[Limitations on Application of the Labor Standards Act]

Some workers are not protected by Korean labor law, or have limits to the protection offered. Representative examples include 1) workers at workplaces ordinarily employing fewer than five people, and 2) domestic workers. The Labor Standards Act (LSA) stipulates that “The Labor Standards Act shall apply to all businesses or workplaces in which five or more workers are ordinarily employed. This Act, however, shall not apply to any business or workplace which employs only relatives living together, or to workers hired for domestic work.” (Article 11 of the LSA)

In relation to such limitations on application of the Labor Standards Act, some problems have recently emerged. The first problem is that while labor rights are not completely applicable to people employed by workplaces ordinarily employing fewer than five people, they are now finding themselves eligible for severance pay, which in the past was not the case. This new situation has been at the heart of more labor disputes for those workers looking out for their own labor rights. Accordingly, it is necessary for workplaces ordinarily hiring fewer than five people to be aware of which articles of the LSA are applicable to their workers. The second problem is that while it is evident that domestic workers exclusively working for a particular house are completely excluded from application of the LSA, this gets confusing when someone works for a company but is paid to be a housekeeper, butler, driver, etc. at the company president’s house. In particular, there are disputes related to workers getting injured at work, and whether the workers should receive severance pay or not..

In December 2012, employees at workplaces employing fewer than five people became eligible for severance pay. This has brought a lot of attention to those workers in inferior situations. Major articles of the LSA not applicable to such workers include, 1) restrictions on dismissal, 2) suspension allowances, 3) restrictions on extended work, 4) extended work, night work and holiday work, and 5) annual paid leave. Due to their exclusion from these protections, such employees often work in inferior working environments. In the following pages, I would like to look at and explain conditions which require and do not require application of the LSA.


I. Employees at Workplaces Ordinarily Employing Fewer than Five People

1. Major articles applicable to workplaces ordinarily employing fewer than five people

Topics related to major articles applicable to workplaces ordinarily employing fewer than five people include, 1) written statement of the employment contract, 2) weekly holidays, 3) recesses, 4) accident compensation, 5) payment of money and valuables, 6) payment of wages, 7) restrictions on timing of dismissal, 8) advance notice of dismissal, and 9) maternity leave.

Even though the restrictions on dismissal are not applicable, advance notice of dismissal is required, which means that an employer shall give at least thirty days’ advance notice to a worker the employer intends to dismiss. If such notice is not given, ordinary wages of at least thirty days shall be paid to the worker. Most articles regarding wages to be paid for labor service are also applicable. That is, minimum wage applies, payment of wages shall be observed, and penal provisions for delayed payment of wages are applicable. Of particular note, severance pay became mandatory December 1, 2010 for the first time: for the two years until December 1, 2012, the employer shall pay 50% of full severance pay to resigning employees, and shall pay 100% for the period beginning January 2013. Regardless of the length of service, severance pay only starts accruing from December 1, 2010. Also, according to Industrial Accident Compensation Insurance requirements, accident compensation for occupational injury, including medical treatment, suspension compensation, handicap compensation, etc. are applicable in the same way as for regular employees.

2. Major articles not applicable to workplaces ordinarily employing fewer than five people

As the following LSA provisions do not apply to workers at workplaces ordinarily employing fewer than five people, working conditions for such employees are quite inferior.

(1) Restrictions on dismissal, etc.: a) An employer can arbitrarily dismiss or discipline workers without justifiable reason; b) Even though a worker is unfairly dismissed, the worker cannot apply to the Labor Relations Commission for remedy; c) An employer does not have to notify workers in writing of reasons for dismissal; d) As the restrictions on dismissal for managerial reasons do not apply to such workers, an employer can dismiss workers at any time if business conditions deteriorate; e) The two-year limitation on the use of temporary workers such as dispatch employees or short-term contract workers does not apply, and the employer can dismiss such workers at any time.

(2) Allowances during suspension of business: When an employer suspends business operations, the workers cannot receive suspension allowances. Even though business operations are suspended for reasons attributable to the employer, the employer does not have to pay allowances to workers during such suspensions.

(3) Restrictions on working hours: Workplaces ordinarily employing fewer than five people do not have to follow the 40 hours per week limitation or keep to a 5 day workweek. There are no restrictions on extending the work day beyond 8 hours, or even beyond 12 hours, nor does he/she have to pay additional allowances (50%) for overtime, night shift (22:00 pm to 06:00 am) or holiday work.

(4) Annual paid leave: When a worker at a workplace employing at least five people has worked continuously for one year, 15 days of annual paid leave are granted, but workers at workplaces ordinarily employing fewer than five people are not guaranteed any paid, non-statutory holidays. A worker at such workplaces must get permission to take a day off, and the employer can deduct one day’s salary for each day off granted.

II. Domestic Workers Employed by a Company

“Domestic worker” refers to a person paid to engage in work that runs a particular home as a housekeeper, a cleaner, a nanny, a butler, etc. As “domestic work” exclusively involves housekeeping related to an individual’s private life, it is not preferable for the nation to intervene in and audit working hours or wages, which is why domestic workers are excluded from the Labor Standards Act. Therefore, even though a domestic worker for a company president is employed by the company, the LSA is not applicable. However, in cases where a worker is employed by a company and is covered by company regulations, but was assigned to work as a gardener, guard, butler, driver, etc. at the company president’s house, the situation is different. I would like to review some cases that deal with this issue.


1. Domestic worker not covered by the Labor Standards Act Gyeunggi Labor Relations Commission: 2012 buhae 1130

This labor case involved an application for remedy for unfair dismissal, but was dropped as the domestic worker was not covered by the Labor Standards Act. The ruling stated: “Even though this worker claimed he applied for a position posted by the company, his workplace was the summer house owned privately by the company president, and was employed by the president and her husband. Caretaking of the summer house was not related to the company’s main business of construction. In addition, the worker has not done anything to contribute to the profit gaining activities of the company. In light of these facts, this worker, privately employed by the employer, is considered a domestic worker to which Article 11 of the LSA applies. It is therefore not necessary to review the facts of the dismissal or its justification.”


2. Domestic worker covered by the Labor Standards Act Industrial Accident Compensation Insurance Review Committee 2004-910, Sep 14, 2004.

In looking into the background to the worker beginning to work at the CEO’s house, it was found that he had been employed by the company to work in the Management Department, and then was immediately assigned to work at the CEO’s house. Since that time, the company had managed the worker’s general matters regulated by labor law such as wages, service regulations, and payment of severance pay. The company had also handled the worker’s social security insurance and other income deductions. Even though the type of work was at the discretion of the CEO, the worker still belonged to the company organization. This worker is clearly different from a worker hired independently by an individual as a private housekeeper, driver, or gardener. Accordingly, the decision by the Employee Welfare Corporation to reject the family’s application for the survivors’ pension because of the worker’s supposed status as a domestic worker was inaccurate.

3. Judgment

A review of these two cases reveals two things: 1) In cases where a worker is employed by a company and is exclusively engaged in housekeeping duties, the worker shall be regarded entirely as a housekeeper excluded from coverage by the Labor Standards Act; 2) However, in cases where a worker was employed by the company and assigned to the company president’s house as a guard, exclusive driver, gardener, etc., that worker is likely considered to be covered by the LSA. In light of this, it is necessary to consider the worker’s job characteristics, job scope, and work relations with the company in deciding whether the LSA applies or not.


III. Conclusion

Employees of workplaces ordinarily employing fewer than five people are at times excluded from or have restrictions on their coverage by the Labor Standards Act. Such restrictions or exclusion from basic labor rights normally granted to other workers have resulted in poorer working conditions for them in terms of dismissal, disciplinary action, restrictions on working hours, etc. To protect their minimum labor rights, protections in three more areas should be given: restrictions on working hours, allowances for suspension of business due to reasons attributable to the employer, and additional allowances for extended work, night time work, and holiday work. As for domestic workers, although they are workers (since they work for payment), because they work exclusively for a particular house as housekeeper, butler, gardener, etc., they are not considered workers to whom the LSA applies. However, in cases where a domestic worker is assigned to a particular director’s house, if the company manages his/her payment etc., and supervises his/her work, the person can be regarded as a worker under the LSA. This requires an understanding by employers of the concrete details of the work performed by the domestic worker, regardless of his/her title of “domestic worker”.


[Foreign Companies with Fewer than 5 Employees at their Korean Branch Offices: Application of Korean Labor Law & Related Cases]

The Labor Standards Act (LSA) applies to all workplaces in which five or more employees are ordinarily employed, while for workplaces which ordinarily employ fewer than five employees only some of its provisions apply. In particular, those provisions that directly affect employee working conditions such as unfair dismissal, eligibility for severance pay (for the period before December 2012), additional allowances for overtime / night work / holiday work, annual leave and others do not apply.

For companies with headquarters located overseas, there has been confusion in determining the number of ordinarily-employed workers, as questions arise about whether to include the employees working at headquarters. Recent administrative interpretations and Labor Commission judgments in cases where unfair dismissal has been claimed show that the number of employees working at the foreign company headquarters will be considered unless the Korean office has independence in their operations. These decisions have greatly impacted the labor market, because up until recently, only the number of employees working for the foreign company’s sales office or liaison office were counted, based upon the principle of “territorial privilege for jurisdiction” that is applicable to the number of employees ordinarily hired in foreign company sales offices.

In this article, I would like to review how the new criteria have been applied in actual practice and present related documents.


I. Related Administrative Interpretation & Labor Commission Judgments

1. Related Administrative Interpretation

Article 11 of the LSA regulates that all provisions of the LSA shall apply to all workplaces in which five or more employees are ordinarily employed, and the number of regular employees shall follow the calculation method stipulated by Article 7-2 of the LSA’s Enforcement Decree. The Administrative Interpretation is as follows.

(1) The LSA shall apply in cases where the entity whose head office is located overseas operates a branch office (sales office) that is regarded as the business or workplace, and shall follow the calculation method for the number of workers ordinarily employed according to Article 7-2 of the LSA’s Enforcement Decree. This means the number of employees at the head office shall be included.

(2) On the other hand, in cases where a foreign company directly hires an employee in the company’s home country, and assigns him/her to a branch company and directly controls the personnel and labor management of the person, the LSA does not apply to the person in principle. However, despite this application, if the employee consistently provides labor service ordinarily in Korea, the employer cannot deprive the employee of the protections provided by Article 28 of the Act regarding the Conflict of Laws.

Accordingly, 1) in cases where a foreign company has registered its corporation in Korea, has received a business license and established a local branch, but the business has hired fewer than 5 employees and has no operational independence, all provisions of the LSA (e.g. application for remedy for unfair dismissal, severance pay) normally applying to employees of businesses and workplaces that ordinarily employ five or more workers shall also apply to all employees working for the foreign company’s local sales branch.

(2) In cases where the foreign company has established a liaison office designed to support simple communication or market surveys, and used the services of fewer than five employees with whom it had made employment contracts, the LSA shall apply to those employees working in the liaison office, and they are eligible to apply for remedy for unfair dismissal against the parent company.

2. Related Judgments by the Labor Commission

(1) Appeal by SS Global regarding decision of unfair dismissal

“All decisions regarding the employee’s employment and dismissal and related processes have been implemented not by SS Global’s Seoul office, but by SS Global’s head office. In reviewing the aforementioned processes, the Seoul office cannot be seen as an independent business or workplace. Accordingly, even though there are fewer than five employees working for the Seoul office on average, SS Global’s employees working in its overseas head office shall be included when determining whether this business or workplace has five employees or more. Therefore, the protection provisions of the Labor Standards Act against unfair dismissal apply to the employees of the Seoul office.” This decision makes it clear that even though a foreign-invested company’s local sales office is composed of fewer than five employees, all provisions of the LSA shall apply if the sales office is not in fact an independently-operated entity. Therefore, because this employer did not satisfy the legal procedural requirements for managerial dismissal, the dismissal was not accepted as justifiable.

(2) Appeal by Rareetan Computer regarding decision of unfair dismissal

“Rareetan Computer Korea ordinarily employs fewer than five workers but cannot be deemed as an independent workplace because this Korean entity is only the foreign company’s domestic liaison office. Therefore, the LSA applies to the Korean office and determination of whether the company ordinarily employs five workers or more shall include the employees at the overseas head office.”


II. Application in a Related Case

1. Facts and Questions
State Government A in Australia hired a Korean resident (Person B) on July 11, 2011 and entered into a service agreement for the purpose of surveying Korean companies and cultivating a Korean market towards promotion of investment in the Australian state that State Government A represents.
Person B has performed her duties under the supervision and direction of the regional office manager located in Japan (responsible for both Korea and Japan), with fixed working hours at a designated workplace and receiving a fixed salary of AUD 5,800 every month. During working hours, she was not allowed to engage in other work. On July 1, 2012, her contract was renewed for another year, but from July 1, 2013, she began working without a contract. Since a Korean branch manager was assigned to the Korean office, she reported her performance to that manager and worked under his supervision and direction. In addition, the employment contract she had worked under stated that settlement of any legal conflicts arising between employer and employee would be according to Australian law.

These days the Korean branch manager is pushing Person B to quit. Is Person B protected by the LSA from unfair dismissal? Is Person B entitled to severance pay?

2. Legal Review and Response

There are three points of dispute in the questions. First, when a service contract is entered into, is Person B considered an independent business owner or an employee? Second, is Person B entitled to apply for remedy for unfair dismissal and also to severance pay, since she was employed by a domestic workplace with fewer than five employees? Third, does the fact that both parties agreed that the law governing any legal disputes would be Australian law have any impact on whether labor disputes should be resolved according to Australian law or Korean law in actual fact?

(1) When a service contract is entered into, is Person B considered an independent business owner or an employee?
The LSA regulates the term, “employee” as “a person who offers work to a business or workplace to earn wages, regardless of the kind of job he/she is engaged in.” This means the employee is a person who offers work in a subordinate relationship to an employer to earn wages.

A Supreme Court ruling (Supreme Court 2008 da 27035) adds, “Whether a person is considered an employee under the LSA shall be decided by whether that person offers work to the employer as a subordinate of the employer in a business or workplace to earn wages in actual practice, regardless of whether the type of contract is an employment contract or service agreement under Civil Law.”
This ruling also outlines seven concrete criteria for determining employee status:
1) Whether the rules of employment or service regulations apply to the person in question whose duties are decided by the employer, and whether the person has been supervised or directed during his/her work performance specifically and individually by the employer;
2) Whether his/her working hours, working days and workplaces are designated and restricted by the employer;
3) Whether a third party hired by said person can be a substitute for him/her;
4) Whether said person owns the equipment, raw material, or working tools he/she uses;
5) Whether payment is remuneration for work and whether a basic wage or fixed wage is determined in advance;
6) Whether work provision is continuous and exclusive to the employer; and
7) Whether the person is registered as an employee under the Social Security Insurance Act or other laws.

In consideration of labor laws, judicial rulings regarding employee status, and a review of the facts aforementioned, Person B should be judged as an employee providing work in a subordinate relationship to the employer to earn wages.

(2) Is Person B entitled to apply for remedy for unfair dismissal and also to severance pay, since she was employed by a domestic workplace with fewer than five employees?
According to the administrative interpretations given earlier herein, although the Korean sales office ordinarily employs fewer than five persons, the actual number of employees shall include the employees at the overseas head office, meaning the Labor Standards Act applies (Labor Standard-438, Jan 28, 2014).

The Labor Commission has also made the same decision in similar claims of unfair dismissal based on the principle that calculation of the total number of employees towards determining if the protective provisions of the LSA apply to a local sales office shall also include the employees working at the overseas head office (Case numbers: 2013 buhae 417; and 2007 buhae 61). In this case, the liaison office where Person B provided labor service is a dependent entity, and the Labor Standards Act shall apply, regardless of the number of local employees. Therefore, severance pay shall be calculated from the date her employment began.

(3) Does the fact that both parties agreed that the law governing any legal disputes would be Australian law have any impact on whether labor disputes should be resolved according to Australian law or Korean law?
Regarding governing law, the Act regarding the Conflict of Law(Article 25) stipulates that the service contract related to the claim shall be under the jurisdiction of the law that both parties clearly or implicitly decided. However, for Employment Contracts (Article 28) “it is not possible to ignore the employee protections endowed by compulsory rules of the resident country where the employee provides labor service ordinarily and where the business office exists that hired the employee, regardless of the agreement from both parties on governing law.” Labor disputes occurring in Korea come under jurisdiction of Korean labor law due to the principle of “territorial privilege for jurisdiction”. Even though both the foreign company and their employees agreed that Australian courts would have jurisdiction over disputes, the Korean Labor Standards Act employee protections are not optional and shall take precedence.

Accordingly, in Person B’s case, she entered into a service agreement with an Australian state government and has regularly provided labor service under the employer’s direction and supervision to earn money, so she is an employee to whom the Labor Standards Act applies according to Article 28 of the Act regarding the Conflict of Laws.


III. Conclusion

It has been thought that persons working for domestic sales or liaison offices for foreign companies who ordinarily employ fewer than five persons at such offices, are not eligible for remedy for unfair dismissal. However, in recent administrative interpretations and related labor cases heard by the Labor Commission, when calculating the number of employees working in domestic sales or liaison offices without managerial or financial independence, the number of employees working at the overseas head office should also be counted, which means that the entire Labor Standards Act will apply.

Recently, my law firm (Kangnam Labor Law Firm) represented the local sales office of a company with head offices in Hong Kong, in a labor case involving an application for remedy for unfair dismissal (Case number: Seoul 2014 buhae 3600). Due to the above-mentioned administrative interpretations and related decisions by the Labor Commission, the company had to settle the case before a judgment hearing was held, paying out a significant amount of money (severance pay for 1.1 years of service and compensation equivalent to 6 months’ salary) as the company failed to observe proper dismissal procedures in the course of dismissing the related employee.


[Rejection of Remedy Application for Unfair Dismissal]

The applicant (hereinafter referred to as “the Employee”) had been working for a Japanese company selling Taekwondo uniforms (hereinafter referred to as “the Company”) and was dismissed on August 20, 2010, for poor work performance and negligence. The Employee, claiming that he had always worked hard and dismissal was unfair since he had never made any mistakes, applied to the Seoul District Labor Relations Commission (hereinafter referred as “the Labor Commission”) for remedy. The Company claimed that it had given several verbal warnings to the Employee for negligence, but there had been no improvement, and that, particularly, the Company was not subject to application for remedy for unfair dismissal according to the Labor Standards Act (LSA) because it had only 3 employees. The Employee claimed that there were 6 employees while he was working, including a Japanese director, but the Company claimed that two were a marketing director and general affairs director who were not employees because they worked on a commission-only basis according to their contracts. These issues meant the key point of this dispute was that the Labor Commission needed to estimate whether application for remedy for unfair dismissal could be made, before determining whether the dismissal was fair or not.


I. Employee Claims

The Employee was hired November 9, 2009 and had been engaged in marketing and sales support. He had never refused company orders, but worked hard regardless of time and place. He took business trips that included weekly holidays (Sundays), worked overtime and even during holidays, but never received extra payment for this. He also did not take any vacations. The Employee was dismissed unfairly by the Japanese managing director in August 2010, for poor work performance and disobedience. However, these reasons for dismissal - poor work performance and disobedience – were not true. The Company just blamed its lowest-ranking employee for poor business. If the Company planned to dismiss the Employee for the reasons they claimed, the Company should have given sufficient opportunity for the Employee to improve, but no chance was ever given.
There were 6 employees at the time of his dismissal: a marketing director, a general affairs director, the Employee, an assistant manager, and a newer employee. As a company with 5 or more employees, the LSA was applicable.


II. Company Claims

The Company was established in May 2009 and hired the Employee to supplement marketing, but due to his inexperience in this field (he had been a cook previously), the Company had him work in sales support. This start-up company needed positive and aggressive sales activity from the Employee, but instead, the Employee read newspapers from 9 am (the time he arrived at the office) to 10:30, and then usually went out to take care of his personal banking for the rest of the morning. In the afternoon he would call his friends, and generally show a clear lack of enthusiasm for his sales responsibilities. He would not fill out daily sales reports, would not use honorific words when addressing the Japanese managing director simply because they were the same age, and did not like to obey his superiors, so the Employee was dismissed.

The Company only employed three persons including the Employee, so, according to the LSA, application for remedy for unfair dismissal could not be made. The marketing director and the general affairs director were not employees (there was no employment contract with the Company), but rather business partners who worked on commission. They received commissions of 4 million won per month each and had agreed in their contracts to receive 10% of company stock when stock volume increased. Recently, the Company had not been able to pay commissions to these directors due to deterioration in sales. The directors had submitted a petition to the Labor Office to receive unpaid wages, but they were denied by the Labor Inspector after he concluded they were not employees according to the LSA. At the time of this application for remedy, the two directors had begun filing a civil suit against the Company to receive their commissions.


III. Related Laws, Judicial Rulings and Guidelines

1. Reasons for rejection given in the judgment hearing: Reference – Regulations of the Labor Commission (Article 60):

(1) eligible period for redress according to the related laws has passed;
(2) the applicant has not submitted any required documentation despite being asked two or more times;
(3) the parties are determined to be ineligible;
(4) the specific details of the applicant’s situation are determined to not be subject to orders for remedy by the Labor Commission;
(5) the identified applicant submits repeated applications for remedy for the same situation, resubmits an application for remedy for a situation already finalized in a judgment hearing, or submits an application again after the related case has been closed after judgment;
(6) the stated remedy in the application cannot be realized by law or in reality, or there is no benefit to the applicant; or
(7) the applicant twice fails to attend the hearing, the mailed notice to attend is returned two times or more due to the address being unknown or the applicant simply did not see it, or the applicant admits he/she has given up on the case for other reasons.

2. Criteria for determining employee characteristics
(Supreme Court ruling on Sep 11, 2008, 2008 da 27035)

Whether a person is considered an employee under the LSA shall be decided by whether that person offers work to the employer as a subordinate of the employer in a business or workplace to earn wages in actual practice, regardless of whether the type of contract is an employment contract or service agreement under Civil Law. Whether a subordinate relationship with the employer exists or not shall be determined by collectively considering: 1) whether the rules of employment or service regulations apply to a person whose duties are decided by the employer, and whether the person has been supervised or directed during his/her work performance specifically and individually by the employer; 2) whether his/her working hours and workplaces were designated and restricted by the employer; 3) whether his/her position can be substituted by a third party hired by the person; 4) who owns the equipment, raw material or working tools; 5) whether payment is remuneration for work and whether basic wage or fixed wage is determined in advance; 6) whether work provision is continuous and exclusive to the employer; 7) whether the person is registered as an employee by the Social Security Insurance Act and other laws, and the economic and social conditions of both sides.

3. Criteria for determining ordinary number of employees (Kungi 01254-150, Feb 1, 1993)
(1) The LSA applies to all businesses or workplaces in which five or more employees are ordinarily employed. “Ordinarily employed” means that, in objective estimation based upon socially accepted ideas, if the company hires five persons or more regularly on average, it is regarded that the company hires five persons or more, even though the number of employees is less than five at times. When evaluating violations of the LSA per separate working condition, the applicable period related to each case shall be considered. That is, as for the dismissal case, the “number of employees” shall be considered the ordinary number of employees working for the month prior to the dismissal date.

(2) The Civil Code (Article 49) stipulates that the director shall register his/her name and address in the corporate registration certificate, and the Commercial Act (Article 382-(2)) regulates that relations between the company and the director comply with the rules concerning commissions. Therefore, the director, the representative of the corporate entity or labor union, or the executive directors are not employees in principle because they hold authority as business representatives or business executives without exclusive supervision from the employer. Even though he/she holds one of these types of positions, if such person is under supervision and control of a person with authority as a business executive and is in reality engaged in provision of the actual labor service for the purpose of earning money, such person shall be considered an “employee.”

(3) If the head office and its business office are in separate locations, in principle the two offices shall be regarded as separate business entities. However, if the two offices are dispersed locally and if this business office is not independent enough in terms of ability to handle business on its own, the two offices shall be regarded as one identical business.


IV. The Labor Commission’s Decision

As the two parties were in dispute as to the reasons for dismissal, the Labor Commission determined that the key point of this case was whether the Company had 5 employees or more. This needed to be done by judging if the marketing director and general affairs director were employees to which the LSA applied.

The marketing director and the general affairs director had signed a service commission contract with the Company, and worked accordingly. In more detail, the general affairs director was also working for another company at the same time, and in fact neither director worked exclusively for the Company, so their attendance was not strictly controlled. They worked on commissioned tasks independently at their discretion rather than receiving specific and direct orders, and just reported their progress to the employer. Accordingly, they were commissioned with a certain authority to give work orders to or supervise and direct employees, including the Employee concerned in this case. According to the commission contract, the marketing and general affairs directors received commissions and reimbursement of their expenses, and were to receive a certain number of stocks when the company increased issuance in the near future, unlike the other employees, including the Employee in this case. What they received or would receive in commissions for work cannot be regarded as remuneration in return for labor service. Furthermore, they were not registered for the four social security insurances. Considering all these factors, the marketing director and the general affairs director cannot be treated as employees providing a labor service under the employer’s supervision.

When excluding the marketing director and the general affairs director, the Company had hired fewer than five employees, which means that the Company is exempt from application of Article 23 (1) of the LSA: evaluation of unfair dismissal. Therefore, the application for remedy for unfair dismissal shall be rejected.

[Disappointing Decision on the Dismissal of a Foreign Teacher ]

For this labor attorney, who has been engaged mainly with the labor cases of expatriates, this was the most disappointing dismissal case where an employee was unable to receive legal remedy.

This case is about an Australian English teacher (hereinafter referred to as “the Employee”) who was fired by “C” Language Institute (hereinafter referred to as “the Institute”) one week after his arrival to Korea. Before coming, strict employment procedures were followed in hiring him to become an English teacher in Korea. The reason for dismissal was his failure to pass a required one-week training course before being assigned to the Institute. This institute started the training course with eleven new foreign instructors, assigning them to one of three different training levels: beginner, intermediate, and advanced. The only teacher the Institute assigned to the advanced level of training was this employee. This same employee completed the intermediate level, but was not able to pass the advanced level, so the employer dismissed him for failing.
To review the justification given for dismissal in this case, I would like to explain the claims of the employee and the employer, as well as the judgment of the Labor Relations Commission.

The details of this case are as follows:
2009
April 10                The employee applied for a position as an English instructor, as advertised online, and was selected after two weeks of hiring procedures by an Australian field recruiter.
April 27         The employee signed a preliminary employment contract, an ‘Offer of Employment’ with the employer.
May         After 5 weeks, a criminal record check certificate was issued to the employee, who bore the expense.
June 19         The employee signed an employment contract with the employer.
July 10        An E-2 visa was issued to the employee by a Korean Embassy in Australia.
July 16         After his flight to Korea (which he paid for), the employee moved into a hotel provided by the Institute.
July 20 ~ 24         The employee attended the training course, but was dismissed for not passing.
August 6         The employee filed for remedy to the Labor Relations Commission.
October 16         The application for remedy was rejected.
October 26         The employee appealed for remedy to the National Labor Relations Commission.
2010
January 10        This application was also rejected.


I. The Institute’s Claim

“This institute has a firm desire to provide a better education to students than any other institute. Accordingly, we have focused on the quality of foreign teachers, unlike other institutes, and have been selecting foreign teachers by following stricter hiring criteria.

First, we collect applications from native English-speaking applicants, review their resumes and essays, and then interview those applicants. In these telephone interviews, we are evaluating them the same as we would in face-to-face interviews, to see whether they have the desired character and ideology, and whether they are capable teachers. Upon selection after this process, the applicant comes to sign an ‘Offer of Employment’, in which the applicant agrees to employment by the Institute, and the contents of the training. Soon after, the applicant signs an employment contract and sends the related documents to the Institute, and we then submit these documents to the Immigration Office and receive a visa issuance number. When an applicant receives this visa issuance number, he or she goes through an interview at the Korean Embassy and receives the relevant working visa. The applicant then comes to Korea, has a physical checkup, and is assigned to a position after completion of training.
This Employee had a telephone interview and agreed to the ‘Offer of Employment’. He entered Korea on July 14 and started the five-day training course at the main institute on July 20, completing the course on July 24. However, the Employee did not pass the training course test (mock-up). The trainer explained to the employee that he could take the mock-up test again and be assigned to the workplace as scheduled, but the Employee refused. As the Employee had sufficient ability and potential to be a good teacher, the trainer tried again to persuade him to re-take the mock-up test, but the Employee again refused. In the end, the Employee was dismissed for failing the training course.


II. The Employee’s Claim

The Employee signed an employment contract with the Institute. He received a visa from the Korean Embassy in Australia based on that employment contract and came to Korea. The Institute claimed, “this employment contract will become effective when the employee completes the training,” but this simply means that the employee shall take the training course before being assigned a position, not that an employment contract has not been made. If the Employee had known that the employment contract he had signed while in Australia was in fact a conditional contract and would only become effective upon passing the training course, he would never have come to Korea. The Employee was under the impression that the conditional article of the employment contract simply meant that he had to complete the training course. The Institute never informed the Employee that his employment would be decided based upon his passing or failing the training course. The Employee had previously graduated from a university in Australia and obtained a TESOL (Teachers of English to Speakers of Other Languages) certificate, and also had one year of English-teaching experience in the Czech Republic. The class that the Employee was supposed to teach in the mock-up test was not an English language class designed for students to learn a foreign language, but a creative thinking class, which is a difficult subject even for native English instructors. The text book, “Reading for Thinking,” used in this advanced level is a textbook commonly used by college professors for university students in native English-speaking countries.

The Institute had dismissed one American English instructor with the same contract containing the same content, in June 2009, two months before this employee’s dismissal, for the same reason. This American instructor told us that if he had known this training course would affect whether the employer hired him or not, he would not have come to Korea either. This instructor had also borne all expenses incurred in the process of coming to Korea, such as airfare, hotel fees, etc. He had to return to America, suffering not only financial damage, but also tremendous disadvantages from lost time, effort, and opportunities. When the Australian employee shared his situation on a popular Internet site to ask for help from anyone who had also been dismissed by the Institute, this American instructor related his very unfair dismissal from the Institute. Judging from this information, if the hiring process of the Institute is not judged to be unfair, the Institute will continue these types of dismissals.


III. Judgment by the Labor Relations Commission

The main issues to be decided in this case are, first; whether an employment contract between employee and employer existed, and second; whether the termination of employment was a resignation or dismissal, and if this termination was dismissal, whether there is a justification for dismissal (including the procedures for dismissal).

The Supreme Court has ruled in the past, “What is required to establish that a contract exists between two parties is objective consent between the two parties on several expressed intentions. What is required to establish objective consent is agreement on all issues expressed in the intentions of the two parties. If the two parties express their intention to establish a contract based upon a certain important thing, there shall be mutual agreement on this in order to make the contract legitimate and effective.” (Supreme Court Ruling of April 11, 2003: 2001da53059)

In the process of issuing permission to enter Korea for the purpose of engaging in foreign language teaching in a foreign language institute, the Immigration Office shall receive an employment contract from the employer so as to verify work permission, working period and workplace stipulated in a ‘certificate of permission to enter’ according to the Enforcement Decree to the Immigration Control Act. The employment contract contained a conditional agreement stating that when the Employee received a certificate for completing the training course, this contract would come into effect. The Employee passed the intermediate level section of the training course at the training center, but failed to pass the advanced level section. In consideration of all factors mentioned, we cannot find that an employment contract was actually established or in effect, and so the Employee’s claim of unfair dismissal must be rejected.


IV. Conclusion and Criticism of the Judgment of the Labor Relations Commission

The Labor Relations Commission determined this dismissal to be justifiable because the Employee did not complete the training course successfully, which was the condition for the employment contract to come into effect. However, the Employee’s perspective is that this dismissal was unfair for the following reasons: 1) of the 11 trainees in the training course, only the Employee was assigned to the advanced level; 2) the Employee had never been informed that passing or failing the training course would determine whether or not he would be given employment. He was under the impression that it was simply necessary to complete the training; 3) the lessons that he prepared for in the training were not for regular English class, but a critical thinking class used at the university level in native English-speaking countries. I respect the Labor Relations Commission’s judgment as they are making decisions based upon the law and related judicial rulings, and applying the same criteria as they would for Koreans. Unfortunately, their decision has not taken into consideration the different circumstances surrounding foreign instructors and their fulfillment of hiring procedures. So, I’m disappointed that this judgment will have set a negative precedent by leaving room for employers to take advantage of a contractual loophole in the future.


[Statutory Retirement Age and Labor Law]

The ‘Retirement Age System’ is a system whereby the employer-employee relationship is terminated when an employee reaches the appropriate retirement age as stipulated by the rules of employment or an employment contract, regardless of any intention on the part of the employee to renew the employment contract or his/her ability to work. Previously, Korean labor law regarding retirement age gave only a recommendation, not a compulsory stipulation, but a statutory retirement age system became effective in May 2013. Accordingly, any retirement age system that had considered retirement age to be lower than 60 years of age became null and void, and retirement age was automatically set to 60. In addition to this, a rank-based retirement age system is now considered justifiable if it was the result of a labor-management agreement, but with introduction of the statutory retirement age system, any retirement age set at less than 60 years of age is now invalid. In situations where a company that did not previously have a retirement age regulation introduces one due to introduction of the compulsory retirement age law, it is recognized that this can be a disadvantageous revision of working conditions, and such unilateral revision is invalid as well. Reference: Ministry of Employment & Labor Guidelines related to handling the retirement age system《Kungi68201-690, March 3, 2010》


1. In cases where a company has a previously-established retirement age lower than the statutory retirement age:

Any retirement age that was previously established at lower than the statutory age of 60 years is null and void due to enforcement of the statutory retirement age, and such invalid retirement age system will be revised so it is in accordance with the compulsory retirement age of 60 years. Accordingly, any such previous retirement age system that a company has stipulated in their regulations is null and void due to introduction of the statutory retirement age, which shall become the company’s retirement age.

2. In cases where a company which did not previously have a retirement age establishes one due to introduction of the statutory retirement age:

1) Judicial ruling (Supreme Court ruling on May 16, 1997, 96da2507): In a situation where a transportation company that did not have a regulation for retirement age established a retirement age, the company’s employees could have worked without any age restriction until such time as the company established a retirement age regulation. Once the company established the retirement age regulation, only those employees who passed a review committee could work past the retirement age. This introduction of a retirement age regulation is considered to be an unfavorable change in working conditions, because it deprives employees of their existing rights and interests.

2) Judicial ruling (Busan District Court ruling on September 7, 2007, 2007gahap2704): The employees had worked continuously without any age limitation until the company established a new retirement age regulation. Because of the new retirement age regulation, employees who reached 60 years of age could continue to work as daily workers afterwards. Therefore, this new regulation of the retirement age deprives the employees of their rights and interests, and is considered to be a disadvantageous revision of working conditions.

3. In cases where a company continues to use employees after reaching retirement age:

If an employee has continued to work with the employer’s implied consent after reaching retirement age, the employer cannot terminate employment just because the employee has exceeded the retirement age unless there are special circumstances. When re-employing retirees after their retirement age, employment can end upon expiration of their contract period if the contract period is fixed. If the contract period is not fixed, it is possible to dismiss the employee only when there is a justifiable reason to do so.

4. In cases where the company has a rank-based retirement age system under the statutory retirement age system:

If the retirement age can be regulated differently in accordance with title or rank within the workplace, and if the company has established reasonable criteria regarding work characteristics, content, and type of work that the employees provide, the company can then regulate the retirement age by rank (rank-based retirement age system) or as tenure-based employment that does not need to be renewed (the tenure-based retirement age system) (Supreme Court ruling on April 9, 1991, 90da16245). The company can also implement two retirement age systems at the same time: a general retirement age system and a rank-based tenure system (Labor Standard Team-856, October 31, 2005). However, this regulation becomes null and void once the statutory retirement age is introduced, but is possible and valid for the period exceeding the statutory retirement age.

5. In cases where an employee is undergoing medical treatment:

In cases where an employee is receiving medical treatment due to an occupational accident, the employment relationship shall be continued up to the retirement age (Gungi 01254-9824, July 6, 1991).

6. In cases where the company has hired an employee who was older than the retirement age at the age of hiring:

In cases where the company was aware that the employee was older than the retirement age stipulated by the rules of employment, and hired the employee anyway, it is unfair to dismiss the employee due to the retirement age in the rules of employment (Gungi 68207-658, April 18, 1994).

7. Retirement age and retirement date

The retirement date should be clearly stipulated in order to prevent dispute between the employer and employees. If the retirement date has not previously been stipulated, but has habitually continued on a certain day in practical repetition, such habitual practice is the date of termination. In the following samples, I clarify the appropriate retirement dates in various situations where the employee was born on April 1, 1958:

1) If the retirement age was stipulated as 60 years of age, the retirement date becomes the first day exceeding 60 years of age, which means April 1, 2018.
2) If the retirement date is the first day of retirement age, the effective date would be April 1, 2018.
3) If the retirement date is stipulated as the last day of the month after reaching retirement age, the retirement date would be April 30, 2018.
4) If the retirement date is stipulated as the last day of the quarter after reaching retirement age, the retirement date would be June 30, 2018.
5) If the retirement date is the last day of the first half-year after reaching retirement age, the effective date would be June 30, 2018.
6) If the retirement date is the last day of the year when retirement age is reached, retirement becomes effective on December 31, 2018.
7) If the retirement date is the last day of retirement age, the effective date would be March 31, 2019.


[A Case of Unfair Dismissal and Governing Law]

A Korean American (hereafter referred to as “the Employee”) who had worked for the Incheon city government for two years moved to a subsidiary of an American parent company (the subsidiary hereafter referred to as “Company A”) established to develop the Incheon-Songdo City project. After working as vice-president for four years, the Employee was suddenly dismissed on January 21, 2011 due to a lack of work. He was informed of the dismissal by the American parent company (hereafter referred to as “Company B”). In the dismissal notice, Company B requested that the Employee sign an agreement to resign, offering the Employee compensation in the form of four years’ severance pay (equivalent to the Employee’s number of service years), but the Employee refused. Instead, the Employee applied for remedy against Company A with the Seoul Labor Relations Commission on February 15, 2011 to get legal protection against what he considered unfair dismissal. Seoul 2011buhae274: Labor Attorney Bongsoo Jung represented the Employee.

Company A claimed that the Employee belonged to Company B and was dispatched to Korea to do work for Company B. According to Company A, Korean labor law did not apply to the Employee because his salary was paid to his American bank account by Company B, and because the Employee was covered by the American national pension and medical insurance, and worked under Company B’s direction. Company A added that even though the Employee had the position of vice-president with Company A, Company B had personnel management rights for him, so the Employee could not apply for remedy against Company A.

Here, the main points of dispute are, 1) whether Company A played the role of employer or not with the Employee, and 2) whether Company B, located in a foreign country, was the real employer having employment relations with the Employee, and if so, whether Company B has legal obligation regarding employment of the Employee. After reviewing these points substantially, I would like to explain this labor case in detail.

- January 21, 2011: the Employee was suddenly dismissed (with written notice)
- February 15, 2011: the Employee filed for remedy against Company A for unfair dismissal
- April 5~8, 2011: the Employee withdrew the case; in a few days, he filed again against both Company A and Company B.
- June 3, 2011: just before the judgment hearing, both parties agreed on a settlement, followed by the Employee withdrawing the claim.


I. The Employer’s Claim

1. In estimating a business and workplace in application of the Labor Standards Act, in cases where a branch office, detached office, and plant are located separately and operated independently for management of labor and accounting, each such location is regarded as a separate workplace respectively” (Labor Standards-8048). According to this explanation, Company A and Company B are different business entities.

2. The Employee was sent by Company B to Company A as a dispatched employee. His salary was paid to his American bank account by Company B, and he was covered by an American national pension plan (401K) and corporate medical insurance (COBRA). Company B paid these premiums for the employee.

3. For foreign-invested companies, it is a very general practice that employees dispatched by foreign parent companies fulfill their duties assigned by the foreign parent company while working with the Korean branch and its employees. This dispatched Employee did not receive any directions from or work for Company A, but usually took supervisory duties in determining how well Company A followed Company B’s directions. Therefore, the Labor Standards Act does not apply to this dispatched Employee as he belonged to Company B.

4. When considering that the Employee signed an employment contract with Company B, who also gave him work directions and other responsibilities, paid his salary directly, and covered his American national pension and medical insurance premiums, the Employee cannot be regarded as a person to whom Korean labor law applies, so the case should be dropped.


II. The Employee’s Claim

1. From the time he was hired in Korea by Company A, the Employee had worked for Company A, and was dismissed after four years of carrying out his duties with Company A. The Employee could not help but file for remedy against Company A for unfair dismissal. When Company B dismissed the Employee for managerial reasons, it had to satisfy content and procedural requirements for dismissal for managerial reasons, but Company B did not have any justification to dismiss the Employee.

2. When a foreign director is dispatched temporarily to a Korean branch office during his employment and receives directions and supervision from the head office, than the foreign country’s labor laws apply to that employee, and Korean labor law does not. However, if the foreign director signs an employment contract with the Korean branch office and provides labor service to the Korean branch, Korean labor law applies to that director.
3. The Employee 1) had performance evaluations by the president of Company A, 2) had once received from Company A a rejection notice for renewal of the employment contract, 3) had his name and position on Company A’s organization chart, the headcount report, and operating procedures document, and his job description stipulated that the Employee reports to the president of Company A, 4) was supervised and directed by Company A, 5) had Company A stipulated as an employer on his ‘Tax Clearance Certificate’ issued by the National Tax Service, 6) received pay slips every month and reimbursement for expenses from Company A, and worked wherever Company A assigned him.


III. Case Details and Conclusion

1. After both parties’ statements had been submitted, it was realized that in practical terms, Company A could not be the final decision-maker in whether to dismiss the Employee. Due to this, the Employee understood that if he filed against Company A as his only employer, his application for remedy against unfair dismissal would be rejected, so the Employee withdrew his application for remedy against only Company A. He then filed for remedy again, this time listing Company B as his employer, as well as Company A. He also claimed in his second filing that the governing law on labor disputes according to Article 28 of the “Conflict of Laws” was local labor law. Company B intentionally ignored the first application for remedy, but when it too was included as an employer, Company B proactively intervened in the case. In the end, just before the judgment hearing, Company B agreed to settle with the Employee for financial compensation of 180 million won on June 3, 2011, whereupon the Employee withdrew his application.

2. The Employee referred in this case to Article 28 of the “Conflict of Laws” regulation, which states that, even though jurisdiction in a labor dispute related to the employment contract is stipulated as belonging to the court in a foreign country, Korean labor law and its compulsory rules apply to employees working in a Korean branch office of a foreign-registered company. The Employee’s contract signed with Company B stipulated that any disputes arising over employment conditions between the parties shall be the jurisdiction of the laws of the US state of Georgia. However, Article 28 of the “Conflict of Laws” clarifies contract-based employment relations. Even though Company B was authorized in actuality to dismiss the Employee, for as long as the Employee provided labor service in Korea, the Korean Labor Standards Act (and other labor laws related to protecting employment conditions) shall apply to the Employee, and jurisdiction shall be in Korea.


IV. Reference: Governing Law and Related Labor Case

1. Details of Governing Law

The Conflict of Laws Article 28 (Employment Contracts)
① For employment contracts, regardless of the governing law that both parties agreed, it is not possible to ignore the employee protections endowed by compulsory rules of the resident country related to the governing law stipulated by Paragraph 2.
② If neither party chose the governing law, the employment contract usually follows the law of the country where the employee provides labor service ordinarily. If the employee does not provide labor service in a particular country, the governing law shall be the law of the country where the business office exists that hired the employee.
③ With employment contracts, the employee can take legal action against the employer in a country where the employee provides labor service ordinarily or provides labor service ordinarily at the end of employment. If the employee does not or did not provide labor service ordinarily in a particular country, the employee can take legal action against the employer in the country where the business office that hired him is located.
④ For employment contracts, a judicial suit by the employer against an employee shall be filed only in the country where the employee’s habitual residence is, or where the employee provides labor service ordinarily.
⑤ Both parties in the employment contract can agree on international jurisdiction in writing. However, this agreement can only be effective in either of the following cases:
1. Where a dispute has already occurred, or
2. Where the employee is allowed to file in a court in a different jurisdiction in addition to the court stipulated in this Article.


2. Judicial Ruling Quoting Governing Law (Appellate Court 2005nu16668)

“In the employment contract agreed between the employee and the company, it is regulated that interpretation and application will follow the laws of Cyprus, and that disputes related to employment will follow the jurisdiction of the Cyprus court. However, when the employee was informed of his dismissal on January 10, 2004, he was ordinarily working as an executive director in a Korean branch office employing more than five employees, located in Korea. In this case, despite the details of the employment contract, the Korean Labor Standards Act and other labor laws shall apply to the employee, and will be applied under the jurisdiction of the Korean legal system, according to Article 28 of the “Conflict of Laws.” As the employee was dismissed through termination of the employment contract, the National Labor Commission can determine whether dismissal is justified or not. Dismissal is unfair when the reason for dismissal cannot be admitted as justifiable.”