Ⅶ. Shutdown Allowances

1. Legal Standards for shutdown Allowances

(1) Concept


Article 46 of the LSA (Pay for Suspension of Business)
① If a business is suspended for reasons attributable to an employer, the employer shall pay the workers concerned a payment of seventy percent or more of average remuneration during the period of suspension. If the amount equivalent to seventy percent of average remuneration exceeds normal remuneration, then normal remuneration may be paid.
② An employer who cannot continue business operations for unavoidable reasons may, upon approval from the Labor Relations Commission, pay remuneration lower than the standards stipulated in paragraph ① for the suspension of business.
LSA Enforcement Decree, Article 26 (Calculation of Suspension Allowance)
Where an employee has received a part of wage during a period of suspension due to any reason attributable to the employer, the employer shall, in compliance with the main sentence of Article 46 (1) of the Act, pay him/her an allowance equivalent to at least 70 percent of the difference calculated by subtracting that part of wage already paid to the said employee from the average wage: Provided, That where ordinary wage are paid as suspension allowance in accordance with the proviso to Article 46 (1) of the Act, the difference between the ordinary wage and the part already paid during the period of suspension shall be paid.
LSA, Article 109 (Penal Provisions) Employers shall be punished for violations of the above Article 46 (Pay for Suspension of Business) with imprisonment of not more than 3 years or a fine of not more than KRW 30 million.


According to the Labor Standards Act, when a worker is suspended for reasons attributable to the employer, the employer is required to pay at least 70% of the average wage(or 100% of the ordinary wage)(Article 46(1)). However, if it is impossible to continue the business for unavoidable reasons, an amount that is less than the legal shutdown allowance may be paid if this is approved by the Labor Commission(Article 46(1)). In order to guarantee the effectiveness of the shutdown compensation system, an employer who violates the provisions of shutdown compensation shall be sentenced to imprisonment of not more than three years or fined not more than KRW 30 million(Article 109).
Shutdown allowances are intended to guarantee the right of workers to live by providing certain allowances when they are unable to work for reasons not attributable to them. On the other hand, if an employer is forced, for unavoidable reasons, to pay legal shutdown allowances until the business can no longer continue, this will cause excessive burden on the employer and will severely hinder operations, which may result in insolvency of the company. This is why an exemption for shutdown compensation is stipulated.
“Shutdown” refers to a situation in which a worker is unable to provide work against his/her will despite being willing to provide the work under the employment contract. Civil Act provisions relating to the shutdown of a business provide exemption of employer fault in case of a force majeure beyond the employer’s responsibility. However, if an employee fails to receive work due to the employer’s fault, it is possible to claim the full amount of wage, and not just the shutdown allowance. In cases like this, the Civil Act provisions have difficulty in proving the employer’s intention or negligence, so the Labor Standards Act provides a shutdown allowance system to guarantee the minimum life standards of workers without relying on the Civil Act’s risk-bearing principle.

(2) Requirements for shutdown allowance

As a requirement for shutdown, first, there must be fault attributable to the employer. Employer’s fault is any reason that may arise within the employer’s managerial influence.
Second, the business should not be closed due to force majeure. Force majeure means that the reason for the shutdown of a business should occur from outside and the employer could do nothing to control it. Typical examples would be natural disasters, war, and large regional blackouts.
Third, it is assumed that shutdown(full or partial closure) has taken place.

(3) Amount of suspension allowances

1) Full payment of wage
In case of a shutdown due to an employer’s intention or negligence, the full wage shall be paid. This includes suspension without legitimate reason, forced leave, and unfair dismissal. In accordance with Article 538(1) of the Civil Act, the employer shall pay 100% of wage, not shutdown allowances, when workers are suspended due to illegal activity by the employer. However, an interim benefit obtained during the same period may be deducted pursuant to paragraph 2 of Article 538 of the Civil Act.

2) Shutdown allowances
In case of shutdown due to an employer’s fault, an allowance shall be paid of at least 70% of the average wage. In principle, employer’s fault is a management obstacle that occurs within the scope of the employer’s power and will include situations such as being closed due to shortage of funds, shortage of raw materials, decrease in order volume, reduction of market and output, shortage of raw materials in subcontracted factories due to the parent company’s poor management, or shortage of operations due to insufficient funds. A partial shutdown allowance shall be paid when only part of the workplace is closed or when working hours are reduced.

3) Reduction of shutdown allowances
In order to reduce shutdown allowances, an employer may have urgent cause to not continue business operations for unavoidable reasons, and will need to get approval from the Labor Relations Commission(Article 46(2) of the LSA). This means that if a company expects to go bankrupt, even if the employer is at fault, it may pay less than the legal shutdown allowance if so approved by the Labor Relations Commission.
Conditions for the reduction of shutdown allowance require ① as a substantial requirement, the inability to continue business operations for unavoidable reasons and ② as a procedural requirement, the approval of the Labor Relations Commission. Even if it is impossible to operate the business for unavoidable reasons, it is not possible to avoid or reduce shutdown allowances without obtaining approval from the Labor Commission.
Shutdown allowances can be paid at less than 70% of the average wage, and can even be avoided.

4) Unpaid leave
Employer’s fault under Article 46 of the Labor Standards Act refers to managerial obstacles that occur within the scope of the employer’s power and includes situations such as financial shortages, shortage of raw materials, and market recession. If it is impossible to continue the business due to force majeure circumstances, such as a natural disaster, this cannot be regarded as the fault of the employer because it is impossible for the employer to manage and control such occurrences. There is no obligation to pay shutdown allowances, regardless of whether the Labor Relations Commission has approved them.

2. Cases of Shutdown Allowances

(1) Full payment

1) If an employee’s(unfair) dismissal was invalidated or canceled, the employee’s status as a worker would still be in existence, and it would be considered that the worker’s failure to provide work was attributable to the employer. Article 538(1) of the Civil Act may request the payment of all wage available for the dismissed period.
2) If suspension of vehicle driving(discontinuance) measures against a worker was found to be unreasonable, in which case the employee was not able to provide work due to the employer’s fault, the employer shall pay a shutdown allowance as prescribed by Article 46 of the Labor Standards Act. If, however, the employee is deemed unable to provide work due to intention or negligence of the employer, a claim for the full amount of wage under Article 538(1) of the Civil Act shall also occur.

(2) Payment of shutdown allowances

1) If a contractor was given an order to suspend operations by the government, if subcontractors also had to shut down their operations(which cannot be translated as force majeure), the subcontractors should pay shutdown allowances to their workers.
2) If a contractor’s removal of hazardous chemicals restricts access to a subcontractor’s workers and if they fail to provide work, this is hardly considered to be force majeure beyond the scope of the employer.

(3) Reduction of suspension allowances

1) A Bupyeong plant closed for more than three months due to a sharp drop in sales after an incident with contaminated dumplings, and the inventory increased during this period. As a result, managerial difficulties can be understood as about 80 workers were dismissed for business reasons. Unless consumer confidence was restored in the near future, normal operation would be difficult. Therefore, it is possible to reduce the shutdown allowance if it is impossible to continue the business for unavoidable reasons(Incheon LRC 2004 shutdown 1).
2) Due to bankruptcy, deficits accumulated even after the company liquidation procedure began, and there was no alternative for normalization as attempts to sell the company were unsuccessful. In this case, unavoidable shutdown is a valid reason for the reduction of shutdown allowances(Incheon LRC 2000 shutdown 1).
3) A situation in which a company goes to the brink of bankruptcy due to an unforeseen fire is considered an unavoidable reason for the employer(NLRC 89 Shutdown 1).

(4) Unpaid leave

1) An employer is not obliged to pay any shutdown allowance for a period of suspension due to interruption of work by a third party.
2) Absence or leave of absence due to natural disaster or other similar instances, and disciplinary actions such as suspension from work, temporary suspension of work, illness, etc., shall not be regarded as a case of employer fault and shall not be reason for payment of a shutdown allowance.

(5) Deduction of interim income

Even if an employee whose employer declared a business suspension found another paying job during the period of business suspension or acquired an “interim income,” the employer shall provide the employee business suspension pay.
Business suspension pay is intended to provide a minimum living for the employees affected by business discontinuance for a reason attributable to the employer. The notion of business suspension includes cases where an individual employee, although they intend to provide work as specified in the labor contract, finds it impossible to do the work. In short, the provision on business suspension pay applies to the employee in question. Therefore, within the range of 70% of the ordinary wage(that is, the business suspension pay rate), interim wage(earned during the suspended period) may not be deducted from shutdown allowance. In other words, only the amount in excess of the business suspension pay rate may be deducted.

3. Opinion
The leave allowance system guarantees workers’ right to life by providing shutdown allowances in cases where the worker does not provide labor due to fault on the employer’s part. At present, the spread of COVID-19 is causing hard times for both companies and workers. If a company pays shutdown allowances without any income, it will be difficult to continue to operate in the future. On the other hand, if an employee cannot earn money due to the lack of a shutdown allowance, survival of the worker will also be threatened. When faced with a force majeure situation such as this, urgent measures are needed to guarantee employment through the payment of employment insurance funds.