Jun 8, 2016

Non-Registered Company Director (Executive Director/Senior Managerial Worker) in Korea deemed Employee under Korean Labor & Employment Law

Article 27 of the Labor Standards Act of Korea stipulates that all "employees" must be notified in writing of the reason for dismissal.  In most cases, 30-days notice or 30-days pay in lieu of notification is required.  Employees may, also, only, be terminated for "fault attributable to the employee" or "urgent managerial necessity."  The burden is on the employer to prove "justifiable grounds for termination."  All good proactive employment lawyers in Korea have detailed programs in place that assist in justifying termination.  However,  sadly, it is very difficult to find good proactive employment lawyers in Korea.

Directors are, typically, not deemed "employees" under Korean Law.  However, exceptions exist.  We wrote an article on these exceptions at: Factors in Determining if a Worker is an "Employee" under the Korean Labor Standards Act of Korea.

A recent cases filed against TongYang by an unregistered "director" sheds light on the risks associated with terminating a company worker without the utilization of a good proactive business-savvy attorney in Korea.

Directors May be Employees under the Labor Standards Act of Korea
The Seoul High Court ruled in favor or the "employee" plaintiff in 2015Na2017454 noting that:
“Although [the worker] and the others were in executive positions, they received instructions and approval from the Representative Director, Head Manager and so forth in order to carry on the business . . . [the worker] and the others received remuneration and retirement benefits, and vehicle and entertainment money and so forth . . . so in the circumstances it could not be denied that these workers were of the nature of employees. Therefore, without written notice, the dismissal of these people is invalid, so TongYang Group is ordered to pay unpaid wages for the period of the invalid dismissal in the amount of 1.1 billion won in salary until the date of reinstatement."
Factors in Determining if a Worker is an Employee under the Labor Standards Act of Korea 
The Korean Courts looks to specific factors in determining if a worker is an "employee" under the Labor Standards Act of Korea.  The factors include the following:
  • Does the company have decision making power over the work of the worker?
  • Are the company's work rules applied to the worker?  
  • Does the company have considerable control over the work processes of the worker?  
  • Does the company set the time and date and other specific work for the worker?  
  • Does the company own the work assets of the worker?
  • Can the worker delegate to a third party the work of the worker?
  • Does the worker have business risks associated associate with the tasks performed for the company?
  • Are earnings based on work - not merely success?
  • Does the worker near exclusively depend on work from the company?
  • Is the work with the company continuous, thus, not a temporary position?  
  • Is the worker deemed an employee under the Social Security System?
The Seoul High Court looked to these factors and, specifically, emphasized on the fact that these workers "decision making power" was controlled by the company and "earnings" were based on work and "not merely success." 

As you can see, the risk is substantial.  These "employees" under the Labor Standards Act will receive back pay and must be reinstated.  If not terminated properly under Korean Law, payments will need to be paid to these employees until retirement.  

Termination can be justified in Korea.  All good employment lawyers should have programs in place that assist companies in justifying dismissals.  We see too few good employment lawyers in Korea - the best we find are, often, not at the ubiquitous firms because of uniquely Korean law firm realities.  
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Sean Hayes may be contacted at: SeanHayes@ipglegal.com.

Sean Hayes is co-chair of the Korea Practice Team at IPG Legal. He is the first non-Korean attorney to have worked for the Korean court system (Constitutional Court of Korea) and one of the first non-Koreans to be a regular member of a Korean law faculty. Sean is ranked, for Korea, as one of only two non-Korean lawyers as a Top Attorney by AsiaLaw.

Sean's profile may be found at: Sean C. Hayes