Korea: Landmark rulings on in-house subcontracting

Pursuant to the Act on the Protection, etc. of Dispatched Workers, in-house subcontracting is only allowed in respect of 32 clearly-defined job classifications.  If an employee has been subcontracted outside the scope of these job classifications, the arrangement is an illegal one; the employee would thus be entitled to become a regular or full-time employee at law.

In September 2014, the Seoul Central District Court rendered back-to-back decisions recognising 1,058 subcontractors as full-time employees of Hyundai, declaring that all in-house subcontracting arrangements with Hyundai were illegal. Another 121 subcontractors were given mandatory employment status, which legally entitles them to demand regular employment from Hyundai. In its decision, the District Court found that in-house subcontracting was illegal in all phases of automobile manufacturing, from processes involving the car body, painting and pressing, to production management, sub-assembly of engines and loading of cars for export – this was so even where subcontractors and full-time employees work together on the same process or phase.

More recently, in February 2015, the South Korean Supreme Court affirmed a decision of the Seoul High Court ordering Hyundai to recognise four former subcontractors as full-time employees of the company. In so finding the Supreme Court held that, if a company had used in-house subcontractors for more than two years, the subcontractors should be recognised as full-time employees of the company. The Supreme Court noted in this regard that the four subcontractors had worked for Hyundai for more than two years, whereas the remaining three had not. It was also possible to distinguish between subcontractors and full-time employees based on who supervised them, whether the subcontractors' tasks were different from that of full-time employees and whether the subcontractors used their own equipment. Here, the four subcontractors were under the control of Hyundai's staff, and were therefore de facto employees of the company.