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.