Employment and Labour Law of Korea

by Jeong Han Lee

1. Sources of employment law

The principal sources of law and regulation governing employment relationships in Korea are the Constitution, the Labour Standards Act and other statutes, individual employment contracts, internal employer work regulations, and collective bargaining agreements.

Of pervasive significance in employment law is the Labour Standards Act, which stipulates minimum standards for a wide range of work conditions. These standards will supersede any contrary provision—that is, any provision that is less favourable from the employee’s point of view—of an employment contract, collective bargaining agreement (“CBA”) or work regulation. Generally speaking, in case of inconsistency between any two of the sources of employment regulation, usually that source whose provisions work to the greater advantage of the employee will “trump” the other.

Following is a summary of each of the key sources of regulation.

Constitution: The Constitution of Korea establishes some basic principles of employment. Article 32 provides that all citizens “have the right to work,” and contemplates legislation providing minimum wages and working conditions “to ensure human dignity.” Article 32 also forbids gender discrimination in employment and work conditions. At the same time, Article 32 allows for “special protection” for working minors, and “preferential” work opportunities for military personnel and policemen or their family members following injury or death in the line of duty.

Labour Standards Act: The central piece of legislation, the Labour Standards Act (together with the related “presidential enforcement decree,” or implementing regulation, the “LSA”) prescribes the minimum work conditions that an employer must provide to its employees, including minimum standards for work hours, overtime pay, vacation and other paid leave, severance, and other allowances and benefits. The LSA applies to every employer that continuously employs 5 or more employees, including foreign employers with 5 or more employees at any office or “workplace” in Korea (certain provisions of the LSA also apply to smaller companies). As mentioned above, the LSA standards will supersede any contractual terms that are, for the employee, inferior. Violations of certain LSA provisions are punishable by criminal sanctions.

Other laws: There are other statutes and related regulations governing various aspects of employment, notably the following:

(i) establishing various minimum standards: the Minimum Wage Act, Employee Retirement Benefit Security Act, Act on the Protection of Dispatched Workers, Act on the Protection of Fixed-term and Part-time Employees and the Industrial Safety and Health Act;

(ii) establishing certain mandatory hiring guidelines: the Employment Security Act, the Employee Vocational Capability Promotion Act, the Equal Employment Opportunity and Work-Family Balance Assistance Act, the Act on Promotion of Employment and Vocational Rehabilitation of Disabled Persons, and the Act on Honourable Treatment and Support of Persons of Distinguished Service to the State;

(iii) regarding mandatory social insurance: the National Pension Insurance Act, the National Medical Insurance Act, the Employment Insurance Act, the Industrial Accident Compensation Insurance Act and the Wage Claim Guarantee Act;

(iv) regarding labour unions and labour-management relations: the Labour Union and Labour Relations Adjustment Act, which covers labour union activity and dispute resolution, and the Act on Promotion of Employee Participation and Cooperation, which concerns labour-management councils and grievance procedures.

Employment contract: Employer and employee are free to agree on the terms of employment as a matter of contract, subject however to the mandatory standards under the LSA, and subject also to any superior provisions under the employment regulations or an applicable collective bargaining agreement.

Employment rules: Under the LSA, a workplace with 10 or more employees on a continuous basis must prepare a set of rules of employment governing wage calculation and payment, work hours and other work conditions for its employees, and file the rules with the Ministry of Employment and Labour. Such rules exist in addition to the individual employment contracts.

Collective bargaining agreement: Employees are free to form a labour union, which may negotiate a collective bargaining agreement (“CBA”) with the employer. Generally, the CBA will apply only to union members, and thus, employment conditions may vary as between a union member and non-union member. However, under the Labour Union and Labour Relations Adjustment Act, if a majority of the employees ordinarily engaged in a given type of work at a given workplace or in a given business are union members and the CBA applies to such union members, the CBA will also apply to the non-union employees engaged in the same work at the same workplace or in the same business. If the general employment rules contain conditions less favourable than those under the CBA, the CBA will prevail for any employees covered by the CBA.

2. Principal institutions

Government oversight of employment matters rests with the following agencies:

Ministry of Employment and Labour: The Ministry of Employment and Labour exercises general oversight over employment matters, including investigation into compliance with the LSA standards and other statutes. With a staff of labour inspectors, the Ministry has the authority to inspect workplaces and employee dormitories, inspect books and records, and question an employer and its employees. The Ministry has the authority to initiate prosecution based on penal provisions of the relevant statutes. The Ministry also handles government policymaking vis-à-vis labour unions, labour unrest and other major labour issues.

Labour Relations Commission: The Labour Relations Commission (or “LRC”), a quasi-judicial agency established under the Ministry of Employment and Labour, hears and reviews employee complaints of unfair labour practices in relation to labour union activity, such as discrimination based on labour union membership, and complaints of unjust dismissal or disciplinary action. The LRC also mediates disputes between employers and labour unions. The LRC includes district committees, to which grievances may be filed in the first instance, and a national committee, to which a district committee ruling may be appealed. In case of a finding of dismissal without just cause or other unfair labour practice, the LRC may order reinstatement of the employee, or require other necessary remedial steps.

3. Role of the courts

Generally, employment-related litigation may be brought before district civil courts, the courts of first instance having general jurisdiction over civil matters. An employee may for example bring suit for unjust dismissal, seeking reinstatement or compensation, before a district civil court, in addition to or in lieu of pursuing the grievance before the LRC. District court judgments may be appealed to an intermediate High Court, and from there to the Korean Supreme Court, the highest court.

A decision of the LRC may be contested before an administrative court, in a suit to invalidate the decision. Criminal prosecutions, based on penal provisions of the LSA or other statutes, come before the criminal courts. Appeals of an administrative court or criminal court decision may be taken to the High Court and then the Supreme Court.

4. Employment status and categories of worker

Employment status: The mandatory LSA standards and other key restrictions apply to “employees.” Generally the term encompasses temporary as well as longer-term employees, and both full-time and part-time employees. The LSA defines the term “employee” broadly as one who “offers work to a business or workplace for the purpose of earning wages.” Expanding on this, the Supreme Court enumerated the following set of factors that, to the extent they hold true, point to an employer-employee relationship:

(i) The individual’s duties, and time and location of work, are determined by the (supposed) employer, there are applicable work rules, and the person is substantially supervised and ordered by the employer;

(ii) The duties are not such that the individual is able to delegate them to a third party.

(iii) Work equipment and materials are not owned by the individual.

(iv) Remuneration is in correlation to the amount of work furnished by the individual, based on a fixed rate of pay, and income tax is withheld.

(v) The relationship is continuous and the individual works exclusively for the employer.

(vii) The individual is classed as an employee according to other regulations.

(viii) The economic and social circumstances of the parties indicate an employment relationship.

Directors and Officers: “Employees” generally will not include directors on the board of a corporate employer (who are registered as such in public records), except in special situations where such a director has worked under the supervision of another director or an officer and thus is seen to satisfy the criteria above. Aside from such directors, other officers and directors are classed as “employees” for most purposes under the LSA and related regulations.

Fixed-term Employees: Under the Act on the Protection of Fixed-term and Part-time Employees (“Fixed-term Employees Act”), fixed-term employees are defined as employees employed subject to a limited term. This Act prohibits employers from using fixed-term employees, as such, for a period of over 2 years. Where an employer uses a fixed-term employee for over 2 years, the employee will be deemed employed for an indefinite term. That is, the employment period clause in the contract will be unenforceable, and instead, the employer will only be able to terminate him or her with just cause, like regular employees. In addition, the Fixed-term Employees Act prohibits employers from discriminating against fixed-term and part-time employees (employees who work less hours than other regular employees) in terms of pay or other working conditions, in comparison with any employees of indefinite term or regular employees who handle the same or similar jobs in the relevant business or place of business. Fixed-term or part-time employees who suffer discriminatory treatment have the right to file a claim for corrective measures to the LRC. Upon filing of such a claim, the LRC must investigate the case and may order an adjustment or corrective measure, improve wages or other working conditions, or award appropriate monetary damages.

Dispatched Workers: The Act on the Protection of Dispatched Workers (“Dispatched Workers Act”) regulates the use of employees of another company by way of “worker dispatch.” Under the Dispatched Workers Act, worker dispatch refers to a system in which a dispatching company (“Dispatching Company”), while maintaining the employment relationship with its employee, causes its employee to work for another company (“Receiving Company”) under the supervision and direction of the Receiving Company in accordance with a dispatch agreement between the two companies. In addition, there is a distinction between outsourcing of work (when the employee is sent to the site of a client company to perform the outsourced work) and worker dispatch, based on whether the employee is supervised or ordered by his or her own employer or the client company. If the employee is ordered or supervised directly by the client company for the performance of his or her work, he or she will be regarded as a dispatched employee under Dispatched Workers Act. Under the Dispatched Workers Act, a company is prohibited from engaging dispatched workers in direct production processes and can only engage dispatched workers in 32 specified business roles, such as computer expert services, travel guide services, and security services. Any employer who dispatches or uses a dispatched worker in violation of the Dispatched Workers Act will be subject to a criminal penalty. Furthermore, under the Act, if a Receiving Company uses a dispatched worker for over 2 years or in violation of the Dispatched Workers Act, the Receiving Company becomes obligated to employ the dispatched worker directly as the Receiving Company’s employee (unless the dispatched worker objects to such employment or there are justifiable reasons as prescribed by the Presidential Decree). The employment conditions for such workers will then conform to the employment rules applicable to that Receiving Company’s regular employees who handle the same or similar jobs. If the company does not have any regular employees with the same job, the Receiving Company must at least provide the dispatched worker/new employee the working conditions that existed prior to the full employment by the company. Failure to comply with such restrictions may be punishable by criminal sanctions. Under the Act, Receiving Company may not discriminate against dispatched workers, in comparison with its own employees engaged in the same or similar types of jobs within its business. This prohibition of discrimination applies to dispatched workers at all times including the two-year period before a dispatched worker becomes entitled to be treated as an employee of the Receiving Company. Dispatched workers who suffer discriminatory treatment may file a claim for corrective measures with the LRC, whose procedures in this context are analogous to those applicable to fixed-term and part-time workers as discussed above.

Exceptions to the application of the LSA: The maximum work hours and overtime allowance provisions of the LSA do not apply to managerial or supervisory personnel, or part-time employees who work less than 15 hours per week.

5. Contract

The LSA does not require an employment contract to be a contract in writing, except for an employment contract for a part-time employee. However, certain terms such as wage, working hours, annual paid leave and weekly holiday must be specified in writing, and such written terms must be provided to the employee at the time when an employment contract is entered into, and the employer must retain a copy for at least three years following termination. However, even absent a written agreement, either side may claim the existence of a verbal or implied agreement, which will be enforceable if proven.

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