Labor Law Q&A details

Chapter 5 Dismissals

Dismissals Due to Closure of Domestic Corporation

Our domestic corporation is having economic difficulties and is going to close down and go through liquidation procedures. In terminating employment relationships, are there any matters to be cautious about related to dismissals?
Since the labor contract is a contract between employer and employee, the labor relationship is automatically terminated at the end of the process of dissolving the employing corporation. This is interpreted as the “automatic extinction of labor relations” in which the labor contract is terminated without the employee’s or the employer’s “declaration of intention.” Since it is not a “dismissal” through unilateral decision of the employer, the specifics on dismissal under the Labor Standards Act are not applicable.
However, generally, a working relationship is terminated immediately before or after closure of the corporation without waiting for the liquidation to be complete. If a worker agrees to the termination of his or her employment relationship through a resignation or other contract termination before or after the closing, this is not a “dismissal.” However, if an employee does not consent to termination of the labor relationship, the dismissal will go ahead anyways by unilateral intention of the employer, thereby terminating the labor relationship.
If a company receives a sentence of bankruptcy and dismisses a worker in the course of its liquidation as part of abolishing the business, as long as it is not a disguised closure, such actions are included in the right to manage a business. Dismissals that the bankruptcy trustee effects towards abolishing the business after the bankrupt company has dissolved due to a bankruptcy sentence are not layoffs but ordinary dismissals. Unless it is a disguised closure, since legitimate reasons are usually accepted, legitimacy of the dismissal is not a big problem.
However, dismissals due to closure of the corporation, if it was possible for the employer to predict such a disclosure in advance, will not be seen as inevitable. Then the provisions on advance notice of dismissal in Article 26 of the Labor Standards Act will apply, so you will be required to notify the affected employees of their dismissal 30 days before closure or pay the normal wage for 30 days in lieu of notice.

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

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