Recent Supreme Court decision on employee status under the Labour Standards Act

At a glance

• On 20 February 2025, the Supreme Court ruled that a hairstylist working under a service commission contract was deemed an employee under the Labour Standards Act (LSA).
• The salon owner was found in violation of the LSA and the Employee Retirement Benefit Security Act for not providing statutory severance pay, resulting in a criminal fine.
• Despite being compensated solely on commission, the hairstylist was recognised as an employee due to factors like set working hours, regular meetings, cleaning tasks, and penalties for late attendance.
• The decision reflects a trend of courts broadly recognising employee status under the LSA, including for online platform workers like ride-hailing drivers.

This article has been reproduced with the permission of the authors Weon Jung Kim, Ki Young Kim, Paul Cho, Joo Hyouk Kang, Gi Eun Myo and Hoin Lee at Kim & Chang.

On 20 February 2025, the Supreme Court held that a hairstylist who worked under a service commission contract with the beauty salon owner was deemed an employee under the LSA. The Supreme Court also upheld the lower court’s decision that found the owner to be in violation of the LSA and the Employee Retirement Benefit Security Act due to its failure to provide the hairstylist with statutory severance pay and therefore imposed a criminal fine on the owner. 

In this case, the hairstylist was compensated under a 100% commission-based system without a base salary or fixed salary. However, taking into account various factors (eg set working hours, regular meetings for inquiries, obligation to perform cleaning tasks, imposition of late attendance penalties, etc), it was difficult to assume that the hairstylist had substantial discretion over her work. Accordingly, the hairstylist was recognised as an employee under the LSA on the grounds that she was found to be subject to a subordinate labour relationship with the employer.

Implications of court trends on employee status under the LSA

As demonstrated by this Supreme Court decision, courts have recently relaxed the criteria for determining employee status under the LSA. The Court’s ruling in this case was significant as it reaffirmed the trend taken by the courts towards broadly recognising employee status under the LSA not only for delegated debt collectors and freelance announcers but also for online platform workers, such as drivers for ride-hailing services.

Even if the form of an employment contract is that of a service commission contract, under which compensation is based solely on commissions without a base salary, the individual may still be classified as an employee under the LSA if a subordinate relationship is found where the employer retains a significant degree of supervision and control. This determination depends on various factors, including whether the working hours and place of work are prescribed in practice, and whether the individual suffers any disadvantage by not complying with the employer’s supervision and control.

Considering the above, it is advisable for businesses to proactively consider strategies for mitigating and resolving potential risks arising from various types of agreements, including delegation and commission-based contracts.