Employment Contract

Part 1. Understanding Employment Contracts

Chapter 1. Obligation to Write an Employment Contract and Items to be Considered

When an employer hires someone, the first thing that must be done is to create an employment contract, which outlines the responsibilities of both parties to the contract—the worker provides work to the employer and the employer pays wages in return (Article 2 of the Labor Standards Act, or “LSA”). Preparing a written employment contract is to clarify working conditions between workers and employers, and to prevent disputes. The employer is obligated to prepare one, and failure to do so can result in a fine of not more than 5 million won for each worker who does not have a written contract. In labor disputes, the burden of proof is on the employer. I will outline the essential items in an employment contract, with these items examined through standard employment contracts for each employment type.

Ⅰ. Information Required in a Written Employment Contract

1. Items Required to Protect Workers
Article 17 of the Labor Standards Act requires employers to specify certain items in employment contracts and hand them out to new hires to sign. It should be issued again when changes are made. Such items include (1) wages, (2) contractual working hours, (3) holidays under Article 55, (4) annual paid leave under Article 60, and (5) matters concerning the place of employment and the work expected. When entering into an employment contract with a worker under the age of 18, a parental consent form must be attached (Article 66 of the LSA).
When entering into an employment contract with a fixed-term or part-time worker, the following essential items must be specified in writing: (1) Matters concerning the period of the work contract, (2) Matters on working hours and breaks, (3) Matters on the composition of wages and methods of calculation and payment, (4) Matters on holidays and leave, and (5) Place of employment and the work expected. In particular, (6) Working days and working hours per working day are only required for part-time workers (Article 17 of the Fixed-Term and Part-time Employment Act).

2. Items to Protect Employers
Employment contracts should be drawn up based on mutual agreement between labor and management and on equal terms, but in reality, since the employer selects and hires the most desirable worker from a number of applicants, the employment contract is concluded with the working conditions dictated by the employer. Since the employer decides the details of the contract from a superior position, the Labor Standards Act places restrictions on contract details.
Despite these restrictions, employers can take steps to protect themselves and take actions, such as dismissal, with unqualified or poor workers. First, workers unsuitable for the job can be dismissed within the probation period, which is usually set at 3 months, but can be extended if necessary. Workers on probation may be dismissed without prior notice, unless the probationary period exceeds three months, then a notice of dismissal must be made 30 days before dismissal. Second, if it is difficult to evaluate whether a worker is eligible for work through the probation period, a one-year fixed-term working condition can be set together with the probation period. Third, it is necessary to obtain a pledge to comply with the service regulations (security), and prepare grounds for disciplinary action for workers who violate them. Fourth is related to employees’ personal information, which, in general, employers can use in personnel management, but only upon gaining the employee’s consent for areas not already permitted by law. Essentially, a letter of consent signed by the employee is necessary before using that employee’s personal information.

Ⅱ. Details Not to be Included in Employment Contracts

The Labor Standards Act specifies invalid details in employment contracts. These include: (1) Working conditions that do not meet the standards of the Labor Standards Act, with such invalid section(s) to be judged as in accordance with the Labor Standards Act (Article 15); (2) If any of the working conditions set forth in an employment contract are found to be inconsistent with actual conditions, the worker concerned shall be entitled to claim damages from the employer resulting from breach of the working conditions (Article 19); (3) Employers shall not prescribe penalties or damages for failure to fulfill the employment contract (Article 20); (4) No employer shall offset wages against an advance or other credits given in advance on the condition of a worker’s labor (Article 21); and (5) No employer shall enter into a contract with a worker, in addition to a labor contract, which stipulates compulsory savings or the management of savings (Article 22).

Ⅲ. The Principle of Priority on Favorable Conditions and Applications

1. Principle
Recently, court rulings have emerged that have overturned existing practices, causing confusion in the workplace. Even if changing the rules of employment disadvantageously proceeds legally and with the consent of the majority of workers or consent of the union representing the majority, the labor contract with more favorable conditions continues to apply to workers who do not agree. In the past, when employers change rules of employment in a way that lowered working conditions to overcome internal and external difficulties, as long as they have gone through the procedures required to change the rules disadvantageously, the new rules apply to all workers in the entire company even if there are some opposed. However, recent Supreme Court rulings have overturned this practice by ruling that a labor contract with more favorable terms for even a small number of workers who disagree with changes to the rules of employment continues to apply. The background to these precedents is the principle that workers and employers must decide working conditions freely and on equal terms (Article 4 of the LSA), and when there is disagreement regarding the new rules and labor contracts, the labor contract with the more favorable conditions takes priority (Article 97 of the LSA).

2. Relations with labor contracts
(1) Labor contracts that are disadvantageous when compared to the Labor Standards Act
Parts of labor contracts that set working conditions below the standards set by the Labor Standards Act are null and void. The invalidated sections are to comply with the Labor Standards Act (Article 15 of the LSA). The labor contract outlines working conditions freely determined by the worker and the employer, but if such working conditions do not meet the mandatory regulations set forth in the Labor Standards Act, they will be invalidated, and that section of the labor contract will be changed to comply with the Labor Standards Act. Therefore, the working conditions specified in a labor contract should be the same or better than those outlined in the Labor Standards Act.

(2) Labor contracts that are disadvantageous when compared to the collective agreement
Any part of a labor contract that violates the working conditions and standards for treatment of workers stipulated in the collective agreement shall be invalid. The invalidated part(s) shall comply with the standards set by the collective agreement (Article 33 of the Trade Union Act: TUA). This regulation describes the normative effect of collective agreements, and explains that they have a compulsory and supplementary effect on the content of contracts. The compulsory effect is manifested by invalidating any part of a labor contract that violates the standards for working conditions and other treatment prescribed in the collective agreement. The supplementary effect is manifested by the fact that if there are no relevant provisions in the labor contract for handling a specific issue, the standards set in the collective agreement apply. If a labor contract is more favorable than a collective agreement, the question arises as to whether the more favorable section(s) of the labor contract will apply in accordance with the principle of preferential conditions. This section has a normative effect because the working conditions specified in the collective agreement are the product of the determination of working conditions concluded on an equal basis by labor and management. Therefore, within the scope of the general binding force of collective bargaining, the favorable conditions specified in the labor contract are excluded and the contents of the collective agreement apply.

(3) Labor contracts that are more favorable than the rules of employment
Parts of labor contracts that set working conditions below the standards set by the rules of employment are invalid. Invalidated sections shall be changed so they comply with the rules of employment (Article 97 of the LSA). The labor contract should be maintained but with the same or more favorable conditions as the rules of employment. This also applies in the reverse situation. Therefore, if the rules of employment and the labor contract differ in terms of working conditions, the advantageous terms of the labor contract will apply first. There are some related court rulings: (1) Even if the revised rules of employment no longer require that a full-time allowance be paid, which had been required under the labor contract, for individual workers who do not agree to the change, the advantageous parts of the labor contract take precedence over the revised rules of employment. (2) In a case where a wage peak system was introduced as part of rules of employment that were revised with collective consent but after specifying the annual salary in an individual labor contract with a particular worker, the existing individual labor contract takes precedence over the rules of employment, despite the latter being revised with collective consent. (3) Even if the rules of employment are changed through legitimate procedures, they do not take precedence over existing advantageous employment contracts unless special circumstances dictate otherwise, such as the employee agreeing to the relevant change in the rules of employment.

For further questions, please
call (+82) 2-539-0098 or email bongsoo@k-labor.com

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