Series Index
Part 1 | Unpaid Corporate Transactions: Liability Behind the Veil
Part 2 | Trade Name Continuity and the Liability of a Successor
Part 3 | Directors’ Liability for Damages
Part 4 | The Person Behind the Company Name
Part 5 | The Limits of Self-Defense in Assault Cases
Part 6 | Criminal Settlement Money: How Much Is Appropriate?
Part 7 | Can Quasi-Rape Be Established If One Has No Memory After Drinking?
Part 8 | Freelancers and Severance Pay: What Courts Really Examine
By Hong Seung-kwon
Principal Attorney, PAN Law Firm (skh@law-pan.com)
Even when a freelance contract has been signed, severance pay may be recognized if the actual working relationship resembles employment. Understanding the legal distinction between employees and freelancers is often the key to preventing disputes.
Most people assume that severance pay comes with leaving a job. But what happens when a company responds to a resignation by saying, “You were a freelancer, so there is no severance pay”? Conversely, there are cases in which someone clearly signed a freelance contract and worked under that arrangement, only to later claim, “I was actually an employee, so I am entitled to severance pay.” Which position is legally correct?
Under the Labor Standards Act and the Employee Retirement Benefit Security Act, employers must provide severance pay to employees who have worked an average of at least 15 hours per week over four consecutive weeks and have remained continuously employed for more than one year. Whether the individual is a full-time employee or a contract worker is irrelevant. Severance pay is a statutory right granted to employees.
The Labor Standards Act defines an employee as a person who provides labor under the direction and supervision of an employer in exchange for wages, regardless of occupation. Freelancers, by contrast, are independent service providers who perform work at their own discretion without being subordinated to a specific company. While both employees and freelancers receive compensation for their work, the nature of that compensation differs. Wages are paid in an employment relationship, whereas freelancers receive payment for services rendered. As a general rule, individuals working under a genuine freelance arrangement are not considered employees and are therefore not entitled to severance pay.
In practice, however, the distinction is often far less clear. Some companies seek to avoid obligations such as severance pay by classifying workers as freelancers on paper while treating them as employees in reality. The opposite situation also occurs. A person may enter into a freelance contract and work under it for years, only to later argue, when the relationship ends, that they were in fact functioning as an employee and should receive severance benefits.
In such disputes, courts consistently hold that employee status must be determined by the substance of the working relationship rather than the wording of the contract. Given the diversity of modern work arrangements, this approach is hardly surprising. Yet the line separating freelancers from employees remains sufficiently blurred that confusion often arises over how the legal test should be applied.
Accordingly, courts examine a range of factors when determining whether an individual is an employee or a freelancer. These include whether the company controlled the content of the work and exercised specific supervision, whether working hours and work locations were fixed and binding, whether the individual could delegate the work to a third party, and whether compensation was tied to labor itself or to business performance and results.
Applying these standards in practice is rarely straightforward. For example, work-related conversations conducted through messaging platforms may support a finding of employee status. But what if those exchanges merely reflected routine coordination rather than instructions from a supervisor? What if there were no fixed working hours, yet regular reporting obligations existed? Conversely, what if the individual was free to leave the workplace at will?
In reality, some workers are ultimately recognized as employees and awarded severance pay, while others are found to be freelancers and denied such benefits. Small factual details often become decisive. Determining the true nature of a working relationship therefore requires a careful examination of the circumstances as a whole.
For that reason, freelance contracts should be used only when the other party is genuinely operating as a freelancer. If a company labels an employee as a freelancer simply to reduce labor costs or avoid severance obligations, it may later face a ruling that recognizes the individual as an employee, along with a substantial severance liability.
Once a complaint is filed with the labor authorities, the pressure on the employer can be considerable. As a result, many disputes are resolved through negotiated settlements involving the payment of all or part of the claimed severance benefits rather than proceeding through lengthy litigation to a final court judgment.
The most effective way to prevent disputes is clarity from the outset. If a company chooses to engage someone as a freelancer, that individual's autonomy should be genuinely respected in practice. If the person is hired as an employee, the company should provide treatment and protections consistent with that status.
About the Author
Hong Seung-kwon is the managing attorney of Pan Law Office. His practice covers civil and criminal litigation, as well as emerging legal issues in the digital era. He has continued to analyze how technological innovation, property rights and regulatory change affect law, markets and institutional order.
