Laying off an Employee in Korea: Korean Law on Corporate Downsizing & Redundancy

Reducing the headcount in Korea can be difficult, time-consuming, and costly without the use of an accountant and a proactive attorney. Article 24 of the Labor Standards Act of Korea governs the dismissals of employees for managerial reasons. This is the main applicable law for making an employee redundant. For a general article on terminating an employee in Korea please see: Terminating an Employee in Korea.

For an employer employing “employees” in Korea to legally terminate under Article 24 of the LSA, the employer has the obligation to establish:

  1. An Urgent Managerial Necessity;
  2. That the employer made all efforts to avoid dismissals;
  3. That employer used a reasonable and fair criterion to choose the employee or employees to dismiss; and
  4. That employer notified the employee representative 50 days before dismissal and engaged in a good-faith discussion with the representative.

Urgent Managerial Necessity

The Supreme Court of Korea and lower courts requires employers to establish that an immediate financial crisis or the potential for a future crisis is probable if the choice to reduce headcount is not implemented. It is often advisable to utilize an accountant to establish the financial risk.

All Efforts to Avoid Dismissal

The Supreme Court of Korea and lower courts have noted that the employer must document that it made efforts to avoid dismissals by, among other things, offering employees to transfer, freezing new hiring, offering early retirement packages, temporarily suspending workers, and otherwise using methods to not place a heavy impact on employees.

Reasonable and Fair Criteria

The Supreme Court and lower courts have interpreted this criterion broadly in the case that the employer is targeting an employee based on reasons beyond “urgent managerial necessity” and the employer has an objectively reasonable iteration of the reason for making of the employee redundant. The Korean courts look to a variety of factors in determining if a “reasonable and fair criterion” was utilized, including the nature of the risk, type of business performed, reasons for the layoff, and economic conditions.

50-Days’ Notice Period

The last requirement has not been strictly enforced by courts and, therefore, the 50-day notice and a good-faith discussion does not, in of itself, invalidate the validity of a lay-off. Thus, if an employer does not follow this requirement, the redundancy is valid.

With a proactive attorney and accountant and a game plan, reducing headcount in Korea shall not be as difficult as you may imagine or heard.

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