A Direct Blow to Small Business Owners: 

Legislation to Presume Employee Status

Cho Joonmo

Professor, Department of Economics, Sungkyunkwan University

Policy Committee Member, HANSUN Foundation 

1. Introduction

The “presumption of employee status” system starts from the intent to protect, at a level comparable to “employees” under the Labor Standards Act, the so-called “workers outside the boundaries of rights” about 8.7 million people, including freelancers, workers in special forms of employment, and platform workers. The government and the ruling party take the position that it should eliminate blind spots in labor law that emerged during the rapid diversification of employment forms, and extend the existing worker-protection system into the platform and special-employment domains. The related bill is expected to pass the National Assembly around May 1 (Labor Day).

According to the government’s explanatory materials for the legislation, it diagnoses our labor market by stating that “as new forms of employment such as special employment and platform work spread, the problem of fake ‘3.3’ contracts and nominal freelancers misused as a means to evade the application of labor laws is increasing.” It also emphasizes the need to introduce a “presumption of employee status” system as a means to resolve “misclassification problems in which, despite being workers in substance, it is difficult to prove employee status and people are excluded from legal protection,” and to “strengthen rights remedies in labor disputes under information asymmetry” (bill proposed by Rep. Kim Joo-young on 2025.12.24.).

This problem awareness itself is fully understandable. Amid the expansion of the platform economy, contract structures are increasingly designed around the user/employer, and labor providers find it difficult to have real bargaining power over contract wording or transaction practices. Even when disputes arise, most of the materials and information needed to prove employee status are concentrated on the employer’s side. As a result, it is true that there are not a few cases in which people are in a position close to workers in substance but do not receive legal protection.

2. Key Issues in Introducing the Presumption of Employee Status

However, the problem lies not in “what to fix,” but in “how to fix it.” Are we perhaps engaging in erroneous legislation that exaggerates reality? The presumption of employee status is a system that goes beyond correcting individual misclassification problems; it structurally reshapes the scope of application of labor law and the overall order of the labor market. In that expanding protection implies a shift in the mode of regulation, its ripple effects are by no means limited.

This amendment borrows and expands the so-called “ABC test” that developed in the U.S. state of California. The ABC test is a standard in California for determining whether someone is an employee or an independent contractor. A labor provider is basically classified as an employee, and only if the company satisfies all three conditions A, B, and C can the person be recognized as an independent contractor. This is a standard California courts have used to determine the coverage of “wage orders.” Condition A requires that the labor provider not be subject, contractually or in fact, to the employer’s direction or supervision in performing the work; condition B requires that the person perform work outside the employer’s core or usual course of business; and condition C requires that the person be engaged in an independently established business or occupation separate from the employer. A wage order is an administrative order in which California’s Industrial Welfare Commission set minimum standards of working conditions such as minimum wage, working hours, and overtime pay for specific industries. It has been applied only to 16 industries, including manufacturing, personal services, warehousing, transportation, and domestic services. The important point is that the ABC test is not a general legal principle in statutes; it is a judicial standard that courts have used to assist dependency determinations in individual cases. More recently, after California’s Proposition 22 passed, app-based drivers and delivery workers (e.g., Uber?Lyft) were excluded from the ABC test’s coverage; and with AB 2257 and other follow-on bills, certain occupational groups (e.g., some freelancers and professionals) became able to be assessed under standards other than ABC, so the occupations to which it applies have gradually narrowed.

In our case, to make matters worse, we are trying to elevate a judicial standard from a single U.S. state into a general law applicable to the whole of the Republic of Korea, and apply it comprehensively across labor relations laws. The core of the amendment is to newly add, in common across five labor-related laws such as the Labor Standards Act, the Minimum Wage Act, the retirement-benefit law, the dispatched-workers law, and the fixed-term workers law a provision stating: “A person who directly provides labor for another’s business shall be presumed to be an employee in disputes related to this Act.” The presumption of employee status system we are reviewing is highly likely to incorporate standards like California’s A, B, and C into legislation, guidelines, and manuals (administrative guidance), such that, for a business owner to have a worker recognized as a non-employee labor provider, the owner would have to satisfy these three tests. This means a structure in which, once the labor provider claims to be an employee, the person is recognized as an employee unless the business owner can prove otherwise.

Until now, delivery riders, broadcast/webtoon writers, housework/care platform workers, and others had to prove for themselves whether they received work instructions, whether attendance/commuting was managed, how compensation was paid, exclusivity, and so on. But after introduction of the presumption of employee status, that burden is entirely shifted onto companies and business owners. In legal disputes, the starting line itself changes.

If a presumption is introduced into the Labor Standards Act, labor providers can claim the same traditional rights as employees, such as overtime/night/holiday pay, weekly paid rest allowance, annual paid leave, and confirmation of invalidity of dismissal/discipline. If the Minimum Wage Act also applies, minimum-wage guarantees are enforced even for freelancers or platform workers who receive per-task fees. Further, to determine employee status, labor inspectors’ authority to demand submission of materials and to conduct ex officio investigations is strengthened, and failure to comply can also lead to administrative fines.

The question is how these changes will alter behavior across the entire labor market. If freelancers are recognized as employees, the 52-hour workweek applies, and the way of working flexibly at desired times to increase income becomes institutionally constrained. The choice of working time and autonomy core features of platform labor cannot but shrink. This results in forcing the same regulation even on labor providers who do not want such protection.

Moreover, if after a contract ends someone retroactively claims employee status and files wage/retirement benefit claims or lawsuits to invalidate dismissal as unfair, courts will first presume employee status, and if the business owner fails to rebut it, the owner loses. Even if the parties clearly agreed to a freelancer arrangement at the time of contracting, the nature of the contract may be flipped by a retroactive legal evaluation.

3. Problems with the Presumption of Employee Status Bill

Now we need to examine the problems with this law more systematically.

First, the government presents eradicating fake “3.3” contracts as a major justification, but that is an issue to be resolved by easing the burden of proving employee status and by improving oversight and punishment systems. A fake “3.3” arrangement is an obvious illegal act in which, despite being a full employee in substance, the employer disguises the person as business income to evade taxes and the burden of the four major social insurances. Using this as a reason to pull even normal contracting/mandate/freelancer agreements into a potential illegal zone confuses the cause of the problem with the prescription.

Second, the labor market is essentially a space where diverse demanders and suppliers match freely. If the law retroactively presumes employee status for diverse contract forms established by agreement between the parties, freedom of contract and labor-market efficiency are seriously damaged. In particular, if high-income professional freelancers or labor providers with strong self-employed characteristics are bound by the same standard, a paradox arises in which unwanted employee status is forced. A system introduced for protection can end up infringing freedom of choice.

Third, even within platform work and special forms of employment, the degree of dependency is highly heterogeneous. Some are in fact strongly dependent on an employer, while others act independently with multiple clients. The presumption of employee status has a limitation in that it ignores this continuous spectrum and cuts it in a binary way. As a result, the risk rises that even labor providers with strong self-employed characteristics will be lumped in as employees.

Fourth, shifting the burden of proof raises coherence problems with the overall legal system. Our legal system has, as a principle, taken the view that the person who asserts a right and gains a benefit must prove the facts satisfying the legal requirements, and Supreme Court precedent has consistently maintained this. Proving that one did not do an act is structurally very difficult. How can a business owner systematically record and prove statements such as “I did not give work instructions” or “I did not manage commuting”? No matter how much one manages, limits to proof remain, and this structurally increases the likelihood of employee recognition.

Fifth, the risk that a civil presumption will spill over into criminal liability cannot be overlooked. The government explains that it will not apply the presumption to criminal punishment, but under the current structure where once wage arrears are civilly confirmed, matters proceed to criminal complaints it is hard to say that business owners are, in substance, free from criminal liability. It is also difficult to rule out the possibility of so-called planned lawsuits in which some freelancers who worked autonomously claim employee status at the moment of contract termination and demand overtime/night/holiday pay, weekly paid rest allowance, and retirement benefits. This could amplify the costs of social conflict beyond labor disputes.

4. Rather Than Introducing the “Presumption of Employee Status,” We Need to Supplement the “Fake 3.3” System

There is also a persuasive criticism that forcibly expanding the framework of the Labor Standards Act enacted in 1953 into the 2026 AI and platform era is anachronistic. In the AI era, the core of the labor market is “labor-market flexibilization” and “individual freedom of choice,” but covering it with rigid and uniform regulation premised on traditional factory labor creates a large gap with AX (AI transformation)-era industrial sites. In particular, in IT content and platform industries, project-based collaboration and flexible contracting are the core of competitiveness, and a presumption of employee status can suffocate the industry itself.

Above all, the burden of this system is likely to concentrate on small business owners and very small workplaces rather than large corporations. Business owners who cannot bear the four major social insurances, working-time regulations, and dismissal restrictions associated with presumed employee status are highly likely to respond through stopping outsourcing, introducing kiosks, becoming smarter/digitalized, and shifting to automation and AI. This can lead to job losses in the short run, and in the long run to labor-market contraction and macroeconomic slowdown. The increased labor costs will ultimately be passed through into higher service and product prices, ending as a consumer burden.

In addition, as distrust spreads in the labor market, business owners’ defensive costs will also surge. Advisory contracts with lawyers and labor attorneys, record-management burdens, and dispute-preparedness costs increase employment uncertainty and can plant seeds of distrust in the world of small-business labor, potentially creating a labor market that is a “hell of distrust”. This ultimately discourages new hiring. This negatively affects not only the quantity but also the quality of jobs.

Clear alternatives exist. Since the original purpose of introducing a presumption of employee status is to eradicate fake “3.3,” I hope policy and institutions will focus on that. Exaggerating reality and regulating the entire labor market is “like firing a nuclear bomb at a house to catch a mouse.” Expanding it into the entire labor law system would deal a major blow to our labor market, especially the small-business labor market. More realistic options could include: a partial presumption limited to specific occupations/types rather than a California-style across-the-board presumption; legislation to protect workers in an intermediate status that goes beyond the employee/non-employee binary; universal application of social insurance and safety regulations regardless of status; and institutional improvements that provide practical support for proving employee status. A precise approach is needed one that distinguishes areas where protection is necessary from areas where autonomy should be respected.

Protecting workers is important. But expanding protection must not mean a blanket expansion of regulation. What is needed now is not speed-driven legislation, but system design that has undergone sufficient impact assessment and social consensus. There may be public sympathy for regulating large firms’ HR management, such as banning comprehensive wages (포괄임금 금지). But a presumption of employee status intended to regulate the small-business labor market where it is a war between “Eul” and “Eul” (乙과 乙) can touch the public’s ire (逆鱗) that the government is regulating the weak, and run counter to popular sentiment (民心). The presumption of employee status may not be a good-faith protective device; rather, it can become a politically very dangerous experiment that brings about persecution of small business owners who are weak parties (迫害), structural rigidification of the labor market, and distrust and uncertainty across the labor market.

Note: The views expressed herein may differ from those of the Hansun Foundation.

(※ It's a translation based on machine translation)