Section 1: Parties and Need for Remedy
Chapter 2: Employer
1. Determination of the Existence of Employer Status under the Labor Standards Act
1.4 Substantive Employer of the Employees Affiliated to the Corporate Body of Internal Subcontractors[so-sa-jang]
| Supreme Court Decision on November 26, 2002, Case 2002do649 | |||||
| * Defendant: Defendant
* Appellant: Defendant 1. Facts: a. On January 1, 1997, under the pretext of enhancing productivity and rationalizing management, the defendant, as the CEO of Corporation 1, fully funded and established four 'internal contractor corporations' (Corporations 2, 3, 4, and 5), each with a capital of 50 million won. Employees previously engaged in production activities at the Onsan plant in Ulsan were promised unchanged wages and were asked to resign and sign new employment contracts with these newly established corporations. Former employees of Corporation 1 were appointed as CEOs and production managers, referred to as 'internal contractors,' to manage these new entities. b. Corporation 1 held 98% of the shares in these internal contractor corporations and frequently conducted personnel exchanges between Corporation 1's employees and those of the internal contractor corporations. c. When hiring was required, the internal contractor corporations requested Corporation 1 to place job advertisements under its name. The plant manager at Corporation 1's Onsan factory participated in interviews, exerting influence over the hiring process. Furthermore, these internal contractor corporations lacked essential organizational functions such as HR, accounting, and administration, delegating all such responsibilities entirely to Corporation 1. d. The internal contractor corporations did not have their own production facilities and instead rented portions of the production facilities from Corporation 1's Onsan plant. They entered into subcontracting agreements with Corporation 1, formulated production plans according to its orders, and processed raw materials provided by Corporation 1, without securing other clients or making independent sales. e. Some internal contractors were unaware of the rent for the factory and production facilities even months into their tenure. The subcontracting agreements stipulated that Corporation 1 would cover any shortfall in wages, and Corporation 1 also managed payroll and payments for raw materials used by the internal contractor corporations for production. Labor management was directly overseen by Corporation 1's plant manager and a dedicated 'employee service team,' who managed everything from attendance to vacation approvals. 2. Court Judgment: a. In Case s where part of a company's production sector is spun off into what are termed 'internal contractor corporations,' and the employees continue working in the original company's facilities, for these employees to be considered as belonging to the original company, it must be shown that their associated internal contractor corporation lacks independence or is essentially indistinguishable from a department of the original company, making its existence nominal and the employees effectively in a subordinate relationship with the original company. b. If the original company, under the guise of managerial rationalization, establishes internal contractor corporations and continues to pay wages directly while managing HR and labor supervision, then the CEO of the original company is deemed to maintain employer status concerning the employees of the internal contractor corporations, as acknowledged by the appellate decision. c. Under Articles 112, 36, and 42 of the Labor Standards Act, the obligation to pay wages and severance on time is violated if the employer fails to make such payments despite best efforts due to unavoidable financial difficulties arising from poor management. Simple financial strain due to poor management does not absolve the employer of this responsibility. Considering the records, the defendant did not make the best effort to fulfill the obligations to pay wages and severance. Therefore, the appellate court's dismissal of the defendant's arguments for exemption from responsibility on these grounds is justified, with no misinterpretation of legal principles related to exculpatory reasons. |
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