Enterprises are struggling to keep up with increasing competition triggered by globalization of the economy. The labor market and business environment is also rapidly changing from technology development. Enterprises are increasingly avoiding direct employment and have begun seeking new ways to boost productivity and competitiveness through diverse means of production and division of labor.
In-house subcontracting is one of these new means of production and is a civil contract among companies for ‘completion of work’. But, because of the complicated structure, labor disputes often occur on issues surrounding in-house subcontracting which involves 3 parties: the primary contractor, the subcontractor and the worker. After a Supreme Court ruling which recognized subcontracting as an illegal form of dispatch employment, labor groups are demanding a ban on in-house subcontracting, arguing that the primary contractor should hire subcontracted workers directly. Last year, H motor company sustained an estimated 270 billion won in lost sales and a production shortfall of 23,000 cars due to illegal occupation of its facilities for 25 days by subcontracted workers.
In-house subcontracting was originally used in the shipbuilding industry but now it is common in other major manufacturing industries as well. According to the Ministry of Employment and Labor, 41.2% of companies with more than 300 workers are using in-house subcontracting. The number of workers in subcontracted companies has reached 330,000, accounting for 24.6% of the total number of workers.
[Figure 1] Percentage of In-house Subcontracted Workers by Industry
Note: chart refers to companies with more than 300 workers
Source: Ministry of Employment and Labor (August 2010)
Generally speaking, the structure of industry, changes in job structure and the demand for cheap labor are the basic reasons for the increasing use of outsourcing. Other factors include the demand for flexible labor, the characteristics of industry and work, and the need to obtain consent from trade unions even for realignment of labor. Dispatch employment is the most common form of outsourced labor but currently Korean labor law permits dispatch employment for only 32 types of job, regardless of market demand.
If companies are only permitted to directly employ workers as the demands from labor groups, several problems can be expected.
First, the competitiveness of Korean enterprises would decline. Rival companies overseas have strengthened their competitiveness by responding in flexible ways to the changing market environment, and enhanced their capacity to adapt to external shocks such as the global financial crisis. If Korean enterprises are not as flexible in means of production, like in the use of in-house subcontracting, Korean companies will inevitably lose their competitive edge.
In conclusion, in-house subcontracting creates jobs for domestic manufacturing and prevents technology outflow. Therefore it is important to improve the in-house subcontracting system for reasonable utilization rather than banning or restricting it.
[Table 1] Main Features of Act on the Protection, etc., of Dispatched Workers
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Classification
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Main Point
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Jobs permitted for worker dispatch
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32 types of jobs including artistic professionals, translators, interpreters, and telephone switchboard operators
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Dispatch period
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1 year, but if an agreement is made between the sending employer, using employer and worker, this period can be extended for another year (2 year maximum)
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Obligation to directly employ
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If employer continues to use dispatched worker for more than 2 years, or if the period of illegal dispatch employment exceeds 2 years
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Penalty for violating direct-employment obligation
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Fine not exceeding 30 million Korean won (approximately US$ 27,000 )
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Prohibition of discrimination
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The law prohibits any discrimination of dispatched workers carrying out the same or similar work as a worker directly-employed by the user employer
If discrimination exists, the worker may apply for redress from the Labor Relations Commission
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