Aug 22, 2014

Unfair/Wrongful Dismissal of Foreign Executives under Term Contract with Korean Chaebols

Expat executives in Korea are typically hired by Korean conglomerates based on two or three year contracts. These employment contracts often have three to six-month at-will termination clauses. In many cases, these contracts are in violation of the Korean Labor Standards Act.

Many foreign executives, recently, have been pushed out of these Korean conglomerates with nothing more than a few months salary and a bitter taste in their mouth.

These actions are giving Korea a bad image amongst potential foreign employees and foreign employees are too often letting the conglomerates get away with these actions because of ignorance of Korean law. I was told by an employee-side executive recruiter that he always advises clients to choose China over Korea, since he believes that, in Korea, you have a far greater chance of not completing your contract.

We are normally on the business-side of litigation for foreign companies, but the increase in these actions by the Korean big fish has led many foreign executives to our doors and in an unusual stance by my team (me), we have warmly welcomed suits against the big fish Korean employers.

Korea is in need of foreign executives and in need of Korean companies that will not prejudice Korea in the eyes of potential foreigner employees. If President Lee’s vision of a globalized Korea is to come to be – the government and attorneys must give these companies a wake-up call.

If the foreign executive is an “employee” under Korean labor law, the termination clause will, in most cases, be deemed in violation of Korean labor law, thus, allowing the employee to continue employment until the termination of the agreement if no cause exists to terminate. In some cases, the employee may even be entitled to employment until retirement.

Additionally, even if the agreement does not provide for severance, the employer is required to pay severance in most cases, where an individual is deemed an employee.

Even representative directors and directors may be protected by Korean labor law.
Korean labor law, in most cases, deems a representative director, director or general manager as an “employer,” thus, not providing the majority of protections afforded by Korean labor law. Numerous exceptions apply. The case law on this matter has been well settled by the Korean Supreme Court. A recent Supreme Court case has detailed the settled principles:
Even when a person is registered as a representative director of a corporation, in exceptional cases when his status as a representative director is only formal/nominal - that he holds no power to execute internal business operations of the company, and also the external business operations are only being executed under his name for the sole reason that he is the one who holds the registered name and that there is an actual manager other than him who actually makes the decisions in such business operations, and that the nature of his payment is compensation to his labor itself rather than his managerial achievements or business performance since he only provides labor under the specific individuals instruction/supervision of the actual manager, such person shall be classified as an “employee” as defined in Industrial Accident Compensation Insurance Act.” (The Industrial Accident Compensation Insurance Act and the Labor Standards Act share identical definitions of “employee.”)
Additionally, the Supreme Court has noted that the form of an agreement is of little concern in determining if an individual is an “employee”:
Whether a person shall be classified, as an “employee” as defined in the Labor Standards Act shall be decided substantially - that is regardless of the form of the contract, in accordance to whether the person has been providing his labor to the employer under a subordinate relationship for the purpose of receiving wages.
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SeanHayes@ipglegal.com