1. Concept

Dismissal for managerial reasons is to reduce the number of employees due to organizational restructuring in order to adjust to economic, industrial, and technical changes, or to renew a group of employees. The dismissal for managerial reasons discharges employees not because of any fault, as in ordinary or disciplinary dismissal, but on account of managerial business conditions.

A dismissal with proper cause shall satisfy the following conditions. If these items are satisfied, the employer can be exempt from legal responsibility as proper cause under the four conditions of Article 23(1).

① Urgent necessity in relation to the business; ② efforts were made to avoid dismissal; ③ fair criteria for the selection of those persons subject to dismissal; ④ the employee representative is informed 50 days in advance and after consulting in good faith.

Each of the above qualifications is not defined or fixed, but shall be determined flexibly in relation to meeting other requirements in actual cases. Whether the dismissal for managerial reasons in a substantial case meets each of the above requirements shall be judged synthetically in consideration of each individual situation related to each requirement.

2. Requirements

Article24 of LSA. Restrictions on Dismissal for Business Reasons
① Where an employer wishes to dismiss a worker for business reasons, there must be an urgent necessity in relation to the business. It shall be deemed that there is such an urgent business necessity in the case of a business transfer, merger, or acquisition of the business to prevent business deterioration.
② In a case following under paragraph①, the employer shall make every effort to avoid dismissal and shall establish and follow reasonable and fair criteria for the selection of those persons subject to dismissal. In any case, there shall be no discrimination on the basis of gender.
③ Where there is an organized labor union representing more than half of the workers at a business or business location, the employer shall inform and consult in good faith with the labor union (where there is no such organized labor union, this shall refer to a person who represents more than half of the workers - hereinafter referred to as “employee representative”) regarding the methods for avoiding dismissals and the criteria for dismissal under the provisions of paragraph (2) at least 50 days before the intended date of dismissal.


Article24 of LSA. Restrictions on Dismissal for Business Reasons
① Where an employer wishes to dismiss a worker for business reasons, there must be an urgent necessity in relation to the business. It shall be deemed that there is such an urgent business necessity in the case of a business transfer, merger, or acquisition of the business to prevent business deterioration.
② In a case following under paragraph①, the employer shall make every effort to avoid dismissal and shall establish and follow reasonable and fair criteria for the selection of those persons subject to dismissal. In any case, there shall be no discrimination on the basis of gender.
③ Where there is an organized labor union representing more than half of the workers at a business or business location, the employer shall inform and consult in good faith with the labor union (where there is no such organized labor union, this shall refer to a person who represents more than half of the workers - hereinafter referred to as “employee representative”) regarding the methods for avoiding dismissals and the criteria for dismissal under the provisions of paragraph (2) at least 50 days before the intended date of dismissal.

(1) Urgent necessity in relation to business

Here, urgent necessity in relation to business is not only limited to conditions in which the company needs to prevent bankruptcy, but also includes conditions in which the company must reduce its employees in order to prevent imminent danger. Supreme court ruling on Sept. 26, 2003, 2001Du10776.


▶ Concrete examples
① When facing financial crisis due to continuous business deterioration;
② Termination of certain production lines due to business deterioration;
③ In cases of business transfer, merger, or acquisition of the business to prevent business deterioration;
④ In cases where personnel reduction is admitted as objectively reasonable(this not only includes dismissal due to business deterioration but also dismissal for technological reasons to promote productivity or to change the working structure to recover or to promote competitiveness and introduce new technology, and dismissals due to company's restructuring after technological innovation); and
⑤ In the case where there is a surplus of employees due to business restructuring, such as streamlining the organization, etc.

1) Degree of urgent necessity        

① In practice, a workforce cut for 'an urgent managerial reason' must be carried out not merely to overcome the poor performance of a business but also to change work organization or introduce new technologies with a view to improving productivity or restoring or strengthening competitiveness, or to keep up with the innovations and structural changes in the industry. Namely, dismissal for managerial reasons has been conducted on the grounds of technological needs as well as managerial needs. Accordingly, the requirement of 'an urgent managerial reason' should not be interpreted to mean that only the need to keep the business afloat is justifiable. Rather, it seems that when a workforce reduction is reasonable in objective terms, there is ‘an urgent managerial reason for dismissal’. Supreme Court ruling on Dec. 10, 1991, 91Da8647.

② “The requirement of ‘an urgent managerial reason’ should not be interpreted to mean that only the need to keep the business afloat is justifiable. Rather, it seems that when workforce reduction is reasonable in objective terms, there is “an urgent managerial reason for dismissal.” That is, a workforce cut for ‘an urgent managerial reason’ has been carried out not merely to overcome the poor performance of a business but also to change the work organization or introduce new technologies with a view to improving productivity or restoring or streng- thening competitiveness, or to keep up with the innovations and structural changes in the industry. Supreme Court ruling on May 11, 1999, 99Du1809.


2) Continuity of necessity in relation to business

“Urgent necessity in relations to business” for the purpose of dismissal for managerial reasons requires the deterioration of the business by which the company is obliged to reduce a number of employees, and the financial difficulties that have been repeated and cannot be expected to be overcome in the near future. Accordingly, the fact that a strike by the union made it impossible to maintain normal business operations does not give the employer the right to close the business for ‘an urgent managerial need’. Supreme Court ruling on May 12, 1992, 91Nu13076.


3) Examination of necessity in relation to business

It is the judicial ruling’s basic inclination that the matter of “urgent necessity in relation to the business” shall not be estimated on the basis of partial business portions or a certain branch’s business condition, but shall be estimated synthetically by evaluating the entire business.

① Abolition of a related department due to cessation of production or reduced production Supreme court ruling on Jan. 12, 1990, 88DaKa34094.
A company whose business is to produce aggregates and ready-mix has been in operation on the designated side of the Han river, but has to stop producing aggregates and reduce its business volume. Therefore, the company had to abolish certain workplaces and reduce business volume. This case was considered an urgent necessity in relation to business.

② Abolition of one section due to managerial reasons and merger of all employees to other business Supreme court ruling on Dec. 22, 1987, 87DaKa2011.
A school corporation, which was operating a hospital, abolished an Industrial Health Section and assigned the related jobs to its subsidiary Industrial Health Research Center. Then, the school dismissed all employees concerned in order to transfer them with similar working conditions to the Research Center. These actions were held as justifiable dismissals.

③ Reorganization designed for business improvement Supreme court ruing on June 14, 1994, 93Da48823.
In the course of being transferred to the private sector, a public company had to prepare for free market competition in the fertilizer industry, cope with decreasing competitiveness due to careless business practices, and streamline or revise the organization to resolve deficit issues. Therefore, the dismissals were justifiable.

④ Abolition of a few business parts which are chronically losing money while the total business is profitable. Administrative Court ruling on Nov. 7, 2000, 2000Gu11672.
In view of the total business, the company recorded surpluses in business performance. However, some business parts were chronically losing money due to work inefficiency. As such chronic deficit is due to an organizational problem, the dismissal of employees by the abolition of the corresponding business parts can be accepted as justifiable.

⑤ In cases where the company has abolished one business part since it has operated two business parts separately Supreme court ruling on May 12, 1992, 90Nu9421.
An employer can abolish his business corporation and dismiss all employees, which, in principle, is the owner’s managerial right. If the company owner disguisedly closed his corporation in an attempt to disturb the labor union’s activities, it can be considered an unfair labor practice. The employer operated his own business, but, due to a business reason, he separated his business into two business units, and divided their personnel, facilities, and accounting. However, although the two businesses have very different internal business operations, they cannot be deemed as different entities because the businesses are owned by the same person. In this case, if one business part is abolished, it can be interpreted as streamlining the business rather than abolishing one business. Therefore, the employer cannot dismiss all employees working in the abolished business unit.

⑥ Workforce reduction is allowed as a result of the decision to contract out a part of the business in order to resolve economic difficulty in that area of the business.
A company, after suffering a 4-year long deficit in a particular business department, decided to contract out the department in an effort to resolve the deficit issues and, as a consequence, dismissed the employees working in the department. In this case, it is acknowledged that such employee dismissal was done for an urgent managerial reason. Supreme Court ruling on Dec. 22, 1995, 94Da52119.

(2) Efforts to avoid dismissal        

An employer has made “efforts to avoid dismissal” by taking all kinds of managerial measures in order to cope with business difficulties facing the company. However, if he/she cannot overcome his business difficulties through these efforts, and if he/she cannot expect any other measures except for dismissal, dismissal for managerial reasons can be accepted as a last resort.

1) Concrete methods to avoid dismissal

① Improvement of business policies or a change of managers, or business rationalization through scientific and rational management of production methods
② Reduction of office size and integration of the organization
③ Transfer of personnel
④ Reduction of outsourcing personnel(subcontract, temporary, or dispatched employees)
⑤ Cessation of new hiring and discontinuance of renewal of short term contracts
⑥ Reduction of production, cessation of holiday/overtime work, use of unused leave(annual and monthly leave) and applying selective working hours
⑦ Reduction of directors’ wages, abolition of bonuses or special allowances exceeding the Collective Agreement’s standards, and other cost-saving measures
⑧ Temporary suspension(closing, employees stay at home)
⑨ Promotion of early retirement or voluntary application for retirement

2) Judicial rulings about efforts to avoid dismissa

① In case where there are no other methods except dismissal Supreme court ruling on May 12, 1992, 90Nu9421.
A company abolished the Business Part 1 due to urgent necessity in relation to business and is about to dismiss all employees. The Business Part 1 and Business Part 2 have not had any business relations in the sharing of history, operating management, and/or exchanging employees, and each business part has maintained its own independent unit. In this case, the company shall not make efforts to avoid dismissal by transferring or dispatching the employees belonging to Business Part 1.

② In cases where there is no effort to avoid dismissal, such as transfer to another plant or temporary closing, etc. National Labor Relations Commission 92Buhae341.
The company closed a plant in a certain area due to chronic deficit and did not transfer employees to other plants. The company did not take efforts to avoid dismissal, such as temporary suspension, etc. Therefore, it can be admitted that the company did not complete efforts to avoid dismissal.

③ In cases where there are no efforts to promote voluntary retirement, streamline the working process, etc. National Labor Relations Commission 94Buhae317.
When a company was expected to reduce personnel in the winter season, it did not promote voluntary retirement, but rather hired new employees. The company also did not make efforts to establish concrete plans to promote the efficiency of production and to prepare for the time to reduce personnel. Therefore, it cannot be held that the company did its best to avoid dismissal.

④ Exceptions for efforts to avoid dismissal Supreme court ruling on Dec. 22, 1992, 92Da14779.
A company whose business is to produce, sell, and export clothing has three plants: Plant A, Plant B, and Plant C. Plant A produces high-quality female clothes, Plant B produces clothes for export, and Plant C produces low-quality products like shocks for their major products. Plant A requires very high quality machinery and skilled workers and pays higher wages in comparison to Plant B, which produces a great number of clothes for export in a mass-production line. Plant C requires simple skills from its workers and pays less than Plant B. Therefore, each plant operation is too different to exchange employees. When the company decided to close Plant B due to urgent necessity in relation to business and dismissed all employees without transferring its employees to Plant A and Plant C, it can be accepted that the company made efforts to avoid dismissal .

(3) Fair criteria for the selection of those persons subject to dismissal

Criteria for the selection of those persons subject to dismissal are normally described in the Collective Agreement or Rules of Employment and can be admitted as long as they are unbiased and generally accepted in society. However, if not specified, an employer can set rational and fair principles and select those persons subject to dismissal.

If an employer selects one of the three criteria-age, service period, and service record-without considering other conditions such as employees' dependents, property, health condition, etc., that criteria cannot be validated as rational or fair. Seoul District Court ruling on Feb. 11, 2000, 99Gahap55101.

▶ Concrete example
① Protection of employee and employee's family : Employee's age, length of service, number of dependents, income of the spouse, property, etc.
② Benefit to the company : employee's work performance, job ability, experience, craftsmanship, prizes or penalties, etc.
③ Status within, or degree of loyalty to, the company : Daily worker, part-timer, temporary worker, etc.

1) Fair Criteria for Selecting Those Subject to Dismissal

① When an employer selects those subject to dismissal based on employee age, service years, number of dependents, faithfulness in attendance, rewards and punishments, certificates of qualification, etc., this selection is rational and fair criteria for dismissal because objectively measurable methods and distinguishable criteria were applied after considering subjective situations for each employee and the company synthetically. Administrative Court ruling on Nov. 22, 2005, 2005Guhap15694.

② Concerning the criteria and method used to select those subject to dismissal for managerial reasons, the employer shall not consider only one factor, like employee job skills, but also consider employee living conditions, equity between employees, etc. The criteria and methods to be used are mostly at the employer's discretion, but the criteria and methods of selection decided upon by mutual agreement between the employer and the employee representative are considered rational, unless they are extremely subjective or unjustifiable. Administrative Court ruling on Apr. 28, 2006, 2005Guhap5086.

③ In cases where dismissal of employees for managerial reasons must be done, it is desirable that the employer shall not only select those employees working in a division that will be abolished, but also select those subject to dismissal from throughout the company, as employees are transferable in personnel management. Labor Ministry Guidelines: Kungi 68207-1905.

④ If an employer excludes some employees in production from those subject to dismissal for managerial reasons, it shall be accepted as rational if they are skilled craftsmen and those possessing essential certificates of qualification to operate production lines. Supreme Court ruling on June 14, 2002, 2000Du8486.

⑤ Even though the only employees dismissed for managerial reasons were labor union members, this is justifiable if the employer consulted with the labor union in advance and dismissed them according to objective and fair criteria. Seoul Appellate Court ruling on Nov. 20, 2000Nu6963.

2) Unfair Criteria for Selecting Those Subject to Dismissal

A. Criteria that only considers company circumstances

① In the selection of those subject to dismissal, if the employer considers educational background as the sole criteria for dismissal, proposes voluntary resignation only to those with lower educational levels, and dismisses the employees concerned without making any effort to avoid dismissal, these dismissals would be unfair because they were not done according to the required procedures. National Labor Relations Commission 2004Buhae78 on July 28.

② When dismissing temporary employees for managerial reasons, a local government made no effort to avoid dismissal and dismissed temporary employees according to age, from the oldest, without determining rational and fair criteria for dismissal. The local government also implemented the dismissals unilaterally, without consultations with the employee representative, so these dismissals were unfair, and an abuse of the right to manage personnel. National Labor Relations Commission 2001Buhae192 on June 12.

③ An employer selected employees subject to dismissal for managerial reasons on the basis of age as unilateral and subjective criteria. If the employer did not consider the degree of disadvantages affecting the employees concerned, the necessity of social protection, contributions made, or employee attitudes during their service period, etc., this dismissal cannot be seen as rational and fair criteria for dismissal. Administrative Court ruling on Dec. 11, 2001, 2001Gu26794.

④ It is difficult to accept as fair dismissal for managerial reasons an employer's selection of those subject to dismissal only on the basis of disciplinary punishment received by certain employees. Even though such criteria are accepted as rational, most disciplinary punishment of the employees concerned cannot be accepted as justifiable reason for dismissal in view of their procedures, timing, and purpose. Seoul Appellate Court ruling on July 3, 2003, 2002Nu11860.

⑤ In one case, a company unilaterally decided that length of employment would be the main criteria in choosing employees to dismiss for managerial reasons. In other words, those who had served the company longer, although they had contributed more than other workers to the company, were still more likely to be dismissed for managerial reasons. Other things, like work attitude, were also considered, but they were not weighted as heavily against an employee in determining dismissal as length of employment. Therefore, this selection cannot be accepted as rational and fair. Administrative Court ruling on July 7, 2000, 99Gu34600.

⑥ If the employer did not have prior consultations with the employee representative regarding criteria for dismissal for managerial reasons and the possible methods for avoiding dismissal, dismissal for managerial reasons is illegal since correct procedures were not followed in choosing objective and socially justifiable rationale. Seoul Appellate Court ruling on Dec. 2, 1999, 99Nu4930.

B. Criteria deficient in rationality and fairness

① In cases where the employer selected as subject to dismissal for managerial reasons those employees who did not agree to transfer and also did not agree to voluntarily resign, this selection cannot be justifiable based upon rational criteria. Administrative Court ruling on Nov. 27, 2007, 2007Guhap16103.
An employer notified one of his employees several times of the intention to dismiss him for managerial reasons because of his constant refusal to transfer to another department. After consulting with the labor union, the employer dismissed the employee for managerial reasons, particularly because he did not agree on a transfer and also did not respond to suggestions to voluntarily resign. This selection for dismissal cannot be accepted as being done according to objective and rational criteria. Even though the employer completed consultation with the labor union, this selection for dismissal violated the principle of the Labor Standards Act and cannot be accepted.

② Even though requirements for dismissal for managerial reasons were satisfied, choosing those to be dismissed for managerial reasons by vote cannot be admitted as justifiable. Administrative Court ruling on June 16, 2000, 99Gu30967.
An employer selected those employees subject to dismissal only by means of a vote by committee members, without any objective evaluation materials or evaluation criteria. This dismissal for managerial reasons could be affected by individual relationships more than by company criteria, so there is a great possibility to distort the result.

③ An employer dismissed an employee who refused to accept an honorary resignation recommended by the employer, even though his dismissal wouldn't have any effect in reducing labor costs. This cannot be accepted as a socially fair and objective dismissal for managerial reasons. Seoul Appellate Court ruling on July 16, 1998, 97Gu47660.
As one method to avoid dismissal, the employer proposed honorary resignation and a position transfer to short-term contract employment to an employee who was going to retire from the company in 9 months. As the employer would not be able to reduce his labor costs by dismissing this employee, this dismissal, because the employee would not voluntarily resign, cannot be accepted as fair or objective.

④ Even though collective bargaining has stipulated the order of and method by which employees are subject to dismissal, if the employer selects the employees subject to dismissal simply at his own discretion, this selection was not made in a justifiable way but is a violation of rational and fair criteria. Seoul Appellate Court ruling on Dec. 12, 2003Nu4838.

⑤ In cases where some workplaces of a business are closed but others of the same business are still in operation, it is not possible to dismiss all the employees of the closed workplaces by citing an urgent managerial reason as the reason for dismissal.

When there are some workplaces in operation, although others are closed, this constitutes a business curtailment, not a complete closure. Therefore, the employer may not dismiss all the employees only at the closed workplaces just because the workplaces are closed. Supreme Court ruling on Jan. 26, 1993, 92Nu3076.


(4) Sincere consultations with the employee representative

When an employer tries to consult with the employee representative in good faith but cannot reach an agreement, the dismissal of the employee according to the employer's own criteria is not invalid; provided, however, that the criteria shall be rational and fair as a precondition.

In some cases, the collective agreement provides that the employer should reach agreement with the union on any dismissal for managerial reasons. If this is the case and if the union keeps resisting the proposed lay-off without giving a justifiable reason for such resistance, the lay-off that the employer carried out without agreement by the union is legally effective. There was an urgent managerial reason that can justify a massive lay-off and the employer had good-faith consultations with the union in advance and did his best to minimize dismissals. Given this, it seems that the union, which refused to agree to the planned lay-off without giving a justifiable reason for such refusal, abused its right of refusal, which states that the collective agreement requires a bilateral accord on dismissal for managerial reasons. As the employer failed to reach agreement with the union because of a reason attributable to the union, the lay-off is effective. Administrative Court ruling on Mar. 7, 2000, 99Gu20694.


▶ Concrete examples
① An employer shall inform the employee representative on the methods for avoiding dismissals and the criteria for dismissal 50 days prior to the date of dismissal.
② An employer shall consult in good faith.
※ Employee representative: Where there is an organized labor union repre- senting more than half of the workers at a business or business location, the labor union becomes the employee representative; however, where there is no such organized labor union, the employee representative shall refer to a person who represents more than half of the workers.

1) Unit Selected for Employee Representation

The employee representative shall be selected from a unit of a business or workplace. However, in cases where target employees are defined by particular occupations or positions, the employee representative shall be one who represents these targeted employees. Accordingly, if these particular targeted employees are not entitled to union membership, it would be pointless to consult with the labor union concerning the managerial reduction of these targeted employees. In a hospital where the employer intends to reduce employees of 4th rank or higher, consulting with the labor union as an employee representative of 5th rank and lower would be unacceptable as the employer has not consulted in good faith with an appropriate employee representative. Seoul Appellate Court ruling on Mar. 25, 2005, 2004Nu4613.

2) Method of Employee Representative Selection

① Where there is an organized labor union representing more than half the employees
Whether the labor union represents more than half the employees shall be estimated in the unit of the business where the employer wants to select an employee representative and shall be estimated in a unit of the workplace for the unit of the workplace.

If the labor union represents more than half the employees, it is taken for granted that the labor union becomes the union representative of the labor union or the person (e.g. the chairman of the union branch) who has been authorized to represent the labor union.

② Where there is no organized labor union representing more than half the employees
For dismissals for managerial reasons, “the employee representative for the purpose of consulting with the employer shall be selected by independent and voluntary decision-making by the employees, after they are informed of the reason for choosing employee representation. It is also acceptable to choose the employee representative through employees’ congregation or individual signatures on circulating representative lists. If an employer asks the employees to choose an employee representative, the employees autonomously determine procedures and methods of selection without intervention by the employer, and select someone (even though some employees could not participate) that represents more than half of the employees, the person shall be regarded as the employee representative. Labor Ministry Guidelines 68207-1472, on Nov. 13, 2003.

3) Invalid employee representatives

Agreement from or consultation with an employee who does not justifiably represent the employees is not legally valid.

① Even though an employer had explained the deterioration of business to the team leaders in manager-level plenary meetings and asked them for their opinions in selection of target employees for managerial dismissal, this is not company consultations with an acceptable employee representative. Administrative Court ruling on Sept. 7, 2007, 2006Guhap25285.

② Because the company did not comply with substantial conditions in the course of managerial dismissal and, furthermore, consulted with an arbitrary organization and not an employee representative, this dismissal for managerial reasons is unfair. Seoul Appellate Court ruling on June 20, 2003, 2002Nu14739.


3. Implementation of dismissal for managerial reasons

An employer shall inform the individual employee 30 days prior to dismissal or pay allowance for non-advance notice(ordinary wages for 30 days) even in the event of dismissal for managerial reasons. As a procedural condition, the employer shall report to the Minister of Labor if dismissing more than a certain number of employees. Whether the dismissal is notified to the Minister of Labor or not does not undermine the effect. That is, reporting to the Minister of Labor is not a requisite to justify a dismissal for managerial reasons, but a requisite for the processing.


Article24 of LSA. Restrictions on Dismissal for Business Reasons
④ When an employer intends to dismiss workers under the provisions of paragraph ① exceeding the fixed limit prescribed by Presidential Decree, he/she shall report to the Minister of Labor pursuant to the relevant provision of the Presidential Decree.
Enforcement Decree Article10-2. Report of Dismissal Plan for Managerial Reasons
① An employer shall report to the Minister of Labor 30 days in advance before he/she desires to dismiss for the first time, if he/she intends to dismiss the number of workers as prescribed in paragraph 4 of Article 24, which is referred to in the following subparagraphs:
1. A business or a workplace which ordinarily employs fewer than 99 workers: more than 10;
2. A business or a workplace which ordinarily employs more than 100, but not exceeding 999: more than 10 percent of workers ordinarily employed; and
3. A business or a workplace which ordinarily employs more than 1,000 workers: more than 100.
② The report as prescribed in paragraph (1) shall include the following matters:
1. Reason for dismissal;
2. Number of workers to be dismissed;
3. Items consulted on with the labor representative; and
4. Dismissal schedule.


4. Effort to Reemploy Preferentially

When an employer who has dismissed workers under the provisions of Article 24 of the Labor Standards Act wishes to reemploy workers within 3 years of the date of dismissal, he/she shall consider the duties of the workers prior to their dismissal and make every effort to preferentially reemploy them, if they so desire. Here, this is not a compulsory duty in the laws but a recommendation article.

Article25 of LSA. Preferential Reemployment
① When an employer who has dismissed workers under the provisions of Article 24 wishes to reemploy workers within 3 years of the date of dismissal, he/she shall consider the duties of the workers prior to their dismissal and make every effort to preferentially reemploy them if they so desire.
② The Government shall take the necessary measures for dismissed workers under the provisions of Article 24 such as stabilization of livelihood, reemployment, and vocational training on a priority basis.