JIPYONG LLC

1. Introduction

In recent years, Korean businesses have been struggling with labor issues surrounding temporary or part-time employees and self-employed workers, together categorized as “non-regular workers” under Korea’s labor market system.  This system provides comprehensive wage protection, social benefits and job security for so-called “regular workers” but provides much less for non-regular workers.

In an effort to “regularize” non-regular workers, many companies began hiring subcontracted workers directly.  In some of these companies, the labor union and the management reached labor-management agreements which included a provision that required the subcontracted workers to withdraw complaints filed against their respective contractors for “illegal dispatching” as a condition for being hired directly by the companies.  But there were many cases where the “illegal dispatch” lawsuits continued.  These lawsuits are typically group complaints by a number of differently situated workers, including those who never consented to any labor-management agreements.  Even those who gave consent continued to litigate, adding wage differential claims.  Such complicating factors have been hindering the spread of labor-management agreements to other businesses and workplaces.

It is amidst such developments in Korea’s labor sector that a court of first instance recently ruled that such “illegal dispatch” lawsuits should be dismissed on grounds that they contravene the terms of relevant labor-management agreements.


2. Case Summary

Seoul Central District Court’s decision 2017GaHap585002 (January 8, 2021) discusses several issues involving labor-management agreements as a mechanism to resolve disputes concerning the illegal dispatch of workers.

The plaintiffs were 5300 bakers who were employed by ten different contractors for one of the largest food manufacturing companies in Korea (“P Company”).  The plaintiffs filed a complaint against P Company, seeking direct employment and compensation for wage differences under the Act on Protection, etc. of Temporary Agency Workers.  The plaintiffs’ labor union and other labor unions eventually combined forces with political parties and public interest groups to reach an agreement with P Company.  The agreement provided that the plaintiffs would immediately drop the lawsuit and P Company would form a subsidiary to directly hire the plaintiffs.  However, about 180 persons continued to litigate, demanding to be hired directly by P Company rather than its affiliate.  The issue was whether the labor-management agreement, which was signed by the labor union, rather than the individual plaintiffs themselves, was valid.

The court found that the labor union entered into the labor-management agreement on behalf of the plaintiffs and held that the plaintiffs ratified the terms of the labor-management agreement by agreeing to be hired by the subsidiary in accordance with the wage and other terms of the labor-management agreement.  The court ruled that the labor-management agreement was effective and binding upon the plaintiffs, and dismissed the lawsuit on the basis that the plaintiffs were subject to the “agreement to withdraw” the lawsuit.


3. Implications for businesses

Labor-management agreements are often signed between the labor union and employer without necessarily having obtained the consent of all individual employees.  To ensure that the terms of such labor-management agreements are binding and effective on all employees, employers should make sure that the labor union has been properly delegated the authority from each of its constituents.  Moreover, labor-management agreements should clearly set forth the legal relationship between the parties to the agreement.  For a labor-management agreement to be recognized as a valid settlement agreement under Article 731 of the Civil Code, it should specifically state that the agreement is intended not only for dispute resolution but also the establishment of a specific legal relationship.  In this case, the relationship would be the direct employment relationship between the workers and the company hiring them directly.