Business Transfers and Employee Rights Under Korean Labor Law:

Korean labor law does not contain a comprehensive statutory regime governing the protection of employees working in Korea in the event of a business transfer. Korea does not have an equivalent to the EU’s Transfer of Undertakings (Protection of Employment) Directive (TUPE). As a result, the legal framework governing employee protection in business transfers has developed through Korean judicial precedent.

1. Business Transfers in Korea

Korean statutes, including the Korean Labor Standards Act, do not expressly regulate whether employees must be transferred to a transferee in a business transfer. Consequently, Korean courts have filled this gap by recognizing a judicial doctrine of automatic succession of employment relationships.

As a general principle, where a business transfer occurs, the employment relationship between the employee and the transferor automatically transfers to the transferee.

The transferred employment relationship includes:

• Position and job function

• Length of service

• Wages, severance and benefits

• Other existing terms and conditions of employment at the time of closing

2. Business Transfers and Dismissals of Employees in Korea

Korean courts have consistently held that a business transfer is not grounds, in of itself, for the dismissal of an employee. Nevertheless, a business transfer may, with other evidence, equate to an “urgent business necessity” – a statutory requirement for layoffs under the Labor Standards Act of Korea

In practice, this means that:

• A dismissal solely because a business transfer occurred is unlawful; but

• A dismissal following a business transfer may be lawful if the employer can demonstrate urgent business necessity and compliance with procedural safeguards (e.g., good-faith consultation, selection criteria, and avoidance efforts).

3. What Constitutes a “Business Transfer” Under Korean Law?

(1) General Definition

A business transfer occurs when a company’s business is transferred to another entity. This includes:

• Human resources

• Organizational structure

• Tangible assets (e.g., facilities, equipment)

• Intangible assets (e.g., goodwill, contracts, know-how)

The Supreme Court of Korea noted that “the personnel or organizational structure must retain its identity” after the transfer (Supreme Court Decision 99Du2680, July 27, 2001).

(2) Asset Transfers vs. Business Transfers in Korea

A pure asset transfer, standing alone, does not result in automatic succession of the employment relationships. For example:

• If assets are sold following liquidation; or

• If only isolated assets are transferred without continuation of business operations, then no business transfer is deemed to have occurred, and employees do not automatically transfer to the acquirer. 

However, substance prevails over form. Even if a transaction is labeled an “asset transfer,” Korean courts will look to whether:

• The business function continues;

• Employees perform substantially the same roles; and

• The operational identity of the business is preserved.

4. Which Employees in Korea Are Automatically Transfered?

Automatic transfer applies only to employees who are:

1. Employed by the transferor at the time of closing; and

2. Assigned to the transferred business or business unit.

Notably, the Supreme Court of Korea has held that employees engaged in ongoing unfair dismissal proceedings against the transferor are not automatically transferred to the transferee (Supreme Court Decisions 91Da41750, May 23, 1993; 91Da40276, July 14, 1997).

Similarly, employees who:

• Voluntarily resigned; and

• Received severance pay are not subject to automatic transfer. However, receipt of severance pay alone is not determinative – the reality is more important than the form. For example, in some transactions, employees are required to resign from the transferor and be re-hired by the transferee, and Korean courts will look to the reality rather than the mere form. 

5. Liability in Korea for Employment-Related Obligations

As a general rule, employment-related liabilities such as unpaid wages, accrued severance, or other statutory payments are jointly and severally borne by the transferor and transferee. While the transferee may seek contractual indemnification from the transferor, such arrangements do not affect employees’ rights vis-à-vis either party.

Conclusion

While Korean courts generally favor continuity of employment, protection is not absolute, particularly in restructuring scenarios following a transfer. Consult with a proactive attorney prior to making any key decisions. 

Employers, investors, and acquirers should approach business transfers with a clear understanding of how Korean courts interpret substance over form and how employment relationships may be affected both at closing and thereafter.

IPG Legal will continue to publish updates and in-depth analysis on Korean Labor & Employment law, including workforce restructuring, M&A-related employment risks, and compliance strategies.

IPG Legal Law Firm’s Seoul, Korea Office

IPG Legal is a leading law firm in employment and labor law in Korea, particularly in matters involving foreign-invested companies, senior executives, and cross-border employment issues. The firm advises multinational employers and employees on Korean labor law, including unfair dismissal disputes, fixed-term and indefinite-term employment issues, business transfers, executive separations, workplace investigations, and proceedings before the Labor Relations Commissions and Korean courts. With deep experience navigating complex labor disputes and a practical understanding of how labor authorities apply the Korean Labor Standards Act and related statutes in practice. IPG Legal is known for delivering clear, strategic, street-smart, and commercially sound advice in high-stakes employment matters.

by Sean Hayes
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