Minimum statutory terms
Termination of employment
Discrimination and harassment
Occupational health and safety
Regulation of outsourcing and contracting
Industrial relations

Acknowledgment

This Guide was prepared by the Workplace Law & Advisory – Asia practice of Freehills International Lawyers, with assistance from the following firms:

Contacts:

George Cooper
Practice Leader
+65 6236 9941 begin_of_the_skype_highlighting              +65 6236 9941 
george.cooper@freehills.com

Celia Yuen
Senior Associate
+65 6236 9972 begin_of_the_skype_highlighting              +65 6236 9972 
celia.yuen@freehills.com

Note:     This Guide:

• is current to 31 March 2010;
• contains general introductory information only, without an assumption of a duty of care by Freehills or the other firms listed;
• does not contain legal advice; and
• is not intended to be, nor should it be relied on as, a substitute for legal or other professional advice.

If employers have workplace relations issues or requirements in particular jurisdictions, then Freehills Workplace Law & Advisory - Asia can assist, working with local counsel.

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Minimum statutory terms

Key statutes
Korean employment law is primarily governed by the various statutes promulgated by the National Assembly, supported by the implementing presidential Enforcement Decrees in respect of those statutes. Additional detail is often found in the regulations of the various administrative agencies. The key statutes are the:

• Labour Standards Act
• Employee Retirement Benefit Security Act
• Act on the Protection, etc, of Dispatched Workers
• Trade Union and Labour Relations Adjustment Act
• Act on the Protection, etc, of Fixed-Term and
  Part-Time Employees
• Industrial Safety and Health Act
• Industrial Accident Compensation Insurance Act
• Labour Relations Commission Act
• Act on the Promotion of Worker Participation and Cooperation
• Employment Security Act
• Minimum Wage Act
• Framework Act on Employment Policy
• Act on Equal Employment and Support for Work-Family Reconciliation
• Act on Employment Promotion and Vocational Rehabilitation for Disabled Persons
• Act on Age Discrimination Prohibition in Employment and Aged Employment Promotion, and
• Employee Welfare Fund Act.

The Labour Standards Act is arguably the most important statute, as it prescribes mandatory rules in relation to many aspects of the employment relationship. Note however that many of the major provisions of the Labour Standards Act apply only to employers who routinely employ five or more persons.

Although Korea is a civil law jurisdiction, court precedents also play an important role in practice.

Employer work rules
Under the Labour Standards Act, any workplace with 10 or more employees is required to file detailed written working conditions with the local labour office. This document is referred to officially as the ‘Rules of Employment’, though also commonly referred to as Work Rules or Employee Handbook. When adopting or amending the Rules of Employment, an employer is required to obtain comments from the union representing the majority of the employees (or if such union does not exist, from a majority of the employees), and then file the Rules of Employment and such comments with the local labour office. If the union or a majority of employees do not have any comments, a document describing such fact must be attached. If an employer intends to make any changes to the Rules of Employment that could be deemed disadvantageous to the existing employees (ie to reduce any employee benefits or to increase their duties or obligations), the consent of a majority of employees or the union representing the majority is required.

Probationary period
The parties may agree upon an initial probationary period in the employment agreement. Procedurally, during the first three months of the probationary period, no advance notice of termination is required. While there is no explicit exception to the onerous ‘just cause’ standard for termination applicable under Korean law during the first three months of the probationary period, the standard may be applied somewhat less strictly in practice during this period.

There is no fixed period for probation by statute. Generally a period of three to six months is adopted by company policy and/or provided in the employment agreement.

Minimum wage
The Minister of Labour determines by August 5 of each year the minimum wage to be applied for the following year. Before making this determination the Minister of Labour seeks the recommendation of the Minimum Wage Council, an executive agency established pursuant to the Minimum Wage Act. The minimum wage may be fixed on an hourly, daily, weekly or monthly basis.

Remuneration structure
The ‘ordinary wage’ refers to wages paid regularly and uniformly on a monthly basis, which is the basis for calculating overtime and unused leave compensation.
This is to be distinguished from the term ‘average wage’, which considers all wages paid within the previous 90 days and is the basis for calculating certain entitlements including severance and business suspension allowance. Because the average wage may take into account bonuses and other irregular cash payments, its value varies over time and may be greater than the ‘ordinary wage’.

Working hours

Hours of work—The Labour Standards Act provides that an employer must allow employees a minimum of one day off with pay per week. In practice, Sunday is generally designated as the paid weekly day off. Before September 2003, the basic working hours for all employees were 44 hours a week (made up of five eight-hour working days and one four-hour day (usually Saturday)). However, the Labour Standards Act was amended in September 2003 to provide for a 40-hour working week, spread over five days. This change comes into force in transitional stages, from large through to small employers. From 1 July 2008, the change was in force for all companies with 20 or more employees. Companies with less than 20 employees will be covered after a date to be determined by Presidential Decree.

Many smaller companies have opted for the five-day/40-hour standard work week, even though they are not yet required by law to do so. In order to opt in to the scheme, a company requires consent from the trade union (if that union represents a majority of employees) or from a majority of employees, and must report the change to the Ministry of Labour.

Rest periods—During an eight-hour day, an employer is required to allow employees at least one hour-long unpaid break (ordinarily given as the lunch hour). For every four working hours, an employer is required to allow employees at least 30 minutes of unpaid break.

Overtime—Under the 44-hour working week scheme, work hours could be extended by agreement up to 12 additional hours per week, making a total of 56 working hours per week.

For three years after adopting the 40-hour working week, an employer can require employees to work up to 16 hours of overtime per week. The first four hours of overtime are remunerated at 125% of the ordinary wage, with the balance being paid at 150% of the ordinary wage.

After the three-year transitional period, the maximum overtime hours that can be agreed to be worked are 12 per week. Such overtime hours are to be paid at a rate of 150% of the ordinary wage.

Payment at a rate of 150% of the ordinary wage also applies to night work (work performed between 10.00pm and 6.00am) and work performed during the weekly paid day off (usually Sunday).

Public holidays
Employers subject to the Labour Standards Act must give employees a paid day off on Labour Day (1 May).

An employer has no legal obligation to treat national holidays as paid holidays (unless provided for in the Rules of Employment or a collective agreement), but doing so is a firmly embedded market practice.

Work performed on Labour Day or any other day recognised as a day off under the Rules of Employment/collective agreement must be remunerated at 150% of the ordinary wage for that day.

Paid annual leave
Annual leave entitlements depend on whether the employer operates the 44-hour or 40-hour working week (see ‘Working hours’ above).
For employers operating a 44-hour working week:

• Employees must be given a minimum of one day of paid leave per month, for full attendance during the previous month.
• Employees must be given 10 days paid annual leave for full attendance during the previous year, or eight days paid annual leave for 90% attendance or more during the previous year. This annual leave entitlement increases by one day after each year of service, to a maximum of 20 days paid annual leave per year.
• Any unused leave is subject to compensation after one year from accrual.

For employers operating a 40-hour working week:

• Employees must be given a minimum of 15 days paid annual leave for at least 80% attendance during the previous year. Following completion of the first year of service, this annual leave entitlement increases by one day after each two years of service, up to a maximum of 25 days.
• Employees who have been employed for less than a year are entitled to take some of their 15 days entitlement in advance,
  at the rate of one day’s paid leave for each full month
  of attendance.
• Any unused leave is subject to compensation after one year following accrual unless the company has implemented procedures to encourage the use of leave as prescribed in the law.

Other types of leave

Maternity leave— Employees are entitled to a total of 90 days maternity leave. Sixty days are paid by the employer and the remaining 30 days are paid from the Employment Insurance Fund, a state-run fund established by the Ministry of Labour under the Employment Insurance Act. If the employee takes more than 45 days leave prior to childbirth, she will still be entitled to 45 days maternity leave after childbirth, the balance over 90 days in total being unpaid leave.

Paternity leave— Employees are entitled to three days unpaid leave within 30 days of the child’s birth.

Childcare leave—Employees with pre-elementary school children under the age of six have an entitlement to unpaid childcare leave of up to one year. The employee must have worked for the same employer for at least one continuous year. The employer is not obliged to pay wages during childcare leave. Employees are paid under the employment insurance system.

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Termination of employment

Legal requirements
Pursuant to the Labour Standards Act, an employer may only terminate the employment of an employee for ‘just cause’. Just cause is not defined in the Act, making its application quite subjective. Korean court decisions have generally only held that ‘just cause’ exists in the following circumstances:

Fault attributable to the employee making continued employment untenable. For example:

• where the employee is guilty of sufficiently grave misconduct making it impossible to continue the relationship
• continuous and persistent unsatisfactory performance
• criminal or deliberate tortious acts against the employer
• serious criminal acts that are not in the line of duty
• improper relationships with other employees, or
• material misrepresentation in the hiring process.

Urgent business necessity to try and save a failing business from imminent bankruptcy. The scope of ‘urgent business necessity’ is also largely undefined (see further under ‘Specific requirements applicable to redundancy’).

Notice periods
The Labour Standards Act  provides that in all cases of unilateral termination, the employer must provide the employee with 30 days prior notice or 30 days ordinary wages in lieu thereof. The dismissal notice must be in writing and state the reasons for dismissal. This provision applies to all workplaces, including those with less than five employees.

Restrictions on the ability to terminate employment
The Labour Standards Act protects the following categories of employees from dismissal:

• an employee during, and for 30 days after, a period of temporary absence from work for medical treatment of an occupational injury or disease, and
• an employee during, and for 30 days after, a period of statutory maternity leave.

In addition, the Act on Equal Employment and Support for Work-Family Reconciliation protects employees who take childcare leave from dismissal.

Remedies
An employee may challenge his/her dismissal by bringing a claim before the relevant Regional Labour Relations Commission (RLRC). If it is determined that the employee has been dismissed without ‘just cause’, the employer will be ordered to reinstate the employee with back pay (at the employee’s discretion) or provide the employee with lump sum compensation in lieu thereof. The RLRC’s decision may be appealed by either the employee or the employer to the National Labour Relations Commission (NLRC). Subsequent appeals must be filed within the court system, starting with the administrative court, followed by the appellate court, and finally the Supreme Court.

If the employer does not comply with the RLRC’s order, the RLRC may impose an administrative penalty for an amount up to KRW20 million, up to four times within a two-year period.

An employee dismissed without just cause may also initiate civil proceedings in the District Court.

If the employer does not comply with a decision to reinstate the employee with back pay once it has become final (ie after the appeals process has been completed), the Ministry of Labour may file a criminal complaint against the employer, the penalty of which is up to one year imprisonment or KRW10 million. This criminal penalty would apply to both the company itself and the individual representative in charge of operations.

Severance payments
An employer is required to adopt a comprehensive retirement benefit system. The default system is the traditional statutory severance system whereby upon termination of employment for any reason, where the employee has been employed for at least one year, the employee is entitled to severance pay of 30 days ‘average wages’ (see ‘Remuneration structure’ above) for each year of continuous service.

More generous amounts may be provided for under Rules of Employment or collective bargaining agreements.

Specific requirements applicable to redundancy
In theory, ‘urgent business necessity’ to try and save a failing business from imminent bankruptcy is recognised as a ‘just cause’ for termination of employment. In practice, however, the conditions for implementing redundancies are very difficult to meet.

The Ministry of Labour has issued guidelines which indicate that multinational companies cannot lawfully make Korean employees redundant simply because of a worldwide retrenchment plan, particularly if the Korean business is profitable. The guidelines provide that employees cannot be sacrificed simply for the convenience of management.

Pursuant to the Labour Standards Act, in the event of ‘urgent business necessity’, the employer is required to do the following:

• Make every effort to avoid involuntary redundancies. Supreme Court decisions interpreting this provision have held that employers must first exhaust all other options, such as offering early retirement packages, implementing a hiring/wage freeze, reducing working hours/wages and other reasonable measures.
• Adopt and use reasonable and fair criteria in selecting the employees to be made redundant. Discrimination based on gender or age, for example, is expressly prohibited.
  Where there is a union representing more than half the employees, the employer must give notice of the redundancies to the union no later than 50 days before the intended date of dismissal. If no such majority union exists, the notice must be given to the employee representative (a person duly selected by more than half of employees as their representative).
• The employer must also consult in good faith with the union (or, where no union exists, the employee representative) to discuss the steps taken by the employer to avoid the redundancies and the criteria used to select the affected employees. The requirement to consult does not however grant the union or representative a right to veto the employer’s plan. The Supreme Court has held that redundancy planning is not a matter subject to collective bargaining between employers and unions. Industrial action in response to proposed redundancies is therefore unlawful (although common).
• When recruiting within three years of the redundancy for positions that are similar to those held at the time of redundancy, an employer must rehire former employees unless the employees do not wish to be rehired.

In most cases where an employer intends to dismiss more than 10 employees, the employer must file a report with the Ministry of Labour at least 30 days before the proposed redundancies, in the prescribed form, which includes statements regarding:

• the reasons for dismissal
• the number of workers to be dismissed
• the date when notice of redundancies was given to employees
• the method of employee notice
• the criteria used by the employer for selecting employees to be made redundant
• the alternatives considered to avoid redundancies, and
• other matters, including the employer’s plan to rehire
  redundant employees.

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Discrimination and harassment
The Labour Standards Act prohibits discrimination against employees on the ground of sex, nationality, religion or social status.

Discrimination is also prohibited under other statutes including the:

• Act on Employment Promotion and Vocational Rehabilitation for Disabled Persons and the Act on the Prohibition of Discrimination against Disabled Persons and Remedy against Infringement of their Rights, which provide that employers must not discriminate against disabled employees
• Act on Equal Employment and Support for Work-Family Reconciliation, which prohibits discrimination against female employees
• Act on Foreign Workers Employment, which provides that employers must not discriminate against foreign workers once they are employed. However, it also provides that before hiring a foreign worker, the employer must make active efforts to employ a Korean worker
• Act on the Protection, etc, of Fixed-Term and Part-Time Employees and the Act on the Protection, etc, of Dispatched Workers, which prohibit discrimination against non-regular workers, and
• Act on Age Discrimination in Employment and Aged Employment Promotion, which prohibits age discrimination.

Sexual harassment in the workplace is prohibited under the Act on Equal Employment and Support for Work-Family Reconciliation. Employers are required to hold sexual harassment prevention education classes at least once a year. Employers must also reprimand any employees found to be engaging in sexual harassment in the workplace. If an employee is sexually harassed by a person who is closely related to work (but is not an employer, a manager, or an employee of the company), including vendors or customers, and requests a remedy, the employer is legally obligated to take appropriate measures, including relocating the employee.

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Occupational health and safety
The Industrial Safety and Health Act establishes a basic framework of general standards for occupational health and safety. The Industrial Safety and Health Act requires most workplaces to establish an industrial safety and health committee, and to make regular reports to the government on progress towards reducing accidents and protecting employee health. The Act prescribes certain types of businesses which are exempt from its rules.

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Regulation of outsourcing and contracting

Outsourcing
Under the ‘worker dispatch system’, a labour supply agency and its client company enter into a contract whereby the dispatched workers provide their services to the recipient company and are subject to its direct supervision and control, while remaining employees of the labour supply agency. Such worker dispatch arrangements are heavily regulated in Korea, pursuant to the Act on the Protection, etc, of Dispatched Workers. 

The Act regulates the kind of work that dispatched workers may do, and provides that such workers may not be used in direct production line jobs in the manufacturing industry. A Presidential Decree specifies 32 categories of employment (eg drivers, security guards, cleaners, telephone switchboard operators, cooks, parking lot attendants, delivery persons, telemarketers) in which workers under labour supply arrangements may lawfully be engaged. Contract labour may only be legitimately dispatched from licensed agencies.

In a dispatch relationship, wages remain the principal responsibility of the dispatch agency, while the receiving company is principally liable for workplace health and safety.

Discriminatory treatment against dispatched workers is prohibited by the Act on the Protection, etc, of Dispatched Workers. Dispatched workers must not be discriminated against as compared with the regular workers engaging in the same or similar work in the receiving company.

If an individual dispatched worker is placed to work in the same workplace for a period exceeding two years, then the receiving company will be obliged to employ the worker directly.

Contracting
Companies may engage persons (for example, consultants) as independent contractors. However, Korean courts or labour authorities will examine the substance of the relationship and will consider the independent contractor to be a de facto employee if the relationship has the characteristics of an employee-employer relationship. The totality of the circumstances will be taken into account in determining whether such characteristics exist, however in general the primary factor related to the distinction between an independent contractor and an employee is the degree of supervision and control by the company over the individual.

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Industrial relations

Legislation in brief
The Trade Unions and Labour Relations Adjustment Act governs trade unions and collective bargaining in Korea. The Trade Unions and Labour Relations Adjustment Act provides for the right to establish and operate trade unions, as well as the binding legal effect of collective bargaining. It provides for the protection of basic labour rights of employers and employees. The Trade Unions and Labour Relations Adjustment Act also establishes guidelines for collective action and provides for mediation and reconciliation of disputes.

Role of trade unions and collective agreements
Employees have a guaranteed right to seek a collective agreement through their trade union and employers are required to respond to a collective bargaining request in good faith.

The Trade Union and Labour Relations Adjustment Act does not expressly regulate the content of collective agreements, apart from the fact that the content should not fall within the categories of ‘unfair labour practices’ set out in the Trade Union and Labour Relations Adjustment Act. A collective agreement’s term is limited to two years.

Historically, as part of negotiations, demands made by trade unions have often included financial assistance for union activities, such as provision of a union office and facilities, extending to the employer paying the salaries of full-time union officers who dedicate their entire working time to union activities. On 1 July 2010, a significant amendment to the Trade Union and Labour Relations Adjustment Act will come into effect, which prohibits such payments. While full-time union officers may no longer be compensated by the company, the revised law provides for a limited amount of ‘paid time-off’ for union officers engaging in specified activities, including collective bargaining, grievance handling, workplace safety, and managing the labour union.

Industrial action and disputes
Once a negotiation reaches an impasse whereby management and workers are not able to conclude an agreement after negotiating in good faith, either party may file an application for mediation with the Labour Relations Commission. Neither party may take action against the other for a period of 15 days for public businesses and 10 days for other businesses while mediation is pending. If an agreement is reached by the parties during mediation, it has the same effect as a duly executed collective bargaining agreement. 

If a resolution is not reached by the parties during mediation, the union may take collective action including a work slow-down, a partial strike or a full strike. In order to take collective action, the union must obtain approval from its union members for the use of collective action. In practice, labour disputes are normally ultimately resolved through conciliation rather than through the formal mediation and arbitration processes provided for in the Trade Union and Labour Relations Adjustment Act.

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