YOON&YANG

Yoon & Yang’s Employment & Labor Practice Group recently secured a landmark appellate victory in a Hyundai Steel “illegal dispatch” litigation. The appellate court overturned the decision by the court of first instance which held that all plaintiffs were illegally dispatched.  As a result, the claims filed by all 324 plaintiffs were dismissed.

Notably, unlike the court of first instance, the appellate court conducted a more granular analysis and held that the existence of an employee dispatch relationship must be alleged and proven on an individual-employee basis by distinguishing (i) the type of work performed and (ii) each individual plaintiff. This decision by the appellate court (the “Appellate Decision”) is also significant in that it recognized the lawfulness of subcontracting for work involving heavy equipment operation (in-plant transportation), facility maintenance, and environmental water treatment (utilities). The Appellate Decision is expected to provide meaningful guidance for manufacturers in workforce deployment and legal risk management going forward.

1. Factual Background

2. Yoon & Yang’s Arguments

3. Court’s Determination

4. Implications

1. Factual Background

Hyundai Steel’s Dangjin Steel Mill (the “Steel Mill”) is an integrated steel mill where the entire production process, from raw material input to the production of finished goods, is carried out. In operating the Steel Mill, Hyundai Steel entered into subcontracting agreements with numerous subcontractors, under which work within the Steel Mill had been divided and performed.

A total of 890 subcontractors’ employees at the Steel Mill (as of the date of the Appellate Decision) filed a lawsuit against Hyundai Steel in 2016, seeking confirmation of their status as employees which in turn would obligate Hyundai Steel to directly employ them.

The court of first instance upheld the plaintiffs’ claims. After categorizing the plaintiffs’ work into maintenance, crane operation, production operation, and transportation, the court broadly assessed the facts as a whole. In this regard, the court of first instance failed to conduct a separate analysis for each individual process and concluded that (i) specific work instructions were issued to the plaintiffs through computerized systems and other means, and (ii) the work performed by the plaintiffs constituted essential tasks directly linked to the production process. On this basis, the court of first instance held that all plaintiffs were in an illegal dispatch (labor dispatch) relationship with Hyundai Steel.

2. Yoon & Yang’s Arguments

Yoon & Yang, which represented Hyundai Steel from the appellate proceedings, challenged the approach by the court of first instance of rendering a collective determination based on broad and abstract findings of fact applicable to all plaintiffs. Yoon & Yang emphasized that the existence of a labor dispatch relationship must be assessed based on the individual relationship between the principal company and each subcontractor’s employee. Accordingly, Yoon & Yang argued that, in principle, separate determinations should be made on a plaintiff-by-plaintiff and process-by-process basis, or at a minimum, by subcontractor or by identical or substantially similar categories of work.

In addition, Yoon & Yang presented detailed, plaintiff-specific analyses addressing inconsistencies among (i) the relevant claim periods of the individual plaintiffs, (ii) the periods during which they were employed by the subcontractors alleged to have engaged in labor dispatch, and (iii) the timing of the preparation of the submitted evidence.

Yoon & Yang further addressed the tendency in labor dispatch cases for the use of computerized systems—such as Manufacturing Execution Systems (MES)—to be readily accepted as evidence of specific work instructions. Through multifaceted evidentiary methods, including the submission of videos and oral presentations supported by meticulously prepared visual materials, Yoon & Yang thoroughly demonstrated the operational mechanisms of the computerized systems used by Hyundai Steel, and substantiated that such systems were used solely for the purpose of identifying the subject matter of subcontracted work and verifying objective information necessary for the performance of contractual obligations, rather than for issuing specific work instructions.

Moreover, by providing a detailed explanation of the production processes at the Steel Mill and the specific nature of the tasks performed by the plaintiffs, Yoon & Yang actively demonstrated that the plaintiffs’ work had a low degree of nexus to the core production processes and was clearly and strictly distinguished from the tasks directly performed by Hyundai Steel.

3. Court’s Determination

Accepting Yoon & Yang’s arguments, the appellate court categorized the work performed by the plaintiffs into process testing, heavy equipment operation (internal transportation), overhead crane operation, other production-related operations, equipment maintenance, roll shop operations, and environmental and water treatment (utilities), and conducted separate and individualized assessments as to whether a labor dispatch relationship existed for the plaintiffs engaged in each category of work.

As a result, with respect to heavy equipment operation (internal transportation), equipment maintenance, and environmental and water treatment (utilities), the appellate court reversed the first-instance court’s ruling and held that these arrangements constituted lawful subcontracting relationships.

In reaching this conclusion, the appellate court found that each subcontractor maintained its own independent work standards and manuals and carried out its tasks accordingly, and that through the use of computerized systems, the subcontractors received only information relating to the subject matter of the subcontract, without receiving binding or authoritative work instructions from Hyundai Steel. The appellate court further held that the relevant tasks served auxiliary functions distinct from the core production process and, therefore, could not be deemed to be substantively integrated into Hyundai Steel’s business operations.

4. Implications

In cases involving allegations of illegal labor dispatch, it has been common for large groups of employees engaged across multiple processes to bring coordinated claims, resulting in courts rendering abstract and collective determinations of labor dispatch relationships between a broadly defined group of employees and the principal company, in a manner akin to collective action.

The Appellate Decision is significant in that it clearly affirms the principle that the existence of a labor dispatch relationship must be determined on an individualized basis, taking into account each specific process and each individual plaintiff.

The Appellate Decision is also noteworthy with respect to the criteria for recognizing lawful subcontracting arrangements. It confirms that the indiscriminate treatment of the use of computerized systems as evidence of specific and direct work instructions constitutes a clear misapplication. Instead, the appellate court emphasized that the determination of a labor dispatch relationship must be made based on a substantive assessment of the actual working relationship, including the nature of the information exchanged between the principal company and subcontractors, the manner in which subcontractors perform their work, and whether the principal company in fact exercised binding or coercive control through authoritative instructions.

In response to the recent rise in illegal dispatch-related issues, Yoon & Yang’s Employment & Labor Practice advises companies on illegal dispatch risk control, assessing such risks, in particular those associated with in-house subcontracting and generating effective solutions. Furthermore, the Practice provides legal services related to non-regular worker discrimination, including issues relating to converting non-regular workers into regular workers, and compliance with the Act on the Protection of Fixed-Term and Part-Time Employees.