Unfair/Wrongful Dismissal of Foreign Executives under Term Contract with Korean Chaebols & MNL in Korea

Expat executives working in Korea are typically hired by Korean conglomerates and multinational companies doing business in Korea based on two or three-year contracts. Many of these contracts contain terms that are in violation of the Korean Labor Standards Act and other laws and regulations.

These employment contracts often have one to six-month at-will termination clauses. In many cases, these contracts are in violation of the Korean Labor Standards Act and other laws and regulations.

Many foreign executives, recently, have been pushed out of these Korean conglomerates with nothing more than a salary for a few months and a bitter taste in their mouths. Options exist and IPG Legal has prevailed in cases against these companies for foreign executives working in Korea.

These actions are giving Korea a bad image amongst potential foreign employees. Korea can be a great place to work, but a few notorious companies are giving Korea a bad name. Additionally, foreign employees are too often allowing these companies doing business in Korea get away with these actions because of ignorance of Korean Law or sometimes even fear.

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. This is a very sad reality that is hurting the ability of Korea to attract top talent.

We are normally on the business side of litigation for foreign companies, but the increase in these actions by the Korean big fish and a few less-than-scrupulous foreign companies with expats in Korea has led many foreign executives to our doors, we have warmly welcomed suits against the big fish Korean and some foreign employers. A few wins, we believe helped us win, recently, a designation as a Top Korean Dispute Resolution Firm of the Year.

Employees under Korean Labor Law

Korea is in need of foreign executives and in need of Korean companies that will not prejudice Korea in the eyes of potential foreign employees.

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 in Korea may even be entitled to employment until the retirement age of the company.

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. Foreign employees with their “habitual” place of employment in Korea shall, in all but the most exceptional of cases be deemed an employee even if the contract notes otherwise.

The Supreme Court of Korea 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.

Representative Directors as Employees under Korean Labor Law

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 of Korea 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.”)

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Sean Hayes 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, and IPG Legal is consistently ranked Top Dispute Resolution Law for our litigation services.

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