Defacto Single Workplace for Application of Korean Labor Standards Act’s 5 or More Worker Law

The Supreme Court of Korea ruled that it was an unfair dismissal for a Korean corporation that was integrated with a domestic office of an overseas corporation to fire workers for reasons such as business closure.

Many workplace protections are only mandated on Korean companies with five or more workers. The following case ruled in favor of an employee in a case where two workplaces were owned by the same company noting that the combined number of workers of both companies equals five workers or more, thus, mandating that the employer may only terminate the employee for cause.

The Supreme Court of Korea ruled that if a Korean corporation with less than five employees was operated as a de facto single workplace with a foreign corporation, the requirement of five or more regular employees for the application of the Labor Standards Act is met. This is major precedent in Korean Labor & Employment Law detailing the requirements to consider separate legal entities as de facto single entities for purposes of Korean Labor Law.

Case History

Domestic travel agency A was acquired by Dubai-based company B in 2015, which was then acquired by Australia-based company C. Companies A and B remained, however, separate legal entities. The Korean sales offices of A and B were both operated by C. A and B shared an office in Seoul. Thus, companies A and B are two separate companies owned by company C.

The Employee worked at Company A since 2016 and was in charge of accounting. The Employee received a notice of dismissal noting that “the work of the finance team is no longer needed due to the recession in the travel industry and the closure of businesses caused by COVID-19.” The Employer claimed it did not need to go through the normal protocol for termination of an employee for “urgent business necessity,” since the employer has less than five employees.

The Employee filed a complaint for unfair dismissal with the Seoul Regional Labor Relations Commission. The complaint was dismissed (Employer prevailed), since the number of regular employees was not five or more.

The Central Labor Commission reversed the decision and held that Company A and Company B were a de facto single workplace, with personnel, accounting, etc. integrated, thus, accepting that the combined companies had more than five workers. The employer appealed to the Court.

The court of first instance ruled in favor of the Employee noting “Company A and Company B’s Korean sales offices conducted the same business in the same office. . .the branch of Company B’s Korean sales office assumed integrated responsibility, and personnel and accounting work were integrated, effectively operating as a single business establishment.”

The court of second instance noted that “Company A’s personnel affairs, such as sick leave and promotions, are also strongly integrated with Company B’s employees, and considering the fact that some Company A employees transferred to Company B, the dismissal of [the Employee] cannot be viewed as a dismissal due to ‘urgent business necessity’ and is therefore a violation of the Labor Standards Act.”

The Supreme Court confirmed the decision of the lower courts noting that, “Company A and Company B’s Korean branches operated the same business in the same manner in the same office, received instructions from Company B, and actively exchanged personnel,” and that, “Company A’s closure of its business was merely an organizational merger and not an actual closure. . . At the time of the layoffs, Company A had three regular employees, and Company B’s Korean branch had six regular employees . . .Company A only claimed that it needed to close down its business due to the spread of COVID-19, and did not prove the requirements for layoffs or make any efforts to avoid layoffs.”

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 Firm for our litigation services.

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