct” by adhering to a dress code and the teachers’ service regulations; ④ The Language Institute installed CCTV cameras in each classroom and monitored the instructors; ⑤ The instructors used the classrooms provided by the Language Institute at the designated times.

(3) Income characteristics and payment types: ① The instructors were paid hourly wages starting at ₩30,000 per hour in proportion to teaching hours; ② The instructors paid business tax and not income tax, and were not registered for the four social security insurances.

4. C Language Institute’s Claims
The Language Institute’s instructors cannot be judged as employees under the Labor Standards Act when they are measured against the criteria to judge a subordinate relationship with the employer as shown in recent Supreme Court rulings. There are some signs to suggest employee status, while other signs point against it. However, overall the signs denying employee status are much more obvious. Even those signs which suggest employee status were caused more by the job’s distinct characteristics than by the employer’s superior position. The Language Institute’s foreign instructors stayed in Korea for a short period of time and earned money through freelancing activities while they lived here; furthermore they signed an agreement to provide teaching services freely on an equal footing with the Language Institute, at their own discretion.

(1) Contract relations: ① The Language Instructors signed an Agreement for Teaching Services freely on an equal footing with the Language Institute, at their own discretion, and understood the character of the agreement; ② There was no continuous relationship in employment as the instructors’ contract periods and service periods were for one year or less, and there was also no exclusive relationship in employment as they were free to work for other institutes outside their teaching hours; ③ There was no need for the instructors to own the equipment, raw material, or working tools because of the characteristics of the teaching job, and instructors could not provide a substitute by hiring another instructor due to the continuous contract with him/her.

(2) Working types: ① Rules of employment and personnel regulations were not applicable to the instructors; ② The CCTV cameras installed in each classroom were not designed to supervise or control the teaching content, but to supplement and improve the instructors’ lessons, to simplify dispute resolution with the students, and to protect the Language Institute and its instructors; ③ The Institute prepared the textbooks due to the fact that the instructors, as foreigners who only stayed in Korea for a short period of time, could not understand the content necessary for teaching or the requirements of the students, and were not ready to choose the textbooks by themselves; ④ The Language Institute did not supervise or direct the teaching content substantially; ⑤ 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 instructors.

(3) Income characteristics and payment types: ① The maximum number of students for each class was fixed for the most part, and for those classes without a fixed number of attendees, the instructors rejected a payment system of income-sharing based on attendance; ② The instructors were not paid a fixed or basic pay, paid business tax, not income tax, and were not registered for the four social security insurances, none of which were based on the Language Institute’s superior status.
5. Ruling from the Seoul Central District Court Seoul District Court ruling on Oct. 17, 2013. 2011gahap121413 (Employee Status of Native English Instructors of C Language Institute (First ruling - appealed).

The instructors are employees who offer work to the employer, as subordinates of the employer, in a business or workplace, to earn wages in actual practice. Therefore the Institute has an obligation to pay the weekly holiday allowance, the annual paid leave allowance and severance pay.

(1) Contract relations: ① The instructors signed an ‘Agreement for Teaching Services’ to teach English and to receive payment in return, and they worked for their contract periods. ② The instructors were prohibited from working elsewhere or acting as a substitute for another person.

(2) Working types: 1) The instructors worked for 3 to 6 hours per day, 4 to 5 days a week; 2) The Institute provided regular training sessions during the contract period to familiarize the instructors with the desired methods of teaching English conversation; 3) The instructors conducted their classes in accordance with a class schedule that was set through prior discussion with the Institute, based on the subjects and schedule that the Institute had determined beforehand. The Institute advised the instructors of the content of the classes, and the expected progress of the class was determined in advance by the Institute, in addition to which the Institute produced and distributed the textbooks used. The instructors taught in accordance with the class content, used textbooks as determined by the Institute and were prohibited from using other textbooks; 4) The Institute installed CCTV cameras in each classroom and monitored such things as whether the instructors were following class time-frames or not, the instructors’ attitude in the class as well as the content of the class, and made notes and advised the instructor as to what changes were required in the class after such monitoring; 5) The instructors wrote and submitted evaluation sheets of each student’s attitude and grade, etc., in accordance with the Institute’s regulations, attended conferences hosted by the Institute and explained the content of classes to parents, attended training sessions and workshops to improve their teaching skills, sent text messages to encourage students during the midterm and final exams, and performed other related tasks; 6) The Institute performed regular evaluations of the instructors’ work performance and notified them of the results, pointed out necessary improvements and provided a form called “Plans for Self-Improvement” with instructions to fill out and submit it to the Institute. At times, the Institute conducted individual interviews concerning evaluation results; 7) The Institute enforced the instructions to native English teachers with its Instructor Code of Conduct; 8) The Institute controlled the instructors’ attendance by requiring them to arrive at the Institute 20 minutes prior to class time and log into the Institute’s system; (9) The Institute required that the instructors get approval for holidays at least one month in advance, and provide 24-hour notice when requesting absence from class because of illness or other personal consideration.

(3) Income characteristics and payment types: The instructors were paid monthly wages calculated by multiplying the number of working hours by hourly wages which varied between ₩28,000 and ₩45,000 per hour (differences were applied per person or per month) as previously determined, with no relationship to the number of students in attendance.

6. Conclusion
C Language Institute has contracted native English instructors, not as employees, but as freelance contractors for the past twenty years, and has not paid any statutory allowances like severance pay required under the Labor Standards Act. Recently it has been the trend that the judicial rulings of the court have gradually widened the realm of employee status, changing the criteria by which employee status is judged. Items such as the outsourcing of contracts or use of commission contracts instead of employment contracts, payment of business tax and non-registration of the four social security insurances (all of which are easily determined by the employer due to his economically superior status), are considered to not be important factors in determining employee status. The most important factor in judging employee status is how much supervision the instructor received while providing labor service for money. On this point, the Seoul Central District Court’s ruling can be expected to be based on practical employment relations. In particular, as native English instructors were hired through a working visa known as E-2 (Foreign Language Conversation Teaching), the Immigration Act, which requires native English teachers to work only for their contracted employer, applied to them. This means that as the instructors could only provide English teaching exclusively for the Language Institute to which they had contracted, following the service regulations, place of work, working hours, and fixed hourly wage as determined by the Language Institute, there is no argument that supports regarding them as freelancers who were never supervised. Accordingly, the native English instructors of C Language Institute have been ruled to be employees protected by the Labor Standards Act.