Korean Labor Law

Korean Labor Law

Korean Labor law issues are often the ones which any foreign investor conducting business in Korean market has most difficulty in understanding. We set forth below certain basic concepts of Korean labor law requirements. The basic law in Korea regulating labor standards is the Labor Standards Act (LSA), which is applicable to an employer with at least 5 employees. LSA was substantially amended September of 2003 to be more in line with international standards, and the key changes resulting from the amendment include the reduction of work hours per week from 44 hours to 40 hours and abolishment of monthly-leave system, among other things. It is noted, however, that as of February 1, 2006, the amended provisions of LSA have become effective to all employers with at least 300 employees and above, and will become effective to all other employers according to the relevant dates specified in addendum to LSA. 1. Employment Contracts It is noted that LSA and its enforcement decrees thereto provide for the matters pertaining to work conditions which employers are required to specify to employees at the time of hiring, but there is no written specification requirement for such matters other than the composition, calculation method and payment method of wages, which matters must at least be specified in writing. As a related matter, it is also noted that LSA requires that an employer with at least 10 employees have employment rules at its workplace and report such rules to the Ministry of Labor. In light of such requirement, the usual practice done by Korean employers meeting the 10-employee threshold is that the employers would specify to an employee at the time of hiring, whether orally or in writing, the items specific to the employee such as the place of work and content of work assignment, and specify all other work condition matters in the relevant (written) employment rules. In other words, there is no mandatory requirement under LSA that employment contracts be in writing, and so most Korean employers would utilize their employment rules or regulations to specify the matters regarding wages, work days and other work condition matters required to be specified under LSA for their employees. However, as for the employees who work on a part-time basis (i.e., employees who work less than the normal hours worked by ordinary employees in the relevant industry), it is required under LSA that a written employment contract be entered at the time of hiring to specify contract term, work days, work hours, and other work conditions. 2. Specific Grounds for Disciplinary Action or Termination Article 30 of LSA requires a justifiable cause if and when an employer takes disciplinary actions, including termination of employment, with regard to its employees. Korean courts have held that a justifiable cause refers to such causes as criminal offense, serious illegal acts, and gross negligent acts, etc. which would make maintaining of the relevant employment relationships no longer possible under generally accepted public notions. Especially, because a termination of employment is the most extreme measure, taking away an employee’s means of making a living, Korean courts are known to be very strict in applying the above-noted criteria, when it determines whether a particular termination is justified. Thus, unless an employee’s specific conduct is something that makes current employer-employee relationship no longer possible to continue, it would be advisable for an employer to take less severe disciplinary actions such as suspension of employment, reduction of salary, or reprimand. Further, as regards the employment termination, under LSA, an employer may also terminate employees where the employer can establish an imminent managerial reason. The Korean Supreme Court has stated that an imminent managerial reason exists if an employer’s termination of employees is rational from an objective standpoint. The Korean Supreme Court has recognized the existence of an imminent managerial reason in the following cases: (i) the employer has continuously experienced deficit operation; (ii) due to continuous labor disputes, the operation of the employer is expected to worsen to a degree that half of the capital amount of the employer has decreased for one year; (iii) a part of the business is changed to a sub-contract system due to continuous deficit operation and, as a result, the employer terminated the employment of related employees; or (iv) in the course of privatization of a public corporation, reorganization of the corporation has been taken. Article 31 of LSA provides that before an employer terminates a group of employees based on an imminent managerial reason, the employer must also have made its best efforts to avoid termination and have fair and reasonable standards of termination in place. The termination of employees must have been based on such standards for termination and the employer must have given notice to and consulted with the employees' relevant labor representative (i.e., labor union). Lastly, we note that LSA requires a prior notice of 30 days when an employee is dismissed. The 30-days prior notice requirement could be waived by the relevant employer if the employee being dismissed is paid one month’s salary in lieu of the prior notice. 3. Severance Pay Requirement Under LSA, if and when an employee resigns or retires, the employee is eligible for severance pay which accrues at the rate of an average wage of 30 days for each consecutive year of service. According to Article 19 of LSA, the 30-days average wage in relation to the severance pay is the amount calculated by dividing the total amount of wages paid to the retired worker during three calendar months immediately before the day on which a cause for calculating his average wages occurred by the total number of calendar days during those three months. When calculating the amount of average wage to determine severance pay amount, the items included in the said calculation are usually such items as base salary and other payments (i.e., position allowance, incentive allowance paid to all employees to promote efficiency) that are regularly and uniformly paid. As for bonus payments, if such payments are prescribed in the employment rules or customarily paid to employees, then they should be part of average wage calculation. However, those bonuses paid irregularly and one-time out of the company’s profit should be excluded when calculating the average wage. Usually, overtime payments are deemed part of the wages, as well as meal allowances provided in employment regulations or collective bargaining agreements. We hope that the above is helpful to any foreign corporation or individual in understanding some of the basic concepts of Korean labor law. If you have any specific Korean labor issues you wish to discuss with us, please direct your inquiry to Hoon Lee, esq. (email: hoonlee@sigonglaw.com) at Sigong Law.