[Editorial] Labor overprotection

Ministry seeks to impose employee status on independent contractors; prudence warranted

Starting in a few months, freelancers, motorcycle couriers and other so-called “special-type workers” or independent contractors could be able to take legal action against their client businesses, including claims for severance pay, and challenge what they consider unfair contract terminations.

Businesses would lose such lawsuits unless they can prove that independent contractors are not their employees. If an independent contractor takes legal action against a business, they would initially be presumed to be employees. It is a structure that makes it much easier for workers to raise issues.

This example shows how an "Employee Presumption System" and a "Basic Law on the Rights of Working People," which the Ministry of Employment and Labor vowed Tuesday to pursue, could work in practice.

Currently, independent contractors are classified as self-employed, meaning they must prove their employee status in legal disputes with the businesses they provide labor to. This stands in stark contrast to the conditions set out in the system and law that the government seeks to introduce. The impact on the labor market could be staggering.

Independent irregular workers are not recognized as employees under the Labor Standards Act, but the proposed basic law would ensure them comparable rights to fair contracts and proper pay.

The number of non-wage workers reached an estimated 8.7 million in 2024, many of whom were self-employed freelancers who fall outside the Labor Standards Act’s protections. The basic law would effectively extend the protections of the act to non-regular workers.

If recognized as employees under the Labor Standards Act, workers would be entitled to the minimum wage, the 52-hour workweek, severance pay and holiday pay, and would also be eligible for the national pension, national health insurance and unemployment insurance systems. In addition, the termination of employment contracts would be regulated as dismissals.

If these changes are implemented, platform companies that rely on flexible labor contracts would be significantly affected by corporate spending on national pension and health insurance contributions, among others. Consequently, companies would seek to scale back employment.

Employee presumption is experimental in nature and carries the risk of unintended outcomes.

In May 2021, Spain passed a pioneering labor law popularly known as the "Rider Law", which established a legal presumption that food delivery workers for digital platforms are employees, not independent contractors. The law mandated that platforms provide riders with full employment rights. Although the law increased worker protections, it also resulted in job losses, as Deliveroo closed its Spanish operations and Uber Eats moved to subcontract delivery services to third-party fleets.

The system may face resistance from some workers who prefer independent contractor status. Professional freelancers, including software developers, tend to value flexibility that allows them to work for multiple clients on their own schedule and maximize their income. The notion that all independent contractors want employee status protections may be a flawed assumption.

If the new system results in higher operating costs, businesses may raise fees and prices and scale back service areas and hours, with consumers bearing the impact. The issue would extend beyond labor-business concerns. The government should not be guided exclusively by the imperative of worker protection, but should thoroughly review the potential side effects before moving ahead.

The government nevertheless aims to complete the legislation by May 1, Labor Day, fueling suspicions that it is eyeing labor votes ahead of the June 3 local elections.

No matter how strong the government’s pro-labor stance may be, it should not rush a system that would have far-reaching effects on millions of workers.

The government has taken labor measures intended to protect workers, including the rigid 52-hour workweek, sharp hikes in minimum wage and tougher penalties for serious industrial accidents, yet it needs to take stock of their unintended harmful consequences. In the long term, excessive labor protections could discourage companies from hiring workers and instead speed up automation.