1. Introduction

In the Seoul office of a foreign company (hereinafter referred to as “the Company”) that employed about 300 people and is engaged in the apparel business, a labor case occurred due to escalating disputes between directors in April 2015. With two departments of the Company combining into one, the executive managing director told the managing director that it would be not desirable to have two directors in one department, and told the managing director that she would need to resign. The managing director (hereinafter referred to as “the Employee”) told the Company that she would sue it for violating the Labor Standards Act (LSA) and would also report additional claims of other employees unless the Company paid her a severance bonus of two years’ annual wages. The Company responded that it did not order the Employee to resign, rejected her demand for a severance bonus, and explained that the Company had not violated the LSA. Just after that, the Employee began a lawsuit against the Company and visited the Gangnam Labor Office to claim the Company had violated the Labor Standards Act, and had not paid an additional allowance for her overtime.
The main item in these accusations is that, as the Employee’s job title of managing director placed her in the “directors” group, the question is whether or not this high position is included in ‘persons to be excluded from the application of working hours, recess and holidays’ stipulated by the LSA. Herein, I would like to look substantially into these two main points of dispute to confirm whether or not the Company had violated the LSA.

2. Overtime Allowance for Personnel in Managerial and Supervisory Positions

(1) Current Situation

The Employee claimed that she had never received any additional allowance for overtime or holiday work during her service period, and that she was entitled to such allowances for the past three years. The Employee requested the information of her office PC’s “on-and-off” data to verify her working time as she had not recorded it in the related documents.
The Company responded that the Employee is not entitled to overtime work allowance or holiday work allowance due to her high position as managing director, putting her in a managerial and supervisory position according to Article 63 of the LSA.

(2) Related Law, Guidelines and Judicial Rulings

1) The LSA
Article 63 (Exclusion from Application) of the LSA regulates that the provisions regarding working hours, recess and holiday shall not apply to personnel in managerial and supervisory positions. Article 63 (Exclusions from Application) The provisions of this Chapter and Chapter V as to working hours, recess, and holidays shall not apply to workers engaged in any of tasks described in the following subparagraphs:
1. cultivation of arable land, reclamation work, seeding and planting, gathering or picking-up or other agricultural and forestry work;
2. livestock breeding, catch of marine animals and plants, cultivation of marine products or other cattle-breeding, sericulture and fishery business;
3. surveillance or intermittent work, for which the employer has obtained the approval of the Minister of Employment and Labor;
4. any other work prescribed by Presidential Decree. [Implementation Decree (Article 34) - “Work provided for by Presidential Decree” means managerial and supervisory work and work of handling confidential information, irrespective of the type of business.]


2) Related guidelines
‘The provisions of this Chapter and Chapter V as to working hours, recess, and holidays shall not apply to persons engaged in management and supervision’ (Article 63 (4ho) of the LSA and Article 34 of its Enforcement Decree). Here, ‘persons engaged in management and supervision’ refers to those in managerial positions in the decision-making process of working conditions. This position shall be determined collectively in consideration of whether the person participates in deciding labor management or has authority for supervision and control in labor management regardless of his/her formal designation, whether the person’s working hours are strictly regulated (such as time to arrive at and leave the workplace), whether the person receives a special allowance due to the position, etc.
Administrative guidelines explain that, for those in the position of ‘section manager’ who are authorized to plan and implement general duties and detailed job assignments for their subordinates, and manage their business trips, overtime, and vacations, even though a section manager does not receive a special allowance in accordance with that position, if the section manager’s time of arrival at and departing from the workplace has not been strictly regulated, the section manager shall be considered as a person who is in line with the employer in determining working conditions and other forms of labor management. MOEL Guideline: Guideline Kunjung-41, Mar. 3, 2011.


3) Judicial ruling
The Supreme Court ruled that working hours, recess and holidays stipulated by the LSA do not apply to persons in managerial and supervisory positions in terms of deciding subordinates’ working conditions, does not have their times of arrival at and departure from the workplace strictly regulated, and is managing his/her own working hours flexibly. Persons in this position cannot receive additional allowances for overtime exceeding contractual working hours or holiday work according to the Labor Standards Act. Supreme Court ruling on Feb. 28, 1989, 88daka2974.

        
(3) The Employer’s countermeasures

Even though the ‘managing director’ for the foreign company in this case had a considerably high position, it is not clear whether this high-ranking person was working just as a manager, and not a department head which would place her in a managerial and supervisory position.
The Employee in this case was not a department head due to the combination of two departments, but had received the high salary of a director, twice the incentives of other employees, and her time of arrival at and leaving the workplace was not strictly controlled as was done with other employees. In consideration of these facts, the Gangnam Labor Office in charge of this case concluded that the Employee in this case held a managerial and supervisory position and could be excluded from the provisions on working hours, recess and holiday provisions in Article 63 of the Labor Standards Act. In the end, as the Employee recognized that she could not receive a severance bonus from the Company, she withdrew the lawsuit and instead of resigning, took childcare leave.

3. Conclusion

The labor case herein is a very common one that can occur easily for companies. On the second point of whether the managing director of a foreign company shall be entitled to an additional allowance for overtime work shall be determined collectively in consideration not only of the official designation of the employee as being in a high position but also the manager’s authority, observance of commuting time, and any special allowances assigned to the position. Ha, Kaprae,The Labor Standards Act (27th ed.) Joongang Economy, 2015, p. 315.
Through this evaluation, companies should prepare measures to avoid having to later deal with matters regarding overtime and holiday work for such a position.
This labor case began with the Employee’s demand to receive a severance bonus from the Company through a claim that the Company had violated labor law. When a company has violated labor law and has to settle with certain employees to end labor disputes, other employees will rush to claim compensation from the company as well. In particular, for many foreign companies with registered representative directors working as directors in their home countries, those representative directors have to come to Korea to attend investigation procedures in the Labor Office, which will cause considerable embarrassment for their local Korean branches. On this point, companies need to thoroughly observe labor law to avoid labor disputes with potentially dissatisfied employees and reduce in advance the risk of related damages.