The Labor Ministry of Korea publicly announced last August 1 that the minimum wage for 2008 shall be 3,770 Won, which is up 8.3% compared to the minimum wage of 3,480 Won for 2007. It is estimated that about 13.8% of the total workers in Korea, or some 2.12 million workers, will be benefiting from the newly-set minimum wage.
This new minimum wage was passed at the Minimum Wage Committee last June 27, and because there had not been any objections filed from labor organizations in Korea, the minimum wage was confirmed as originally passed.
As the public notice for the new minimum wage has been issued, every employer in Korea will be required to apply the minimum wage (as to their employees) from January 1, 2008, and shall be prevented from lowering any wage on the basis of the newly announced minimum wage. Any employer in violation of the minimum wage requirements and related regulations thereof may be subject to an imprisonment of up to 3 years or a fine of up to 20 million Won.
Finding out whether any wage being is paid is meeting the minimum wage requirement could be done by (i) first deducting any part of wage amounts not regarded as part of minimum wage (e.g., bonus pay, overtime work pay, transportation pay, food allowance, family allowance, etc.) from the total wage amounts, (ii) dividing such net amount by the hours worked, and (iii) comparing the hourly wage amount resulted with the stipulated minimum wage amount.
It should be noted that, if any company out-sources any part of its business to an outside company on an independent contract basis, and the contracting company (the contractor) pays to its employees (working under the contract) wages that are below the stipulated minimum wage, the company giving the contract (the employer company) could be held liable (jointly and severally with the contractor) if such wage payment is attributable to the employer company.
[Editor’s note: The Korean government is recently trying to enact a legislation that is designed to protect special service workers such as golf caddies or insurance planners (who have been mostly viewed as self-employed who enter into contracts with companies on an independent basis). But this proposed legislation, which would guarantee special services workers three major labor rights (i.e., right to organize labor union, collective bargaining right, and right to hold labor protest that are constitutionally protected rights given to employees), is already facing stiff resistance both from the relevant industries and the workers themselves. For instance, the golf course companies are warning that if the legislation is passed, they will have no choice but to lay off the golf caddies and will install a system where golfers could play without the aid of caddies. Even most golf caddies are saying that they have been and will be doing fine without such legislation, which could bring more harm in practice than the protection originally intended. It is also interesting to note that, as can be seen from an editorial of Joongang Daily News re-produced below, there seems to be dissension within the government itself as to how the special service workers should be viewed. It would perhaps be advisable for the government to reach internal consensus before trying to pass the legislation, let alone the issue of whether the proposed legislation is realistic in the goals it is intended to achieve.]
Source: Joongang Daily News, dated August 2, 2007
Conflicting laws overlap
Are golf caddies self-employed entrepreneurs or wage-earning employees? The Fair Trade Commission began enforcing an inspection guideline this month to protect special service workers such as caddies, visiting teachers, insurance sales people and truck drivers.
The commission intends to punish companies that have contracts with these workers and abuse them by breaking laws, forcing the workers to meet sales targets or purchase their products. The commission is meddling with these workers because the antitrust agency regards these workers as self-employed entrepreneurs, not as wage-earning employees. The commission does not regard special service workers as employees, but says they do their own contracting businesses. Thus the antitrust laws apply to these workers.
In contrast, the Labor Ministry considers them as employees. The legislative proposal to protect these types of workers is pending at the National Assembly. The legislative proposal guarantees three major labor rights, including collective bargaining rights. The Fair Trade Commission treats the same types of workers as self-employed entrepreneurs, while the Labor Ministry sees them as employees.
The commission and the ministry are both government organizations, but have not agreed on the nature of workers they intend to protect and are going their own ways. Without making an adjustment or agreement within the government, they are trying to demonstrate benevolence. Even so, they insist that their law should be prioritized. This is lamentable.
In the meantime, the companies suffer. For an identical incident, these workers can bring a case before the commission as a self-employed worker or present a case to the National Labor Relations Commission as employees. It is obvious that there would be confusion in application of the law in many different businesses. It is questionable if such laws indeed protect the rights of these workers. As seen in the breakdown of the non-regular workers protection law, if the unreasonable, overlapping laws are enforced, it is likely to take jobs away from these workers. The laws designed to protect may become a cause of future dispute.
When discussing employment contracts or rules of employment, one often hears of certain wage terms like ordinary wage and average wage, but it seems that a lot of people are not clear what those terms represent and how they are different from each other.
Under Article 19 of the Labor Standards Act of Korea (LSA), the ordinary wage is defined as the amount calculated by dividing the total amount of wages paid to the relevant worker during three calendar months prior to the date on which the event necessitating such calculation occurred by the total number of calendar days during those three calendar months.
The events under LSA that will necessitate the calculation of average wage include payment of severance pay to a retired employee, compensation of employees during a period of suspension of a business, and compensation for accidents. For instance, Article 34 of LSA provides that, if and when an employee resigns or retires, the employee is eligible for severance pay which accrues at the rate of thirty (30) days average wage for each consecutive year of service.
When calculating the amount of average wage to determine, say, severance pay amount, the items included in the said calculation are usually such items as base salary and other payments (i.e., position allowance, incentive allowance paid to all employees to promote efficiency) that are regularly and uniformly paid. As for bonus payments, if such payments are prescribed in rules of employment or customarily paid to employees, then they should be part of average wage calculation. However, those bonuses paid irregularly and one-time out of the company’s profit should be excluded when calculating the average wage. Usually, overtime payments are deemed part of the wages, as well as meal allowances provided in rules of employment or collective bargaining agreements (thus included in calculation of average wage).
Under Article 6 of Enforcement Decree to LSA, the term ordinary wage is defined as hourly wages, daily wages, weekly wages, monthly wages, or subcontract wages which are determined to be paid regularly or by lump-sum to the worker for a prescribed labor or the whole labor. Under LSA, the concept of ordinary wage is used as base for determining the amounts for overtime, nighttime and holiday work payments (additional compensation of at least 50% of ordinary wage is required). Ordinary wage is also used as a dismissal allowance, i.e., LSA requires a 30 days prior notice before dismissing an employee, but, in lieu of such notice, at least ordinary wage of 30 days may be paid to the relevant employee.
When calculating the amount of ordinary wage, unlike the calculation of average wage, the items like overtime, nighttime and holiday work payments are excluded, and bonus payments or allowances that are part of fringe benefits are also not included in the said calculation.
As can be seen above, the average wage and ordinary wage are two distinct concepts of wages under LSA that are applied in different situations, so those terms cannot be used interchangeably or be substituted one for the other.
Under the Labor Standards Act of Korea (LSA), an employer may not terminate an employee without a justifiable cause. Under LSA, such justifiable cause would include “layoffs” or so-called “administrative terminations” implemented due to ‘urgent managerial necessities of the company. In this article, we take a close look at employment termination based on urgent managerial necessity.
The LSA requires that in order for “layoffs” to be justified, (i) an urgent managerial necessity requiring employment termination must exist, (ii) the employer must have made considerable efforts to avoid layoffs, (iii) the employees subject to termination must have been selected in accordance with reasonable and fair criteria, and (iv) the employer must have consulted in good faith with labor union or employee representative on the methods to avoid termination and standards for selection of employees being terminated.
(1) Urgent managerial necessity
An employer desiring certain employment termination due to managerial reason must have “urgent business necessity.” Examples of urgent managerial necessities warranting layoffs/administrative terminations of employees include: bankruptcy or other similar business emergencies; M&As and business transfers, etc., implemented in order to prevent severe deterioration of the business; cases where closing down a department/line/division has become unavoidable; reorganization of the office; reduction of the scope of services; closing or liquidation of the business; or other similar causes/purposes, such as, rationalizing the management and/or improving productivity. The Korean Supreme Court has ruled in the past that such ‘urgent managerial necessities’ include only those limited cases where it is necessary in order to prevent a company in a serious business crisis from filing bankruptcy. However, recent case precedent has broadened the scope to include situations where, from a long term perspective, the layoff is objectively and reasonably predicted to be necessary in order to prevent a potentially anticipated business crisis.
We note that even under recent court cases, layoffs implemented where the company’s deterioration in business is due only to temporary occurrences/situations, or where the layoff is implemented merely in order to increase profits without any deterioration in business, the business layoff will be considered invalid.
(2) Efforts to avoid termination
Assuming the above requirement (i.e., urgent business necessity) has been satisfied, in order for the layoff to be acknowledged as valid, the employer must prove that it had made considerable efforts to avoid the termination for a substantial period of time, and that the decision to implement the terminations was made only as a last resort. According to case precedent, examples of valid methods (i.e., efforts) to avoid a business layoff include, reduction in expenses through rationalization of management, reduction of work hours or wages, freezes in new hires, termination (non-renewal) of employment contracts for part time/temporary employees, changes in stationing such as transfer of posts/positions, etc., temporary suspension of business, and inviting voluntary resignations, etc. The employer need not perform all of the above examples, but must make its best efforts to examine and perform the feasible methods based on the circumstances of each business.
(3) Reasonableness and fairness in the selection of the employees subject to termination
After considerable efforts have been expended to avoid the termination, the selection of employees subject to termination must be conducted according to reasonable and fair standards. We note that taking preference in terminating female employees is unreasonable and unfair and constitutes a typical example of an invalid business layoff. In addition, such a practice would be in violation of the LSA and the Act on Equal Employment for Both Sexes which may subject the company to additional/separate fines.
(4) Consultation with Employees
If all of the above requirements under the LSA are met, at least 50 days before the planned date of effecting the relevant termination, the employer is required to consult with the employee representative (i.e., labor union if the labor union has been organized by a majority of employees, or the representative representing a majority of employees in the absence of labor union) with regard to such matters as the methods to avoid termination and the standards for selecting employees subject to termination. During the consultation process, the employee representative should provide opinion, comment or propose alternatives that reflect the opinion of all employees, and the employer should try to accept the opinion, comments, or alternatives suggested by the employees to the extent possible and also provide reasons for any of such opinion, comment or alternatives that cannot be accepted by the employer.
When it comes to the matter regarding termination of employment, Korean labor laws are known to apply strict criteria in determining whether a specific termination was just or proper. In this newsletter, we will briefly look at the specific grounds for termination of employment that are prescribed in the Labor Standards Act of Korea (LSA).
Under LSA, an employer may terminate employees pursuant to (i) taking any disciplinary actions taken (with regard to any improper acts committed by the relevant employee) and (ii) laying off of employees due to managerial reasons.
(i) Dismissal by disciplinary action
It is first noted that Article 30 of LSA requires a justifiable cause if and when an employer takes disciplinary actions, including termination of employment, with regard to its employees. Korean courts have held that a justifiable cause refers to such causes as criminal offense, serious illegal acts, and gross negligent acts, etc. which would make maintaining of the relevant employment relationships no longer possible under generally accepted public notions.
Especially, because a termination of employment is the most extreme measure, Korean courts are known to be very strict in applying the above-noted criteria, when it determines whether a particular termination is justified. Thus, unless an employee’s specific conduct is something that makes current employer-employee relationship no longer possible to continue, it would be advisable for an employer to take less severe disciplinary actions such as suspension of employment, reduction of salary, or reprimand.
In addition, under the LSA, where an employer wishes to terminate an employee in compliance with (and validly under) the law, there must also be procedural justification to that termination. In other words, the law requires that proper (legally justified) procedures be taken in disciplining the employee, including providing the employee with a proper opportunity to defend himself/herself, no matter how egregious the employee’s actions are, and failure to do so will constitute an invalid termination.
(ii) Dismissal due to managerial reason
Further, as regards the employment termination, under LSA, an employer may also terminate employees where the employer can establish an imminent managerial reason. Article 31 of LSA provides that before an employer terminates a group of employees, the employer must have made its best efforts to avoid termination and have fair and reasonable standards of termination in place. The termination of employees must have been based on such standards for termination and the employer must have given notice to and consulted with the relevant labor representative (i.e., labor union)of the employees.
It is the firm position of the Korean Supreme Court that an imminent managerial reason exists if the termination of employees is rational from an objective standpoint. The Korean Supreme Court has recognized the existence of an imminent managerial reason in the following cases: (a) the employer has continuously experienced deficit operation; (b) due to continuous labor disputes, the operation of the employer is expected to worsen to a degree that half of the capital amount of the employer has decreased for one year; (c) a part of the business is changed to a sub-contract system due to continuous deficit operation and, as a result, the employer terminated the employment of related employees; or (d) in the course of privatization of a public corporation, reorganization of the corporation has been taken.
In light of the foregoing, it can be concluded that an imminent managerial reason to terminate will be found to exist where it is inevitable that the employer must terminate employment in order to overcome actual difficulties in management. However, even where an employer with a positive balance sheet terminates the employment of a group of employees in order to overcome actual difficulties or to generate additional revenues, the existence of an imminent managerial reason will not be found to exist unless the inevitability of such termination can be proven objectively.
Therefore, as described above, unless there is a legitimate, objective reason to terminate employees, it is not easy under current Korean labor laws to establish a justifiable cause or imminent managerial reason to terminate employees under LSA. However, as an alternative to termination, it is sometimes recommended that an employer attempt to persuade those employees whom it wishes to terminate to voluntarily retire from his/or her office. It is customary practice in Korea for an employer to induce the early retirement of employees whom they wish to terminate by offering them a reasonable severance package. Though not required by Korean law, a Korean company will ordinarily offer early retirement employees additional severance pay in addition to severance pay in accordance with standards set forth in LSA or the relevant employment rules and regulations.
Under the Labor Standards Act of Korea (LSA), when hiring an employee, employment terms regarding the composition, calculation method and payment method of the employee remunerations should be stipulated in writing (i.e., a written notice, memo, letter, or contract stipulating the above basic terms should be provided to the employee), and a violation of this requirement will subject the employer to a potential maximum fine of KRW 5 million.
However, additional details of the employment terms may be agreed upon/provided verbally. Examples of such details include the beginning and ending work hours, breaks, holidays, vacations, work-hour sifts, issues relating to promotions, severance pay, bonuses, safety and health measures, etc.
It is noted that businesses with 10 or more employees must establish internal employment regulations, stipulating the detailed employment terms and conditions, and must at all times furnish, and make readily available, such employment regulations to the employees (Article 96 of LSA). In other words, employment terms that differ based on each individual, such as salaries, should be stipulated under an individual written contract with the employee, and all other terms that are universally applicable to all employees should be stipulated in the employment regulations.
We provide below a few examples of prior court cases where the employment termination by reason of poor performance was at issue.
We first note that the cases that have dealt with employment termination based on poor performance are rare. We believe that the reason for such rarity comes from the fact that employers rarely terminate employees on the ground of poor performance alone because they know that it is difficult to justify such termination under the current provisions of the Labor Standards Act of Korea.
(i) Case: central Labor Committee’s ruling on March 8, 1993; 93BuHae3
This case involves an employee (a medical insurance association employee) who were terminated due to poor performance and brought an unjust employment termination claim to a regional Labor Committee under the Labor Ministry. The regional Labor Committee found the relevant employment termination unjust and ordered the relevant employer to reinstate the employee’s position, and the employer objected to the ruling and thus filed an appeal with the central Labor Committee under the Labor Ministry. The central Labor Committee, in confirming the ruling of the regional Labor Committee, stated that although the item 1 of Article 35 of the regional medical insurance association operation regulations (“operation regulations”) provide for relieving an employee of his or her post when an employee’s work abilities are deficient or the employee has a poor work record or the employee’s attitudes towards work are significantly insincere, any such relieving of one’s post based on that provision would only be proper if and when the employee’s work abilities, work record or attitudes towards work are significantly below the normal standards. The central Labor Committee further stated that though there may be certain evidence indicating that the employee’s work record was somewhat poor, the employer’s discharge of the employee from his post, on the basis that the discharge falls into one of the causes prescribed in the item 1 of Article 35 of operation regulations, is outside of the realm of just termination.
(ii) Seoul Administrative Court’s ruling on November 2, 1999; 99Gu10178
This is a case where the Seoul Administrative Court did find that there was sufficient evidence indicating the work performance of the employee in question was very poor to a point where the employment termination was warranted. So the Seoul Administrative Court confirmed the central Labor Committee’s ruling that the employee was properly discharged. In this case, there was a substantial amount of negative opinions expressed by the employee’s colleagues and supervisors who worked with the employee at various branches, and his supervisors at various points in time recommended that the employee be discharged due to the significant deficiency in work abilities. Even a high-ranking labor union official, who was in a position to protect rights of union members, expressed his opinion that a disciplinary discharge be taken against the employee. So there was no doubt in this case that the employee’s work abilities and work attitudes were substantially poor, and the Seoul Administrative Court found that the employer’s order to the employee to leave his post and wait for further action (on the basis of item 1, paragraph 1, Article 24 of the personnel regulations) would not constitute an unjust measure taken. Further, under item 5, paragraph 1, Article 22 of the personnel regulations, the deficiency in work abilities is a cause for termination, and in view of the ample record indicating the substantially poor work abilities and work attitudes, the employee discharge based on the foregoing provision would be considered a justifiable discharge.
(iii) Seoul Administrative Court’s ruling on November 26, 2002; 2002GuHap14416
The court, in finding that there was not sufficient record indicating that the employee in question lacked work abilities or did not properly carry out the assigned duties, reiterated the standards for proper discharge of an employee under the Labor Standards Act. Specifically, the Labor Standards Act prohibits termination of an employee without a “justifiable cause,” and a justifiable cause would mean that the employee is responsible for rendering the relevant employment relationship no longer possible to continue by commission of grossly negligent, illegal, or criminal acts, etc. And whether an employee’s act or conduct would be deemed a “justifiable cause” under generally accepted public notions will finally be determined upon review of all circumstances, taking into account such factors as the relevant employer’s business objective and nature of its operations, reason for the infringing act by the employee, effects on the employer caused by the employee’s act, past job performance and so forth, and the employer has the burden of proof for justification of the relevant employment termination. So, citing the foregoing standards, the court concluded that the employer failed to present any evidence that the discharge of employee was based on a “justifiable cause” as prescribed under the Labor Standards Act.
The term worker under Korean labor laws (i.e., Labor Standards Act of Korea) is someone who provides labor pursuant to his or her employer’s instructions or directions in return for wage compensation.
The most important factors for classifying someone as a worker are, among other things, (i) whether the person receives instructions or directions from an employer, so there exists a superior/subordinate relationship and (ii) whether the wages the person receives is of a nature that compensates for the labor he or she provided.
It is important to know who fits into the concept of a worker under Korean labor laws because only persons who are regarded as workers could be afforded protection under labor laws and also exercise the rights stipulated thereunder. Conversely, the concept of an employer is also necessary to identify peoples who would have obligations and responsibilities pursuant to the relevant labor laws.
When determining whether someone is a worker, a title or position of that someone is irrelevant. For instance, a high-ranking officer of a company holding such title as an executive director could be regarded as a worker if the officer provides labor pursuant to the instructions of a company president (or owner) and receives wages in return. In another instance, a person who holds a title of a manager may fit into the employer category if the manager is in charge of labor matters within the company and thus issues instructions or directions to company workers.
So there could be a situation in which a person could simultaneously be both a worker or an employee (i.e., having a dual status) if that person provides labor pursuant to a company president’s instructions and receives wages for such labor and at the same time manages labor operations within the company at the instruction of the company president.
It should also be noted that the concept of worker under Korean labor laws is on the basis of an employment contract. If a certain person provides labor on the basis of a contract other than employment contract, such as a contract for specific undertaking(s) or a commission contract (that is based on an independent relationship as opposed to a superior/subordinate relationship relevant to an employment contract), then the person providing labor under such non-employment contract cannot receive protection afforded under Korean labor laws.
However, if a person provides labor under a non-employment contract such as a contract for a specific undertaking but, in fact, the person provides labor as if there is a superior/subordinate relationship between the person and the contracting company, then the sort of independent contracting arrangement appearing on the outside may be set aside and that the person may be regarded as a worker entitled to protection under labor laws.
Lastly, taking an example of a foreign industrial trainee, if the purpose of training is to give the trainee an opportunity to learn technical expertise or other relevant knowledge, then the industrial trainee cannot be a worker under Korean labor laws. However, if and to the extent a certain foreign industrial trainee does not stop short of receiving training but also provides labor pursuant to company instructions and receives certain compensation for it, then the trainee may be considered as a worker under Korean labor laws.
Under the Labor Standards Act of Korea (LSA), if and when an employee resigns or retires, the employee is eligible for severance pay which accrues at the rate of 30-day average wage for each consecutive year of service.
The Supreme Court in a recent case involving non-payment of severance pay by an employer (2005 Do 467; decision rendered on March 11, 2005) ruled that any severance pay that was paid out to employees as part of salary could not be considered as severance pay prescribed under Paragraph 1 of Article 34 of LSA, even if such inclusion of severance pay into the regular salary was pursuant to an agreement between employer and employee. The Supreme Court thus confirmed the criminal conviction of an employer who ran a software company and who failed to pay severance pay to certain number of retired employees.
In the above case, the Supreme Court stated that severance pay is conditioned upon termination of employment relationship between employer and employee, so the payment obligation of severance pay does not arise during the period in which the relevant employment relationship still exists.
One of the questions we are frequently asked from a foreign company establishing a branch or corporate subsidiary in Korea is the level of social insurance contribution which such branch or subsidiary is require to make. So, we briefly introduce below the social insurance system of Korea.
Korea has four social insurance components, which are (i) national pension under the National Pension Act, (ii) industrial accident compensation insurance under the Industrial Accident Compensation Insurance Act, (iii) employment insurance under the Employment Insurance Act, and (iv) national medical insurance under the Medical Insurance Act.
Out of the above social insurance components, a foreign company’s branch or subsidiary (“Korean branch/subsidiary”) in Korea would be required to pay entire amount of the payment for the industrial accident compensation insurance. As for the payments for national pension, employment insurance, and medical insurance, Korean branch/subsidiary and employees would each be required to pay a portion of the relevant payments for the said social insurances.
More specifically, we note as follows.
(a) National Pension
Korean branch/subsidiary and its employees each are required to make contributions for national pension payment that are equivalent to 4.5% of the “standard monthly remuneration amount.” Here, the standard monthly remuneration amount refers to an amount that is established pursuant to a Table for the Standard Monthly Remuneration Amount By Grade (the “National Pension Table”) that is found in Addenda to the Enforcement Decree of the National Pension Act of Korea. The National Pension Table allocates a certain grade based on an income bracket group and sets a standard remuneration amount for employees falling within that grade.
By way of illustration, using an example of the annual salary amount of 40,000,000 Korean Won (KRW), such amount is accorded 44th grade according to the National Pension Table, which further indicates that the standard monthly remuneration amount for the 44th grade is 3,380,000 KRW. Therefore, the monthly national pension payment amount which the Korean branch/subsidiary and an employee each is required to pay is 152,100 KRW (4.5% of 3,380,000).
(b) Industry Accident Compensation Insurance
Under Korean law, Korean branch/subsidiary would be required to pay approximately 4.45% of total payroll of the branch/subsidiary for industrial accident compensation insurance, which would be divided into 4 quarterly payments. So, if the total payroll of the branch/subsidiary is, say, 300,000,000 KRW, then the total industrial accident compensation insurance would be around 13,350,000 KRW per annum. But since the insurance payment rate may vary depending upon the total payroll amount and the type of industry, a precise amount would be determined after the relevant foreign company has established its branch or subsidiary operations here in Korea.
(c) Employment Insurance
Employment insurance system has several sub-components within the system, such as the employment stabilization program, the job skills development program and unemployment benefits, etc., and the calculation of the employment insurance payment is rather complex, taking into account of insurance fee rate applicable to each component. But, using the annual salary of 40,000,000 KRW as an example, the employment insurance payment calculation could essentially be noted as follows.
For employee:
40,000,000 ⅹ 9/1000(insurance fee rate applicable to unemployment benefit) ⅹ 1/2; the resulting amount is 180,000 KRW, which will be divided into 12 monthly payment of 15,000 KRW per month.
For employer:
(40,000,000 ⅹ15/10000(insurance fee rate applicable to employment stabilization)) + (40,000,000 ⅹ 1/1000(insurance fee rate applicable to job skill development)) + (40,000,000 ⅹ 9/1000 ⅹ 1/2); the resulting amount is 280,000 KRW, which will be divided into 12 monthly payments of 23,333 KRW per month.
(d) National Medical Insurance
An employer and an employee are each required to make equal contributions for medical insurance payment corresponding to one-half of 3.4% of the “standard monthly remuneration amount”. Here, the standard monthly remuneration amount refers to an amount that is established pursuant to a Table for the Standard Monthly Remuneration Amount By Grade (the “Medical Insurance Table”) that is found in Addenda to the Enforcement Decree of the Medical Insurance Act of Korea. The Medical Insurance Table allocates a certain grade based on an income bracket group and sets a standard remuneration amount for employees falling within that grade.
So, if an employee’s monthly salary is 40,000,000 Korean Won (KRW), such amount is accorded 31st grade according to the Medical Insurance Table, and such table indicates that standard monthly remuneration amount for the 31st grade is 3,350,000 KRW. Therefore, the medical insurance payment amount the employer and employee is each required to pay is one-half of 113,900 KRW (3.4% of 3,350,000), which is 56,950 KRW per month.
Often we are asked by our firm’s foreign clients about the possible situations where any criminal penalties would be imposed on an employer in relation to employment termination.
If and to the extent that an employer had reasonable grounds to dismiss an employee based on poor performance, satisfying the standards prescribed in the Labor Standards Act of Korea, then the employer would not be subject to any criminal sanctions since the employer did not violate the relevant provisions of the Labor Standards Act. It would be risky, however, for any employer to form a subjective judgment that any employment termination was proper, and it would thus be important to have and accumulate as much evidence as possible to objectively show that any employment termination was based on a “justifiable cause.”
Further, please note that the possibility of any criminal sanctions would come up only if and when the Labor Committee, which had received an employee’s complaint and reviewed the case, ordered an employer to reinstate the relevant employee’s position and pay compensation (i.e., lost wages), but the employer did not comply with such order. According to the Labor Ministry’s guidelines regarding handling of unjust employment termination claims, an employer would be required to comply with any corrective order of the Labor Committee within 7 days of receipt of such order. If the employer does not comply within the 7-day period, then the labor inspector would recommend to the prosecutors’ office to indict the employer in question, and the employer would be subject to a fine of up to 30 million won or an imprisonment of up to 5 years. If an employer does not have any prior conviction record, then the employer in question would usually be required to pay certain fines.
Another instance which may lead to an employer facing criminal sanctions would be where a labor inspector under the Ministry of Labor can independently investigate, in cases where the Labor Committee proceedings did not materialize due to such reasons as passing of the relevant filing period, etc., and may issue a corrective order to the relevant employer if the employer is found liable, and the employer is required to comply with the said order with a 7-day period. And, again, if the employer does not comply within the 7-day period, then the labor inspector would recommend to the prosecutors’ office to indict the employer in question, and the employer would be subject to criminal penalties as noted earlier.
For any Korean labor law inquiries, please contact Keun Dong Lee (leekd@sigonglaw.com) or Hoon Lee (hoonlee@sigonglaw.com) at Sigong Law P.C. (www.sigonglaw.com).
Paragraph 1 of Article 30 of the Labor Standards Act of Korea (“LSA”) states that “An employer shall, without justifiable cause, not dismiss, lay off, suspend, transfer a worker, reduce wages, or take other punitive measures against a worker”
So what is exactly “justifiable cause” under LSA? For instance, when is an employer deemed to have a “justifiable cause” if the employer wants to reduce salary of its employee(s)? In such situation, a “justifiable cause” would be deemed to arise for the purposes of Article 30 of LSA if an employee has committed an act which would require a disciplinary action by the employer or if such reduction of salary has been necessitated by reasons related to management of the employer’s business.
It should be noted here that Korean courts strictly construe the phrase “justifiable cause.” For instance, if an employer has to reduce the employees’ salary due to the management reasons, the level of management difficulty has to be such that the company’s survival would be jeopardized if the salary reduction were not implemented.
If there is no “justifiable cause” found as required under the relevant law for unilateral reduction, then an alternative way of implementing the salary cut is obtaining prior consent from the employees (assuming that this is a company-wide reduction, not a reduction made on some individual employees).
In other words, under LSA, the reduction of the salary would represent the “amending the terms of employment unfavorably to workers.” In such case, if there is a labor union within the company composed of more than a majority of total number of employees, the employer must obtain the labor union’s consent. If there is no union as such, the employer must obtain consent from the majority of workers at an employee meeting.
As for the employee affected by the salary cut, (s)he may seek a remedy from the labor committee (an independent committee created by the labor ministry) and/or file a claim with the labor superintendent under the labor ministry who is granted with law enforcement authorities.