Utilization of Korean Accountants in Termination of Employees for Urgent Managerial Need in Korea

IPG Legal has used accountants to opine that the Korean layoff of an employee is for urgent managerial need in all cases we were involved in regarding the layoff of Korean workers. We have often been questioned by clients about whether the extra expense is necessary. Yes, the expense is necessary, and here is why.

For additional articles in Korean Labor & Employment Law, please see: IPG Legal’s Korean Labor & Employment Law Archive.

Why You Should Utilize an Accountant Before Claiming an Urgent Managerial/Business Necessity  

Under Article 24 of the Korean Labor Standards Act, employers may only lay off workers when all of the following conditions are met:

1. An urgent managerial necessity exists.
2. The employer has made reasonable efforts to avoid the layoff.
3. The employer has established fair and reasonable criteria for selecting the workers to be laid off.
4. The employer has faithfully consulted with employee representatives in advance.

The most legally contentious and fact-intensive requirement is typically the first: proving the existence of an urgent managerial necessity under the Korean Labor Standards Act (LSA)

A Korean Supreme Court case a few years ago highlights the importance of involving accountants in all instances where an employer intends to lay off workers based on “urgent managerial necessity” under the LSA. 

A case handed down by the Korean Supreme Court in the first half of last year ruled that a layoff did not violate the LSA, as urgent managerial necessity existed due to “external factors,” including the lack of overseas demand for the employer’s products. 

The Supreme Court confirmed the High Court’s holding, which noted that the District Court was incorrect in emphasizing the possibility that overall production and profits would increase from a newly constructed factory. The economic issues of the employer were based, in large part, on interest and depreciation costs.

The interesting aspect is not the holding. The interesting part is that no accountants were utilized in the District Court case (resulting in a loss for the employer), whereas accountants were utilized in the High Court and Supreme Court cases (resulting in a win for the employer).

Reasons why Accountants Should be Utilized at Korean Labor Tribunals and Korean Courts to Substantiate an Urgent Managerial Necessity for the Layoff of an Employee under Korean Law

Objectivity: Korean courts tend to be more receptive to data-driven arguments.

Complexity: Issues like depreciation, liquidity, and financial forecasts are complex for non-experts (including judges) to interpret without guidance, and courts often defer to the most clear and rational-sounding expert.

Credibility: Use of CPAs or financial experts demonstrates that the employer has thoroughly evaluated alternatives before deciding on layoffs.

Causality: Helps draw a clear connection between financial hardship and the need for layoffs, as required under the Korean LSA.

Economic analysis, appraisals, and expert witnesses should be utilized in most cases concerning the layoff of employees due to urgent business necessity in Korea. For more information, you can schedule a call with IPG Legal.

by Sean Hayes
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 a few non-Korean lawyers as a Top Attorney by AsiaLaw,  IPG Legal is consistently ranked a Top Dispute Resolution Law Firm for our litigation, arbitration, and mediation services, and IPG Legal is consistently rated a top-tier law firm in corporate law, litigation, arbitration, franchise law, distribution law, estate law, family law, employment & labor law, and criminal defense.

Sean’s profile may be found at: Sean C. Hayes. To schedule a call with Sean Hayes, please click: Schedule a Call with Sean Hayes.