11/02/2011

Statutory Severance Obligations in Korea after Acquisition of Company in Korea

Korean employers have, attempted, in many cases unsuccessfully, through mergers, to reduce the statutory severance obligations of a Company through a company acquiring a Company with a workforce with large outstanding severance obligations.

The acquired company, in most cases, is strapped with debt and an inefficient workforce.

The acquiring company, inter alia, often alleges that as a separate legal entity it owes no duties to the employees of the acquired company.

The acquiring company, thus, alleges that the employees of the old Company are not obligated to receive the accumulated years of severance, thus, reducing vested employee obligations.

The Korean Supreme Court has ruled, on numerous occasions, that if an employee has continued work with the new acquiring company that the duties owed to the employees by the acquired company in Korea is owed to the employees by the acquired company, thus, often negating the benefit of the merger.

Some companies have creatively structured deals that have allowed for the reduction in the workforce. I will post on how to structure these deals in the near future.

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SeanHayes@ipglegal.com