This country-specific Q&A provides an overview to employment and labour law in South Korea.
It will cover termination of employment, procedures, protection for workers, compensation as well as insight and opinion on the most common difficulties employers face and any upcoming legal changes planned..
This Q&A is part of the global guide to Employment & Labour. For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/index.php/practice-areas/employment-labour-law/
Does an employer need a reason in order to lawfully terminate an employment relationship? If so, what reasons are lawful in the jurisdiction?
An employer with 5 or more employees is prohibited from dismissing an employee without ‘just cause’ under the Labour Standards Act (the “LSA”) which is the primary Korean legislation regulating the employer-employee relationship. The LSA does not provide a clear definition of just cause or list reasons for which a dismissal will be held to be for just cause. Guidance is taken from the judicial interpretation. The Korean courts have held that there will be ‘just cause’ where an employer may not continue his/her employment relationship with an employee from generally accepted notions. A material and serious fault which is attributable to an employee may constitute just cause. It is difficult to provide a crystal clear guideline in determining whether an employee has committed a material fault which results in a disruption of the employment relationship.
Examples of common “material attributable faults” are followings;
- misrepresentation or falsification of personal information which was the basis of their hiring;
- frequent or habitual absence without permission;
- illegal activities which may disrupt the employer’s trust, such as forging or altering company’s documents, embezzlement or theft of the employer’s fund;
- disclosure or misuse of the employer’s confidential and proprietary information such as trade secrets;
- breach of non-competition obligations provided in the employment regulations or employment contract;
- promotion of personal benefits by exploiting an employee’s position or authority in the company;
- participation in an illegal labor strike or other illegal collective action;
- causing material loss or damage to the employer intentionally or by gross negligence; and
- material non-compliance with a superior’s legitimate order without a reasonable cause.
Each case has to be decided on its own merits. The court will review the entire circumstances of the dismissal in detail and make judgment whether the dismissal is for just cause. In general, poor performance is not a common “attributable fault” which allows the employer to dismiss its employees. According to court precedent, an employer may dismiss its employees based on poor performance if their work performance is so serious as to fail to achieve the minimum level generally expected in terms of their positions and wage during a long period even though the employer had provided the employee with opportunities to improve his/her performance.
Those employed under a fixed-term contract enjoy the same protection with respect to unfair dismissal during the term of employment under the LSA as those employed under an indefinite-term contract. Employers may terminate the contract during the term only if there is just cause to do so. This, however, only applies during the period of employment and employers are free to refuse to renew the employment contract upon the expiration of the fixed term. A fixed-term contract generally comes to an end automatically on the expiry of the agreed term and without either party needing to serve notice. However, under the Fixed-Term and Part-Time Workers Protection Act (FTPTWPA), if an employer has consecutively employed a fixed-term contract employee for longer than 2 years, the employee would be regarded as being employed for indefinite term, unless such employee falls within exceptions specified in the FTPTWPA. Furthermore, if an employee has formed a reasonable expectation that her employment contract will be renewed, the employer’s refusal to renew the employment contract may be construed as dismissal of the employee for the purposes of the employment protection provisions in the LSA. In short, the employer will need to show that it had just cause for failing to renew the fixed term.
If an employer has less than 5 employees, the employer may terminate an employment contract pursuant to the Korean Civil Code. If the term of the employment contract is indefinite, in general, the employer may terminate the employment contract at any time for any reason with one month’s prior notice. If the term of the employment contract is fixed, the employer cannot terminate the employment during the term, provided however that if there is an inevitable reason, each party may terminate the employment contract during the term of contract.
What, if any, additional considerations apply if large numbers of dismissals (redundancies) are planned?
The LSA allows an employer to execute a mass lay off of its employees for business reasons under stringent requirements. The following requirements must be satisfied.
- Urgency. An urgent business necessity is required to lay off employees, such as a drastic business downturn, accumulated business deficits or threatened or impending bankruptcy where layoffs are unavoidable. In this regard, an employer that enjoys business surplus in a financial sense may not easily satisfy the “urgent business necessity” requirement. Conversely, an employer experiencing accumulated business losses could be deemed to have met the above requirement. However, even though an employer’s financial statement does not show a loss, if an employer suffers a drastic decline in business performance and such decline is projected continuously in the future, the employer may be deemed to satisfy the “urgent business necessity” requirement. There is no formula or rule in ascertaining whether an employer has satisfied the business necessity requirement. Such determination can only be made on a case-by-case basis.
- Last Choice. Best efforts must have been made by the employer to avoid layoffs, such as implementation of voluntary retirement plan, temporary leaves of absence, termination of subcontractors, freeze of new hire and overtime work, job transfers, etc.
- Fair Selection Criteria. Reasonable and fair criteria must be set up to select the employees to be laid off. In general, when deciding whom to lay off, the employer consider various factors such as the employee’s age, the period of continuous service, position, rank, job evaluation, attitude, career and career prospects, expertise, competency, family support obligations, the employee’s assets, the assets owned by other members of the employee’s family, the employee’s state of health, the possibility of change of occupation, the benefit or disadvantage to the company; and the status of employee (e.g., regular or temporary).
- Notice and Consultation. The employer must provide 50 days’ advance notice to the employees’ representative (or labour union if a labor union representing the majority of the employees is organized) and discuss in good faith on the measures to be taken by the employer to avoid layoffs and the selection criteria for the layoffs.
Under the LSA, layoffs satisfying the above statutory requirements would be deemed to be a termination with just cause. Since massive layoff based on business necessity is a kind of dismissal, the employer must give employees at least 30 days’ advance notice to individual employee.
In addition, a 30 days’ advance report to the Ministry of Employment and Labor must be made in general if the employer intends to layoff at least 10% of its employees.
If the employer intends to hire a new employee within 3 years of the layoff to do the same job for which the laid off employee were responsible, the employer is obligated to rehire such employee upon her request.
What, if any, additional considerations apply if a worker’s employment is terminated in the context of a business sale?
In general, an employer cannot execute a unilateral termination of employment based on a business sale because it does not satisfy the just cause requirement. Please note however a business transfer or a merger or acquisition to prevent deterioration of the business may meet the urgency requirement for a massive layoff. Other requirements and procedures such as best efforts, fair selection criteria, notice and consultation must be satisfied for massive layoff.
What, if any, is the minimum notice period to terminate employment?
Even with just cause, an employer must give 30 days’ prior notice to dismiss an employee. This is a standard notice period that does not vary according to age or length of service. However, such prior notice requirement does not apply to: (i) an employee during a probationary period (for not more than 3 months), (ii) an employee who is hired for a seasonal job and has worked for less than 6 months, (iii) a daily employee who has not consecutively worked for at least 3 months or (iv) an employee who was hired for a definite period not exceeding 2 months.
In addition, under the LSA, the employer may terminate the employment relationship on summary notice, that is, with immediate effect if (i) a natural disaster, calamity or other unavoidable circumstances prevent the continuance of the business or (ii) the employee has intentionally caused considerable hindrance to the business or inflicted damages to the employer and such act falls under one of the causes set forth in the Enforcement Regulations of the LSA (for example, theft, embezzlement, accepting bribery, disclosing confidential information, etc.).
Fixed-term employment contracts will generally automatically terminate upon expiration of the agreed fixed term and notice is not required.
Is it possible to pay monies out to a worker to end the employment relationship instead of giving notice?
Under the LSA, an employer intending to dismiss an employee is generally required to serve a minimum of 30 days’ prior notice. Instead of giving 30 days’ notice, the employer may opt to pay 30 days’ ordinary wage and bring the contract to an immediate end.
Can an employer require a worker to be on garden leave, that is, continue to employ and pay a worker during his notice period but require him to stay at home and not participate in any work?
Unless the stay-at-home order causes serious disadvantage to the employee, an employer may order an employee to stay at home and not participate in any work related matters as long as the employee is paid during his notice period.
Does an employer have to follow a prescribed procedure to achieve an effective termination of the employment relationship? If yes, what are the requirements of that procedure or procedures?
The employer is required to notify the employee in writing of the reason of dismissal and its effective date under the LSA. In addition, if specific procedures for dismissal (e.g., hearing at disciplinary committee) are provided for in the rules of employment or collective bargaining agreement, the employer must follow such procedures.
If the employer does not follow any prescribed procedure as described in response to question 7, what are the consequences for the employer?
If the employer fails to follow any prescribed procedures as described in the LSA, the rules of employment or collective bargaining agreement, in general, the disciplinary dismissal would be invalid. If dismissal is invalidated, the employee must be reinstated and paid his accrued wages until the date of reinstatement. Please note however that the employer may take disciplinary action again against the reinstated employee based on the same reason as the previous one unless otherwise provided for in the rules of employment or collective bargaining agreement.
How, if at all, are collective agreements relevant to the termination of employment?
If cause or procedures of dismissal is provided in the collective bargaining agreement, the dismissal must comply with the collective bargaining agreement when the dismissed employee is covered by the collective bargaining agreement. In general, the dismissal will be invalid if the employer fails to comply with the collective bargaining agreement.
Does the employer have to obtain the permission of or inform a third party (e.g local labour authorities or court) before being able to validly terminate the employment relationship? If yes, what are the sanctions for breach of this requirement?
In general, the employer is not required to obtain permission of or inform the government agency before it terminates the employment relationship. However, the employer is obligated to report to the government agency if, during one month period, (i) 30 or more employees separate from the company with less than 300 employees or (ii) at least 10% employer separate from the company with 300 or more. The employer who fails to report pursuant to the law will be subject to an administrative fine up to KRW 3 million. Furthermore, a 30 days’ advance report to the Ministry of Employment and Labour must be made if during the 1 month period the employer intends to layoff based on urgent business necessity (i) 10 or more of employees at the company with 99 employees or less, (ii) at least 10% of employees at the company with 100 or more but 999 or less, or (iii) at least 100 employees at the company with 1,000 employees or more.
What protection from discrimination or harassment are workers entitled to in respect of the termination of employment?
An employer cannot discriminate employees in terminating employment relationship based on gender, age, nationality, religion, race, physical handicap, pregnancy, child delivery, etc. An employer must not dismiss victims of sexual harassment or an employee who alleges occurrence of sexual harassment. Discrimination may constitute unfair dismissal. In general, a dismissed employee may bring the dispute before the district court. In addition, the terminated employee may file a petition for a remedy with the district Labor Relations Commission. An employee who dismissed discriminatorily can file a complaint with the National Human Rights Commission of Korea which can investigate and issue a recommendation for remedy.
What are the possible consequences for the employer if a worker has suffered discrimination or harassment in the context of termination of employment?
The dismissal may be invalid and an employee can file a lawsuit with the court to invalidate dismissal or petition with the Labor Relations Commission for a remedy. If the dismissal is invalidated, the employer must reinstate the employee and make a back-pay. The employee may file damage claim for mental distress.
Are any categories of worker (for example, fixed-term workers or workers on family leave) entitled to specific protection, other than protection from discrimination or harassment, on the termination of employment?
An employer cannot dismiss an employee on maternity leave during her maternity leave period or for 30 days after returning to work and during an employee on childcare leave. An exception is permitted in the event that the employer cannot continue its business.
An employer may not dismiss an employee during a period of occupational injury or disease and within 30 days thereafter unless it has paid certain amount of lump sum compensation to employee or is ceasing its business operations.
If an employer dismisses an employee because of, or for a reason connected with, the employee’s trade union activities, including legitimate industrial action, such dismissal will not only violate the just cause requirement under the LSA, but will also violate the Trade Union and Labor Relations Adjustment Act as the employer would be considered to have engaged in unfair labor practices.
Even though a fixed-term contract generally comes to an end automatically on the expiry of the agreed term, under the FTPTWPA, a fixed term employee who has been consecutively employed for longer than 2 years would be regarded as being employed for indefinite term and the employer cannot bring to an end without just cause. Furthermore, if an employee has formed a reasonable expectation that her employment contract will be renewed, the employer’s refusal to renew the employment contract may be construed as dismissal of the employee, which requires just cause.
Are workers who have made disclosures in the public interest (whistleblowers) entitled to any special protection from termination of employment?
According to the Protection of Public Interest Reporters Act, in the event an act violating the public interest occurs (or there is chance of such act occurring), a person may make a report or claim of such act (“the “Public Interest Report”) to the company representative, its employer, relevant authorities or investigation agencies.
An “act violating the public interest” includes acts that violate the public’s health, environment, consumer benefit and fair competition that will result in the criminal penalty or administrative sanction such as suspension or cancellation of licences/permits.
An employer cannot enforce any disciplinary or unfavourable measures against an employee for the Public Interest Report (i.e., whistle-blowing).
In the event the whistle-blower’s Public Interest Report includes confidential information of the employer (e.g., trade secrets), the whistle-blower will not be deemed to have violated the confidentiality obligations the whistle-blower would have been subject to under the employer’s internal rules or regulations, or applicable law.
Any collective bargaining agreement, employment agreement, or internal rule or regulation of the employer which limits or prohibits employees from making a Public Interest Report will be deemed ineffective and have no legal effect.
In the event a whistle-blower receives unfavourable treatment due to the Public Interest Report (including situations where employee receives unfavourable treatment during preparation or collection of evidence of the whistle-blowing event), the whistle-blower may raise such issue to the National Human Right’s Commission and demand protective and appropriate measures.
What financial compensation is required under law or custom to terminate the employment relationship? How do employers usually decide how much compensation is to be paid?
Once an employee has been employed for 1 complete year, the Employee Retirement Benefit Security Act (the “ERBSA”) requires an employer to pay a lump sum severance payment equating to 30 days’ of the employee’s ‘average wage’ for each consecutive year of service. The obligation to pay this severance payment arises in respect of any termination of the employment relationship, whether by resignation, retirement or dismissal with just cause, including where the employee has committed a fundamental breach of employment contract such as theft, embezzlement and disclosure of trade secret.
In order to calculate the appropriate severance payment, an employer must ascertain the departing employee’s ‘wage’ and ‘average wage’ in accordance with the LSA standards. The LSA defines ‘wage’ as all monies paid to an employee by the employer, in the form of wage, salary or any other monies for services rendered to the employer by the employee. ‘Wage’ generally includes basic salary, fixed and regular bonuses, fixed and regular allowances (e.g., monthly meal or transportation allowances), overtime pay and pay in lieu of unused leave. Wages generally exclude gratuitous payments or welfare payments (e.g., congratulatory payments for marriage), employee loans or advances, and reimbursement of expenses. ‘Average wage’ is defined in the LSA as the total wage paid to an employee during the three-month period prior to the date when the employment relationship was terminated, divided by the total number of days during that period. The ‘total wage paid to the employee’ refers to the total wage paid or to be paid for the work performed during the relevant period.
The above severance payment is a minimum requirement under the ERBSA. If an individual employment contract, collective agreement or company policies provides for a severance formula which is more generous than the ERBSA minimum, such will be binding and effective.
Under the ERBSA, a company may adopt a retirement pension system in lieu of the lump sum severance payment system. The ERBSA provides for two basic types of pension systems. Under the defined payment systems (‘DB-type Pension’), the total amount of pension to be received by the retired employee is fixed in advance and the amount to be paid by the employer varies based on the performance of the reserved funds. Under the defined contribution systems (‘DC-type Pension’), on the other hand, the amount of pension to be received by the retired employee varies based on the performance of the reserved funds, while the amount to be paid by the employer is fixed in advance. For the DB-type Pension, the benefits level must be equal to or more than, the relevant employee’s 30 days’ average wage for each year of consecutive service, which should be used in the pension payment calculation. For the DC-type Pension, the employer is required to make cash payment of at least 1/12 of the total annual wage of the employee at least once a year.
In addition to the statutory severance pay, the employer often provides ex-gratia to induce employees to reach an agreement on separation from and release from certain liabilities of the employer.
Is it possible to restrict a worker from working for competitors after the termination of employment? If yes, describe any relevant requirements or limitations.
The employer may prohibit a previous employee from working at a competing company if the employee is likely to use or disclose trade secrets of the employer even though the employer and the employee have not signed a non-competition agreement.
There is no statute that specifically defines or governs non-compete agreement. The general principles of contract law under the Korean Civil Code will govern and apply to the enforceability of non-compete agreements in Korea. In general, non-competes are contractually valid and enforceable as an agreement between contractual parties unless it violates the “catch-all” clause of the Korean Civil Code, which provides that “matters contrary to good morals and social order shall be null and void.” Korean courts will determine the enforceability of non-competes on a case-by-case basis taking into consideration all of the circumstances surrounding enforcement of the subject clause.
Since a non-compete clause may be in conflict with a person’s constitutional right to seek employment, Korean courts will scrutinize non-competes and will enforce non-compete provisions only if they are deemed to be reasonable and non-excessive.
In this regard, in determining validity of non-compete clauses, the Korean courts take into consideration various factors, among others, (i) the employer’s legitimate interest to protect by non-compete, (ii) the job description or position of the employee (e.g., whether the employee had access to or control over confidential information of the company); (iii) the scope of business the employee is restricted from engaging in; (iv) the scope of the restricted geographical area; (v) the period of non-competition; (vi) whether any compensation has been or will be provided to the employee in exchange for her non-compete obligation; (vii) the background and reason why the employment relationship terminated; and (viii) public interest. The employer’s legitimate interest includes the trade secret of the employer and other information and knowledge which only the employer possesses or holds and the employee agrees not to disclose to any third party.
Can an employer require a worker to keep information relating to the employer confidential after the termination of employment?
Yes. The general principles of contract law under the Korean Civil Code will govern and apply to confidentiality covenant.
If certain information falls within category of trade secret under the Korean law, use or disclosure of such trade secret is regulated by the applicable law. “Trade secrets” are defined as information that meets the following conditions: (i) information that is useful for any production and sales methods and other business activities; (ii) information that is confidential (i.e., not in the public domain); (iii) information that has independent economic value; and (iv) considerable efforts have been made to maintain confidentiality. The requirement of (iv) may be satisfied, for example, if employees are under an obligation to keep trade secrets confidential or there is proper management of records and customer relationships to protect such trade secrets.
Are employers obliged to provide references to new employers if these are requested?
What, in your opinion, are the most common difficulties faced by employers in your jurisdiction when terminating employment and how do you consider employers can mitigate these?
As described above, meeting the strict standards of the just cause requirement when terminating an employee is the most common difficulty employers face in Korea. Since the court will take a comprehensive approach and review the totality of circumstances to determine whether there is just cause for dismissal, an employer should gather as much evidence it has against the employee so that it can accurately assesses the employee’s wrongdoing and enforce appropriate disciplinary action. Mass lay off of employees for business reasons commonly leads to fierce disputes because it is permitted under stringent requirements. In many cases, the employers try to reach settlement agreements with employees on separation and release by paying ex-gratia.
Are any legal changes planned that are likely to impact on the way employers in your jurisdiction approach termination of employment? If so, please describe what impact you foresee from such changes and how employers can prepare for them?