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[Recent Court Case 6] If a subcontractor’s business operation in catering, transportation, facility maintenance and surveillance was not independent and the contractor exercised practical influence on the employment conditions of the subcontractor’s employees, the contractor may be deemed to be in implied employment relationship.

2020.04.09

[Case No. Supreme Court decision 2019da267013 dated April 9, 2020] 
 
This is a case in which a contractor and a subcontractor entered into a formal contract but without independence in business operation or management. The contractor was involved in the hiring, management and disciplinary actions of the subcontractor’s employees, as well as giving specific instructions and exercising supervisory authorities, thereby deemed to be in implied employment relationship. 
 
The defendant was a company which performed catering, transportation, facility maintenance and surveillance activities for its parent company. One of the defendant’s employees then established a separate company and entered into a contract for the above activities on January 1, 2007. The plaintiff entered into an employment agreement with this new company (i.e., the subcontractor) on February 22, 2007 to perform the above activities. Some other employees of the defendant later acquired the new company, and succeeded the employment relationship. The defendant continued entering into a contract for the above activities on a yearly basis. 
 
The defendant’s internal network presented the new company’s general manager as the defendant’s transportation support team leader and the plaintiff as the defendant’s transportation support team. The new company’s general manager participated in the defendant’s overseas training program, and the defendant even held a retirement party for the new company’s general manager. 
 
The Supreme Court held that the new company was not an independent entity considering that (i) the above facts show that the defendant had its employees specifically instruct the new company’s employees including the plaintiff; (ii) the plaintiff signed the succession agreement along with the defendant’s employees; (iii) the defendant set the monthly salary, vacation and other benefits, annual paid leave allowance, and insurance costs in detail as a part of the contract amount and even made a direct payment for miscellaneous expenses to the plaintiff under the name of business trip expenses; (iv) the defendant held training sessions for the new company employees including the plaintiff; (v) the new company did not independently possess facilities or assets required for the business operation. 
 
The Supreme Court therefore held that the plaintiff and the defendant were in an implied employment relationship as if the defendant directly employed the plaintiff, on the grounds that the new company was not actually independent in business operation but functioning as a business division of the defendant or performing certain activities on behalf of the defendant, even though there was a façade of the contract. Rather, the defendant was tied to the plaintiff as the plaintiff provided services and the defendant set the employment conditions, based on which the Supreme Court found an implied employment relationship by the defendant to have directly employed the plaintiff. The Supreme Court reversed the lower court’s decision which held otherwise and remanded for the case to be newly heard and tried.

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