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. Lim Jong-Ryul, Labor Law, 20th ed. Park Young-sa, 2022, p. 422; Jung Myung-hyun, Duality of Legal Characteristics for shutdown Allowance, Justice Magazine (147), Korea Law Institute, April 2015, p. 253.

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. Supreme Court ruling on Oct. 11, 2012: 2012da12870.
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. Civil Act: Article 537 (Obligor's Burden to Bear Risk)
If the performance of an obligation of one of the parties to a bilateral contract becomes impossible by any cause for which neither of the parties is responsible, the obligor may not be entitled to counter-performance.
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. Article 538 (Impossibility of Performance due to Cause for Which Obligee is Responsible)
(1) If the performance of an obligation of one of the parties to a bilateral contract becomes impossible by any cause for which the obligee is responsible, the obligor may demand counter-performance. The same applies to cases where performance becomes impossible by any cause for which neither of the parties is responsible in the case of mora creditoris. (2) In cases in the preceding paragraph, if the obligor has received any benefit by being relieved of his own obligation, he shall return such benefit to the obligee.
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. Labor Law Case Study Group, Interpretation of the Labor Standards Act (III), 2nd ed. Parkyoungsa, 2020, p. 121.


(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. Supreme Court ruling on June 28, 1991: 90daka25277 (Damage compensation).

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. Judgment of reasons attributable to an employer
(1) Reasons attributable to an employer: ① Closure of business due to economic reasons; ② Shortage of raw material, reduction of orders; ③ Electricity failure, stagnant sale of products, or capital shortage; ④ Plant transfer, destruction by fire, machinery damage, or reduction of work volume; and ⑤ Subsidiary plant's shortage of raw materials and funds owing to the head company's financial difficulties.
(2) Reasons not attributable to an employer: ① Flooding of the entire plant; ② Closure due to illegal political strike; ③ Legal plant lockout; ④ Incendiary fire by a third party (arson); and ⑤ Plant closure due to natural disasters.
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. MOEL Guidelines: Gungi 68207-106, Sep. 21, 1999; Wage Policy Team - 711, Mar. 29, 2006
A partial shutdown allowance shall be paid when only part of the workplace is closed or when working hours are reduced. MOEL Guidelines: The shutdown Allowance System, Labor Standards - 387, Feb. 13, 2000.

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). MOEL Guide: Gungi 68207-598, Feb. 28, 2000.
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. MOEL Guidelines: Standards of the Shutdown Allowance System, Labor Standards Team - 387, Feb. 13, 2009: Approval Process of Labor Commission Decision on Shutdown Allowance (by Employer) ? Submission of Application for Approval of Reduced Shutdown Allowance (to the Labor Relations Commission) ? Confirmation and Review (by related official) ? Deliberation & Resolution (Judgement Committee, within 30 days) ? Notification.

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. Supreme Court ruling on Sep. 17, 1968: 68nu151.

Shutdown allowances can be paid at less than 70% of the average wage, and can even be avoided. Supreme Court ruling on Nov. 24, 2000: 99doo4280.

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 MOEL Guidelines: Labor Standards Team - 802, Feb. 16, 2010
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. MOEL Guidelines: Gungi 68207-598, Feb. 28, 2000        


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. Supreme Court ruling on Dec. 22, 1981: 81da626.

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. MOEL Guidelines: Wage/Working Hour Team - 711, Mar. 29, 2006.

(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. Supreme Court ruling Sep. 10, 2019: 2019do9604.

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. MOEL Guidelines: Labor Standards Team - 3535, May 30, 2018


(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. Guidelines: Labor Standards Team - 2855, June 9, 2004

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. Lim Jong-Ryul, Labor Law, 20th edition, Park Young-sa, 2022, p. 423


(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. Supreme Court ruling on Jun. 28, 1991, 90DaKa25277.

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. When a workplace is shut down and closed, it is difficult for the workers to survive, so the Labor Standards Act guarantees a wage of 70% on average as a shut-down allowance in case of closure for reasons attributable to the employer. It is possible to reduce a shut-down allowance if there is a huge disruption to the operation of the business to the point where the employer cannot continue to operate. In addition, the Civil Act states that if a worker is suspended due to the intention or negligence of an employer, the full wage shall be paid (Article 538), but if the business is closed through no fault of the employer, the shut-down allowance shall not be paid (Article 537). Payments can be divided into: (i) 100% pay, (ii) payment of shut-down allowances, (iii) reduction of shut-down allowances, and (iv) unpaid leave.