3/07/2011

Terminate/Layoff an Employee in Korea under the LSA

The Korean Labor Standards Act mandates that employees under "contract" or "regular employees" may only be terminated for justifiable reasons or managerial reasons.

Both standards are often difficult for an employer to meet without the professional structuring of HR policies and procedures and a careful analysis of the situation.

I strongly suggest, prior to even considering firing or laying off Korean workers, to put a system of internal controls/systems in place that provides evidence to substantiate the any employment decision.

Company executives/directors are normally not considered company "employees" and thus are not benefited by most of the protections afforded by the Labor Standards Act. However, if the company is operating as a subsidiary and not maintaining the appearance of a unique legal entity, Korean courts have been increasingly willing to deem, even a director, an employee.

Please see and Article on the issue of Representative Directors as Employees at: Employment Termination of Representative Directors in Korea.

Justifiable Reason
The Korean Labor Standards Act places the burden on the employer to prove a “justifiable reason to terminate.” According to the Korean Supreme Court, the reason must be “directly attributable to the employee.” Stealing, missing an excessive number of days of work, and violating laws related to the job, have all been deemed sufficient to terminate. Prior to termination, an attorney should be contacted to allow your company not to terminate an employee in violation of law.

Managerial Reasons
The Korean Labor Standards Act places the burden on the employer to prove that an “urgent managerial necessity exists” before an employee is laid off. The Supreme Court has interpreted this to mean that a company should prove that without the layoff, the company would have extreme difficulty in maintaining operations.  The standard is interpreted strictly.

Prior to layoffs the company should prove that it has exhausted all other remedies including offering voluntary retirements. The layoffs, also, must be conducted based on a fair and reasonable” standard. The courts have noted that the time of service, age, performance records, and technical skills may be factors in determining layoffs.  Additionally, in mass layoffs, employees or the trade union must be consulted fifty days before the layoffs.

We highly recommend consulting with an attorney before firing or laying off a Korean employee. Too many companies have found themselves in court over improperly following procedure and the lack of a little Korean creativity. 

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SeanHayes@ipglegal.com