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.