Contributed By Yoon & Yang LLC (Seoul - HQ)
In Korea, termination of employment can occur in the following ways: (i) occurrence of grounds for automatic termination (eg employee reaching retirement age, death of employee, expiry of the contract period, etc); (ii) employer’s unilateral dismissal of the employee; and (iii) termination through mutual agreement between the employer and employee.
As for item (i) above (ie automatic termination), no “motivation” is required because the employment is terminated irrespective of the employer or employee’s intent. However, if employment is terminated due to expiry of the contract period, and if the terminated employee had a legitimate expectation for a renewal of his or her employment contract, then it may be difficult for the employer to terminate the employment relationship unilaterally against the relevant employee’s will without a justifiable cause.
For item (ii) above (ie unilateral dismissal), Article 23(1) of the Labor Standards Act requires employers to have a justifiable cause when dismissing, laying off, suspending or transferring an employee, reducing an employee’s wages or taking other disciplinary actions. As such, employers may only terminate employees against their will if the employer has a “justifiable cause”. The Korean Supreme Court has defined that there is a justifiable cause if, due to a fault attributable to the employee, it is impossible for the employer and the employee to, under generally accepted social norms, continue their employment relationship.
Lastly, item (iii) above (ie mutual termination) refers to termination of employment upon the employer and employee’s mutual agreement. Mutual terminations can further be narrowed down to, among others, cases where (a) employees voluntarily resign upon submission of a letter of resignation and (b) employees accept the employer’s suggestion to resign, in which case the employment relationship is terminated upon the parties’ execution of a separation agreement.
There is no difference in procedures depending on the grounds for dismissal and, hence, the general requirements for dismissals are identical regardless of on what ground an employee is dismissed. In particular, Article 26 of the Labor Standards Act prescribes that an employer must give an employee a prior notice of at least 30 days if the employer intends to dismiss such employee. If this notice requirement is unsatisfied, the employer must pay the employee an additional sum of money equivalent to at least 30 days’ worth of the employee’s ordinary wages. The foregoing requirement applies even in circumstances where employees are dismissed due to managerial reasons.
In addition to the prior notice requirement, the employer must, in order to dismiss an employee, provide the employee with a “written” notice in accordance with Article 27 of the Labor Standards Act. Further, the said written notice must describe the reason for dismissing the employee as well as when the employee is to be dismissed. In other words, verbal dismissals of employees violate Article 27 of the Labor Standards Act and thus are invalid.
Article 24 of the Labor Standards Act governs dismissals based on managerial reasons, and it includes mass lay-offs (ie collective redundancies). In order for an employer to dismiss its employees for managerial reasons, all of the following requirements must be met: (i) there must be an urgent managerial need; (ii) the employer must take all efforts to avoid dismissals; (iii) the employer must select employees to be dismissed based on reasonable and fair standards; and (iv) the employer must notify the dismissal no later than 50 days prior to the dismissal and engage in good-faith discussions with the employees’ representative. These requirements have been further explained by the Supreme Courts as noted below.
As for requirement (i) above, an urgent managerial need is not limited to circumstances where a lay-off is required for the company to avoid bankruptcy. If there is a reasonable and objective need for a reduction in the workforce in order to prepare for a potential future risk, then such need qualifies as an urgent managerial need.
Requirement (ii) above on “taking all efforts to avoid dismissals” refers to taking all possible measures to minimise the number of dismissals by, among other things, streamlining work methods or managerial policies, freezing new hires, utilising temporary suspensions, suggesting voluntary resignations (via offering additional compensation, etc), and transferring employees. The measures to be taken and their degree are neither fixed nor conclusively defined and, thus, whether adequate measures were taken depends on multiple factors, including the managerial risks faced by the relevant employer, managerial reasons as to why lay-offs should be made, type and scale of the business, and the number of employees at various levels of positions.
The definition of “reasonable and fair standards” for requirement (iii) above is also fluid. Requirement (iii), similar to requirement (ii), considers various factors to determine what is “reasonable and fair”, such as the magnitude of the managerial risks faced by the relevant employer, managerial reasons that necessitate lay-offs, type of business performed by the relevant division and composition of employees thereof, social and economic conditions during the period when lay-off is taken, etc. Further, when determining the standards for selecting the employees to be laid off, the employer’s circumstances relating to its managerial interests can be considered concurrently with the employees’ interest, as long as the employer’s interest is objectively reasonable.
The last requirement above on 50 days' prior notice and good-faith discussion does not affect the validity of a lay-off even if it is not satisfied. Therefore, if there had been sufficient time to notify the employees and engage in good-faith discussions, then the lay-off is valid, so long as all other requirements have been satisfied.
As noted above, employers must, pursuant to Article 26 of the Labor Standards Act, give an employee a prior notice of at least 30 days if the employer intends to dismiss such employee. This notice requirement applies also to dismissals caused by managerial reasons. In addition, much like procedures for taking disciplinary actions, employers are required to provide a prior notice (usually one week before the meeting) that an HR committee meeting will be held. Other than the foregoing, the Labor Standards Act does not provide for a mandatory notice period. However, if the employer provides for a separate notice period in its rules of employment that are not required by the law, then such procedures must be complied with.
If an employer fails to give the requisite prior notice of 30 days prior to dismissing an employee, then the employer must pay the employee an additional sum of money equivalent to at least 30 days’ worth of the employee’s ordinary wages pursuant to Article 26 of the Labor Standards Act.
Also, aside from the foregoing requirements to provide a prior notice and to pay additional allowances for failing to provide a prior notice, there are additional severance pay-related requirements under the Act on the Guarantee of Workers' Retirement Benefits (the “Retirement Benefits Act”). The Retirement Benefits Act requires employers to provide severance payments or retirement pensions to resigning employees who have been employed for at least one year. To provide the foregoing payments or pensions, an employer is required to operate a retirement-benefit scheme in accordance with the Retirement Benefits Act. In particular, if an employee dies or retires, Article 36 of the Labor Standards Act requires an employer to pay the wages, compensations and other money or valuables to the employee within 14 days after the death or retirement of the employee. This 14-day payment period may be extended by mutual agreement between the parties concerned if there are special circumstances.
With regard to dismissals of employees, the Labor Standards Act only requires the employer to provide a prior notice of 30 days to the relevant employee (Article 26) and to notify the detailed reason for, and timing of, the dismissal in writing (Article 27). As such, no separate procedures such as obtaining external advice or authorisation need to be taken. However, if the employer provides for additional procedures for employee resignations (including dismissals etc) through collective agreements, rules of employment, employment contracts or other relevant agreements, then the employer must comply with such procedures.
Article 23(1) of the Labor Standards Act requires employers to have justifiable cause when dismissing an employee. The Korean Supreme Court has defined that there is a justifiable cause if, due to a fault attributable to the employee, it is impossible for the employer and the employee to, under generally accepted social norms, continue their employment relationship. Whether continuance of employment relationship is impossible under the generally accepted social norms is determined upon a comprehensive consideration of various factors, including (i) the purpose and nature of the employer’s business, (ii) workplace conditions, (iii) the employee’s position and responsibilities, (iv) how and why the employee engaged in misconduct, (v) the impact such misconduct will have on the sound order of the business, and (vi) the employee’s past behaviour.
Ordinarily, grounds for dismissal are stipulated under a company’s rules of employment and other relevant internal regulations. Some of the most common grounds for dismissal recognised through court precedents are (i) misrepresentation or concealment of educational background and work experience, (ii) fabricating résumés, (iii) bad behaviours at work, such as unexcused absences, (iv) refusing to follow orders relating to personnel movements (eg transfers), (v) assaulting colleagues or supervisors, (vi) inflicting harm to the company through criminal conduct (eg embezzlement, breach of duty), and (vii) personal misconduct committed outside of the workplace.
Pursuant to the Labor Standards Act, an employer must (i) provide a prior notice of 30 days prior to the employee’s dismissal (Article 26) and (ii) notify the detailed reason for, and timing of, the dismissal in writing (Article 27).
Further, if an employer has collective agreements, rules of employment, employment contracts or other relevant agreements that separately provide for additional procedures of taking disciplinary actions, then the employer must comply with such procedures. The Korean Supreme Court has also held that disciplinary dismissals are invalid if an employer failed to follow the procedures laid out in its collective agreements, rules of employment, employment contracts or other relevant agreements when dismissing an employee.
An employer’s dismissal of its employee is valid if the employer can justify (i) its reason(s) for taking the disciplinary action, (ii) the procedures followed for taking the disciplinary action, and (iii) the level and/or adequacy of the disciplinary action taken. However, the Korean Supreme Court has held that if any of the foregoing factors cannot be justified, then the resulting disciplinary dismissal is invalid. The employer bears the burden of proof for showing that the dismissal is justified.
An employer and employee may terminate their employment relationship upon mutual agreement. There are no specific requirements as to the methods of, or procedures/formalities for, mutually agreeing to terminate the employment relationship, as long as the termination is based on the employer and employee’s free will. Ordinarily, however, an employee voluntarily submits a letter of resignation to the employer and the employer accepts such letter of resignation by the employee to terminate the employment contract.
The Labor Standards Act does not govern voluntary terminations of employment based on the free will of both the employer and employee. Although the Labor Standards Act does not have any restrictions on employers and employees terminating their relationship through a mutual agreement, the Korean Supreme Court deems termination agreements to be invalid if such mutual agreement was not a product of the employee’s genuine intent. Therefore, when terminating employment relationships through a termination agreement, the employer must take care to ensure that the termination agreement reflects the resigning employee’s genuine intent.
Article 23(2) of the Labor Standards Act protects employees from dismissals (i) when an employee is on a leave for medical treatment of an occupational injury or disease and within 30 days immediately following that employee’s return, and (ii) when an employee is on a maternity leave and within 30 days immediately following such employee’s return. However, the foregoing protections do not apply if the employer has paid lump sum compensation to the relevant employee in accordance with Article 84 of the Labor Standards Act or if the employer is no longer able to continue its business.
The Labor Standards Act does not have provisions relating to dismissals etc of an employee representative. However, if the collective agreement (or other similar agreement) requires the employer to obtain the trade union’s consent to dismiss an employee representative or a union member, then the employer must comply with such requirement. Otherwise, the employer’s actions taken against the relevant employees are deemed invalid pursuant to the Korean Supreme Court precedents.