Supreme Court: Debt Collectors Without Subordinate Employment Relationship Are Not Workers

Supreme Court, Seocho-dong, Seoul.

[Asia Economy Reporter Choi Seok-jin, Legal Affairs Specialist] The Supreme Court has ruled that debt collectors who enter into consignment contracts with credit information companies and perform debt collection tasks cannot be regarded as workers under the Labor Standards Act if a subordinate employment relationship with the company is not recognized.

According to the legal community on the 19th, the Supreme Court's 3rd Division (then presided over by Justice Kim Jae-hyung) upheld the lower court's ruling on the appeal trial of debt collectors A and B, who worked at the Seocho branch of Korea Credit Information Co., Ltd., and lost their lawsuit against the company for severance pay on the 19th of last month.

The court explained the reason for dismissing the appeal, stating, "There is no error affecting the judgment such as misunderstanding the legal principles regarding the criteria for determining workers under the Labor Standards Act as claimed in the grounds for appeal, or failing to conduct necessary investigations, or violating the limits of free evaluation of evidence contrary to logic and experience."

A and B, who worked as debt collectors under consignment contracts with the company for about 14 years and 8 years respectively, filed lawsuits against the company after resigning in 2016, claiming severance pay of approximately 950 million KRW and 610 million KRW respectively.

The consignment contracts they signed with the company explicitly stated that "Consigned debt collectors are not employees of the company, and the Labor Standards Act does not apply to consigned debt collectors, nor do the employment rules and various regulations applicable to regular employees of the company apply."

However, the first-instance court recognized the worker status of A and B despite such contract terms and ruled that the company must pay the severance pay claimed by the two, along with delayed interest from their respective resignation dates until the actual payment of severance pay.

The first-instance court judged that although the two formally signed consignment contracts with the company, in substance, they were under significant direction and supervision from the company in performing their duties, thus recognizing a subordinate employment relationship.

Their duties included reporting to the branch office, accessing credit information through the company's computer system, and meeting debtors with employee ID badges to urge repayment.

The first-instance court cited the following reasons: ▲ Companies handling debt collection and credit investigation must comply with various regulations established by the Credit Information Act to prevent illegal collection or credit information leakage, and it seems difficult to comply with these regulations solely through consignment contracts without strong control over the workers ▲ The debt collection work of the plaintiffs and other debt collectors is the most essential and fundamental part of the defendant company's business, so the defendant likely had a strong incentive to exercise direction and supervision over the debt collectors ▲ Although the company did not instruct the plaintiffs on the methods or order of debt collection in detail, the basic direction was set by the defendant ▲ The company did not merely indirectly check the plaintiffs' work performance but required daily input of work details into the company's computer system, allowing frequent monitoring of their work.

However, the second-instance court's judgment differed.

The second-instance court canceled the first-instance ruling and dismissed all claims of the plaintiffs, stating, "It is difficult to see that the plaintiffs provided labor in a subordinate relationship to the defendant for wages, so they do not qualify as workers under the Labor Standards Act."

The second-instance court reached the opposite conclusion to the first-instance court based on the following: ▲ The debt collectors of the defendant company, including the plaintiffs, managed about 200 to 300 claims each and decided the order and methods of collection themselves without instructions from the company ▲ The company did not evaluate or reflect the debt collectors' work attitude or performance in their treatment, nor did it impose disadvantages for poor performance ▲ The requirement to input collection activity details into the company's computer system was to understand the status of consigned tasks as a principal or to record debt collection activities according to the Financial Supervisory Service's guidelines, not to evaluate the plaintiffs' work process based on those records ▲ The company supported postal expenses up to 20,000 KRW per month, but all postal expenses exceeding this, as well as mobile phone bills, transportation costs, and fuel expenses, were borne by the debt collectors ▲ The company did not restrict debt collectors from holding concurrent positions outside debt collection, and many debt collectors actually performed other tasks simultaneously ▲ The plaintiffs did not receive a basic or fixed salary during their employment period and were paid only commissions based on debt recovery performance regardless of work content or hours ▲ The commissions received by the plaintiffs varied greatly month to month (with a difference of about 56 times for A and about 44 times for B between the highest and lowest commissions), making it difficult to consider the commissions as remuneration for labor itself ▲ Employment rules or personnel regulations applicable to regular employees of the defendant did not apply to the plaintiffs and other debt collectors ▲ The plaintiffs paid business income tax rather than earned income tax and were not enrolled in national pension, health insurance, employment insurance, or industrial accident insurance under the defendant company as a business operator.

The Supreme Court also agreed that the second-instance court's judgment was correct.

The court first cited Supreme Court precedents stating, "Whether a person qualifies as a worker under the Labor Standards Act should be judged based on the substance of the labor provision relationship rather than the form of the contract, specifically whether the labor provider provided labor to the user in a subordinate relationship for wages in the business or workplace."

Additionally, the court stated, "Whether debt collectors like the plaintiffs qualify as workers in individual cases where their worker status is disputed may vary depending on specific facts and the degree of proof, such as how the work is performed at the branch or office of the affiliated debt collection company."

And the court found no problem with the second-instance court's judgment that A and B could not be regarded as workers of the defendant company for the above reasons.

This content was produced with the assistance of AI translation services.