Procedures For Terminating the Agreement
Korea is not an at-will jurisdiction. Instead, under the Labour Standards Act, an employee may be terminated only for “just cause”. While there is no clear definition of “just cause”, the courts have described it as “a cause that is attributable to the employee which, under the socially accepted principles, makes the continuation of the employment impossible”. In practice, the labour authorities or the courts prefer to also see a progressive disciplinary process leading up to termination. Categories where “just cause” may be found would depend on the totality of the circumstances and may include, but are not limited to (i) serious and repeated violation of an internal employment regulation, (ii) conviction of a serious crime; (iii) falsification of one’s resume and detrimental reliance by the company, (iv) disclosure of trade secrets, and (vi) sexual harassment etc.
An employer must generally give the employee at least 30 days’ prior written notice (including the reasons for the termination and the effective termination date), or in lieu thereof, pay compensation of at least 30 days’ ordinary wages, regardless of the cause of termination. However, if the employee has worked for less than three (3) months, the advance notice (or payment in lieu thereof) is not required; only a written termination letter would be required.
Instant Dismissal
In principle, advance written notice of termination is required. However, advance notice would not be required (1) if the employee has worked for less than three (3) months or (2) the employee engaged in acts that the Presidential Decree of the Labour Standards Act provides as exceptions to the prior notice or pay in lieu thereof requirement, such as when an employee commits a serious intentional act from under generally accepted social norms that results in considerable and irreparable damages to the employer. Although the advance notice would not be required, a written termination letter must still be provided.
Employee's Resignation
An employee can resign at any time for any or no reason with one months’ notice to the employer, unless otherwise agreed by the parties.
Termination On Notice
Please refer to sections “Procedures for terminating the agreement” and “Instant dismissal”.
Termination By Reason Of The Employee's Age
Provided that the employer’s rules or policies stipulate a retirement age, the employer can terminate an employee for reaching the retirement age without prior notice. Absent a retirement age, one could reasonably argue that there are no grounds for termination based on age.
Automatic Termination In Cases Of Force Majeure
In principle, in the case of a force majeure that prevents the employer from continuing its business, force majeure would constitute just-cause for termination.
Collective Dismissals
A layoff is also referred to as a termination for “managerial reasons” (i.e. reasons attributable to the employer) under the Labour Standards Act. The courts review the layoff requirements and the satisfaction thereof with great scrutiny, and as a matter of practice, it is considerably more difficult to satisfy the layoff requirements than the just-cause requirement of individual termination. The layoff requirements are:
- an imminent managerial necessity must exist;
- the employer must make reasonable efforts to avoid the layoff;
- the employer must establish reasonable and fair criteria for selecting those to be laid off;
- the employer must consult with the employee representative or labour union (if majority union exists) in good faith on matters related to the layoff (e.g. efforts to avoid layoff, selection criteria etc.);
- the employer must provide an advance notice of at least 50 days before the layoff date to the employee representative or labour union (if majority union exists), during which time the employer shall discuss matters stipulated in requirement (4) above; and
- the employer must submit a report to the ministry of employment and labour if, in principle, 10% or more of the workforce is being laid off.
Termination By Parties’ Agreement
The mutual separation approach is always available. Hence, an employer may offer an ex-gratia amount to the employees as payment in exchange for their voluntary resignation. Please note that an employer is not legally obligated to offer any ex-gratia amount, although practically, a payment offer would better incentivise the employees to resign. Also, any ex-gratia amount would be separate from and in addition to any statutory severance that is payable to the employees. There is no statutory formula for ex-gratia amounts. Instead, ex-gratia payments are subject to negotiations.
Directors Or Other Senior Officers
Registered directors are not “employees” for purposes of the Labour Standards Act. Therefore, in principle, under the Korean Commercial Code, a registered director may be removed from office at any time by a resolution adopted at a general shareholders' meeting. A removed director could challenge a removal, however, alleging that his/her removal is made without “justifiable grounds” before the expiration of his/her term of office. If recognised, the director could receive damages (i.e. salary for the remaining term in office). The scope of justifiable reason(s) for removal is much broader than the “just cause” requirement for employees and even recognises unsatisfactory or sub-par performance as sufficient justifiable reason for termination.
Senior officers who are not registered directors would be considered as “employees” under the Labour Standards Act and subject to the just-cause termination requirement provided that there are five (5) or more individuals under employ.
Special Rules For Categories Of Employee
No special termination standards for certain employee categories.
Specific Rules For Companies in Financial Difficulties
Employers facing serious financial difficulties may terminate employees as part of a larger layoff because serious financial difficulties could satisfy the “imminent business necessity” requirement (i.e. one of the key requirements for a layoff under Korean law). Please see Section “Collective dismissals” for more information on layoffs.
Restricting Future Activities
Post-termination restrictive covenants are enforceable in Korea. When determining the enforceability of such covenants, the Korean courts will, in principle, decide whether doing so would be reasonable, considering the totality of the circumstances. In this regard, the Korean courts will strike a balance between the disadvantages to the employee (i.e. the ability to make a living) and the former employer's protection.
A non-exhaustive list of the general factors that Korean courts will/may consider includes the following (in no particular order):
- existence of a legitimate business interest of the employer (e.g. the existence of information of value to the competitor or trade secret);
- employee’s position and scope of responsibilities in his/her previous employment;
- reasonableness in durational and geographical scope considering the employee’s roles and responsibilities with the former employer;
- existence of any compensation received in consideration for signing the non-compete provision;
- circumstances surrounding the employee’s departure (e.g. whether terminated by the company or voluntary resignation by the employee);
- whether the employee will be able to utilise any confidential information or trade secret(s) in the new position;
- whether the employee’s knowledge is proprietary to the former employer or is a reasonable result of accumulated experience and professional knowledge; and
- public policy considerations.
One single factor is not determinative, and all must be considered to access the totality of the circumstances. And while consideration is listed as one of the many factors, recent case law indicates that consideration is becoming established as a near requirement in practice.
Whistleblower Laws
Whistle-blowers are protected from employer retaliation by various statutes, including the Labour Standards Act, Equal Employment Opportunities and Work-Family Balance Reconciliation Act, Trade Union and Labour Relations Adjustment Act and the Industrial Safety and Health Act. These statutes encourage self-reporting of corruption and contain anti-retaliation provisions.
Special Rules For Garden Leave
There are no special rules for garden leave.
Irrespective of the grounds for the termination (e.g. resignation, mutual separation, termination etc.), all employees who worked for one (1) year or longer is entitled to statutory severance – whether it be under the statutory severance scheme or a duly adopted defined benefits or defined contribution pension plan. There is no cap to the severance payment, and it must be paid within 14 days of the effective termination date.
Severance Payments
Irrespective of the grounds for the termination (e.g. resignation, mutual separation, termination etc.), all employees who worked for one (1) year or longer is entitled to statutory severance – whether it be under the statutory severance scheme or a duly adopted defined benefits or defined contribution pension plan. There is no cap to the severance payment, and it must be paid within 14 days of the effective termination date.
Special Tax Provisions And Severance Payments
Employee severance income will be taxed a much lower rate without a limit to the severance amount. However, for executives (director-level), a limit exists to which their severance amount would benefit from an applicable lower rate.
Allowances Payable To Employees After Termination
At the time of termination, the following payments would be required within 14 days of the effective termination date:
- remaining, unpaid salary as of the effective termination date;
- encashment for unused annual leave as of the effective termination date;
- statutory severance; and
- payments pursuant to any contractual obligations including cost reimbursements, wages, and allowances.
Time Limits For Claims Following Termination
If the employee files a petition to the LRC for wrongful termination, the employee must do so within 90 days of the effective termination date. But if the employee files a claim to the civil courts, there is no time limit for filing the wrongful termination claim.
For unpaid wages (e.g. salary, allowances, severance etc.), the applicable statute of limitations for such claims would generally be three (3) years, although depending on the claim, the applicable statute of limitations could be longer.