Ⅱ. Foreign Companies with Fewer than 5 Employees

The Labor Standards Act(LSA) applies to all workplaces in which five or more employees are ordinarily employed, while for workplaces which ordinarily employ fewer than five employees only some provisions of the LSA apply. In particular, those provisions that directly affect employee working conditions such as unfair dismissal, eligibility for severance pay(for the period before December 2010), additional allowances for overtime / night work / holiday work, annual leave and others do not apply.
For companies with headquarters located overseas, there has been confusion in determining the number of ordinarily-employed workers, as questions arise about whether to include the employees working at headquarters. Recent Ministry of Employment and Labor(MOEL) guidelines and Labor Commission judgments in cases where unfair dismissal has been claimed show that the number of employees working at foreign company headquarters will be considered unless the Korean office has independence in operations. These decisions have greatly impacted the labor market. Up until recently, only the number of employees working for the foreign company’s sales office or liaison office were counted, based on the principle of territorial privilege for jurisdiction that is applicable to the number of employees ordinarily hired in foreign company sales offices.

1. Related MOEL Guidelines and Labor Commission judgments

(1) Related MOEL Guidelines

Article 11 of the LSA regulates that all provisions of the LSA shall apply to all workplaces in which five or more employees are ordinarily employed, and the number of regular employees shall follow the calculation method stipulated by Article 7-2 of the Enforcement Decree to the LSA.
① The MOEL Guideliness are as follows. The LSA shall apply in cases where the entity whose head office is located overseas operates a branch office(i.e. sales office) that is regarded as the business or workplace, and shall follow the calculation method for the number of workers ordinarily employed according to Article 7-2 of the Enforcement Decree to the LSA. This means the number of employees at the head office shall be included.
② On the other hand, in cases where a foreign company directly hires an employee in the company’s home country, and assigns him/her to a branch company and directly manages the personnel and labor of the person, the LSA does not apply to the person in principle. However, despite this application, if the employee consistently provides labor service ordinarily in Korea, the employer cannot deprive the employee of the protections provided by Article 28 of the Act regarding the Conflict of Laws.
Accordingly, ⓐ in cases where a foreign company has registered its corporation in Korea, has received a business license and established a local branch, but the business has employed fewer than 5 employees and has no operational independence, all provisions of the LSA(e.g. application for remedy for unfair dismissal, severance pay) normally applying to employees of businesses and workplaces that ordinarily employ five or more workers shall also apply to all employees working for the foreign company’s local sales branch.
ⓑ In cases where the foreign company has established a liaison office designed to support simple communication or market surveys, and used the services of fewer than five employees with whom it has made employment contracts, the LSA shall apply to those employees working in the liaison office, and they are eligible for remedy for unfair dismissal against the parent company.

(2) Related judgments by the Labor Commission

1) Appeal by SS Global regarding decision of unfair dismissal

All decisions regarding the employee’s employment and dismissal and related processes have been implemented not by SS Global’s Seoul office, but by SS Global’s head office. In reviewing the aforementioned processes, the Seoul office cannot be seen as an independent business or workplace. Accordingly, even though there are fewer than five employees working for the Seoul office on average, SS Global’s employees working in its overseas head office shall be included when determining whether this business or workplace has five employees or more. Therefore, the protection provisions of the Labor Standards Act against unfair dismissal apply to the employees of the Seoul office. This decision makes it clear that even though a foreign-invested company’s sales office is composed of fewer than five employees, all provisions under the LSA shall apply if the sales office is not in fact an independently-operated entity. Therefore, because this employer did not satisfy the legal procedural requirements for managerial dismissal, the dismissal was not accepted as justifiable.

2) Appeal by Rareetan Computer regarding decision of unfair dismissal

Rareetan Computer Korea ordinarily employs fewer than five workers but cannot be deemed an independent workplace because this Korean entity is only the foreign company’s domestic liaison office. Therefore, the LSA applies to the Korean office and determination of whether the company ordinarily employs five workers or more shall include the employees at the overseas head office.