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[Recent Court Case 1] The sales agents who signed the sales agency agreement and worked in sales at department stores are not employees under the Labor Standards Act.

2020.06.25

[Case No. Supreme Court decision 2020Da207864 dated June 25, 2020] 
 
The Supreme Court rendered a decision holding that sales agents who entered into sales agency agreements and sold the defendant’s goods at department stores or other stores would not be deemed employees under the Labor Standards Act. 
 
The plaintiffs signed the sales agency agreement with the defendant company, and worked as sales agents at the stores the defendant set up at the department stores or other locations. The sales agency agreements between the plaintiffs and the defendant contained the factors that were affirming or negating as to whether the plaintiffs were to be deemed employees under the Labor Standards Act. 
 
The affirming factors were as follows: the plaintiffs simply sold the goods the defendant provided a set number and type of goods to the stores at the price set by the defendant; the plaintiffs were required to advertise or display according to the standards set by the defendant. As to the negating factors, the defendant paid the plaintiffs a certain proportion of the sales of the goods each month as commission fees (instead of providing wages); the plaintiffs directly hired certain sales people to work at the stores; and the plaintiffs assumed certain employer liability as set forth under the labor laws, such as payment of the wage. 
 
The Supreme Court found that the plaintiffs were not employees under the Labor Standards Act, stating that whether they fall under the category of employees under the Labor Standards Act must be based on the substance of the work rather than the wording of the sales agency agreement in view of the totality of the following circumstances.

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			1) The defendant has been operating the store with the plaintiffs since 1999 by entering into the sales agency agreement for store management and sale of goods. 
			 
			2) The defendant entered into the sales agency agreement with the plaintiffs only, and was not involved in hiring the sales agents at the stores or paying the wages. The plaintiffs directly hired the sales agents as needed, managed the work, and paid the wages. 
			 
			3) The plaintiffs were able to have the sales agents work as substitutes for them for some time. Some of the plaintiffs who entered into the sales agency agreement with the defendant and operated the store also operated the defendant’s retail franchise store at the same time. 
			 
			4) The defendant paid the plaintiffs only the fees based on the rate as provided under the sales agency agreement. Because there was no upper or lower limit on the fee, there was a significant gap in the amount of the fees paid to the plaintiffs. 
			 
			5) The plaintiffs purchased or assumed costs for the equipment required for operating the stores other than the equipment provided by the defendant free of charge. 
			 
			6) The defendant specifically instructed the way the goods were displayed in the store, and prohibited the plaintiffs from applying any discount on the price of the goods. The defendant also ordered certain inventory to be sent to some other stores. However, these methods of management did not vary much from the methods of managing the sales agents as individual business entities.
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There was a Supreme Court decision that recognized the sales agents at the department stores as employees under the Labor Standards Act.1 However, in this case, the Supreme Court reached a different conclusion. This decision is significant because it clarified that the status of the employee under the Labor Standards Act would vary depending on specific facts and the evidentiary materials including the forms of the activities performed at the workplace. Furthermore, this decision systematically presented the rationale for the decision, presenting the affirming and negating factors and determined that the affirming factors in this case were not critical since they would similarly apply to the sales agents having the status of individual business entities.

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1) See Supreme Court decision 2015Da63299 dated January 15, 2017.
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