THE CHANGING LABOR LAWS OF KOREA

Every country has discrepancies between its rule of law and actual practice. Korea is no exception and especially in its labor laws, may have even greater discrepancies than most countries. The average Korean may be embarrassed to know of such discrepancies between law and practice, and it is all too understandable why foreigners would have trepidations about such discrepancies. In this brief article, I would like to discuss some examples of the discrepancies between the Korean labor laws and the actual practice in the Korean labor market, as well as discuss the direction in which the Korean labor laws are headed and the reasons for such change.

I. A Hypothetical Example

Let us assume the following hypothetical situation:

A foreign investor ("F") who started a business in Korea employs a manager ("M"). "M"'s annual compensation is US$120,000, and the agreed employment term is for one year which can be extended on an yearly basis. After one year, "F" was not satisfied with the management results of "M" and decided not to extend the employment term of "M". "F" notified "M" of the termination of his employment. What would be the result of such termination?

Common sense would tell us that by refusing to extend the term of "M"'s employment, "F" has terminated the employment agreement without any further obligations to "M". Under the current Labor Standards Act of Korea ("Act"), however, such employment agreement may not be unilaterally terminated. Further, even if "M" should accept "F"'s refusal to extend the employment term, "F" would still be obligated to pay a severance allowance of about US$10,000 to "M". If "M" should contest "F"'s refusal to extend the agreement, "F" must provide evidence of objective and reasonable cause for not extending "M"'s agreement (the same also applies to dismissal of an employee). If "F" fails to provide evidence of reasonable cause for not extending the agreement, "F" must pay to "M" an amount equivalent to "M"'s annual compensation even after the agreement has been terminated and regardless of whether "M" continues to work for "F". In addition, "F" may be subject to criminal punishment.

The above interpretation of the Act is difficult for lay people to understand based only on common sense, but such an interpretation is nonetheless clear under the Act. The principle underlying this rule is the prohibition of a "contracted employee". Accordingly, notwithstanding a definite agreement regarding the employment term between the employer and employee, once an employment relationship has been established, then such relationship is deemed to be a firm employment relationship without expiration. As a result, the employer may not unilaterally terminate the employment agreement without cause. Thus, even if an agreed term of employment expires, in order to terminate the employment agreement, the employer must "dismiss" the employee. Under the Act, the employer may not dismiss the employee without reasonable cause, and consequently, if the employer fails to show reasonable cause through objective means, the employer may not terminate the employment contract and must maintain the employment relationship.

The second issue regards severance payment. As mentioned above, the Act disapproves of the idea of a contracted employee, and as a result, even if an employment agreement stipulates an employee's annual compensation taking into consideration all monetary benefits including severance payment, nonetheless upon the termination of the employment agreement, the employer will be obligated to pay an additional severance allowance which must be at least the minimum provided by the Act, which is currently a month's salary per year of employment. Therefore, in the above example, "F" would be obligated to pay a severance allowance in the amount of US$10,000 to "M". Thus, the legal result would be contrary to the original intention of the parties, and the employer, in particular, may consider such result to be unreasonable.

In addition to the above, other examples difficult for the lay person to understand based on common sense are numerous under the current Act. Among such examples are the following:

If the parties change the working hours by agreement,and the changed hours are not within the range of normal working hours as stipulated by the Act or such changed hours occur during weekends, overtime charges must be paid even though the total number of working hours remain unchanged (principle of prohibiting variant working hours);
The use of service corporations, such as cleaning and security guard services, is not permitted by law (principle of prohibiting the dispatch of employees);
Even at the request of an employee, an employee's severance/retirement allowance, or any part thereof, may not be paid in advance to the employee (principle of direct payment of severance/retirement allowance); and
During collective bargaining, no party may consult with a third party including lawyers (principle of prohibiting third-party participation).

The current system under the Act may have been appropriate when it was enacted and may have been a useful system to protect the rights of employees, but in view of the current situation, it is doubtful whether such system is reasonable or whether such system is useful for the protection of employees' rights. Accordingly, both employers and employees are currently resorting to the above methods despite their legal prohibition, and thus, discrepancies between the rule of law and actual practice have arisen.

Notwithstanding such discrepancies between law and practice, no problems will arise between the employers and employees while they maintain an amicable relationship, but once such relationship turns sour and the law must be relied upon, the legal results may be unexpected for both employers and employees.

II. The Direction of Change in Korean Labor Laws and the Reasons for Such Change

Will the discrepancies between law and practice continue? No, because the Korean labor situation is changing. A major change has been the maturation of Korean labor unions and the improvement in the labor skills of employees. As a result, the bargaining power of labor unions has increased and also the social status of employees has improved. The increase in the number of employees who have professional skills and technical knowledge and the maturation of labor unions are disproving the traditional premise that the employers are in a superior position over employees at all times. In this changed labor situation, it may be reasonable to allow employers and employees more freedom to agree on their own the terms and conditions of the employment relationship.

In addition, the internationalization of the Korean labor market is also a driving force behind the change in the labor laws. For many years, Korean workers went abroad to provide simple labor service, but now the number of such overseas Korean workers is diminishing, and rather, foreign workers are coming to Korea to provide simple labor service. Because of the internationalization of the Korean economy itself, cases of foreign enterprises' employing Koreans and Koreans' employing foreigners are rapidly increasing. Such internationalization of the labor market is forcing the standards of the Korean Labor Standards Act to move in the direction of internationally accepted labor standards.

Some of the results of this change are as follows: First, the Korean Government has been revising and enacting laws to accommodate the changes in the Korean labor market. In addition to labor laws that have already been revised, it has been reported that the Korean Government is preparing to revise and enact laws with regard to the introduction of variant working hours, dispatch of employees and abolition of the prohibition of third-party participation in collective bargaining negotiations.

Second, Korean courts have been deviating from legal precedents, which is in recognition of the greater balance of bargaining power between employers and employees. For example, in a major decision deviating from legal precedent, the Korean Supreme Court at the end of last year held that an employer need not pay an employee's salary for the period during a labor strike.

Finally, the attitudes of both employers and employees have changed. Both parties are now inclined to follow reasonable methods and procedures. The increase in demand for legal services in labor disputes is proof that the parties who traditionally depended on extreme methods are now pursuing principled and reasonable resolutions to resolve their disputes.

In conclusion, actual practice should be in accordance with the laws, but even if this is not the case, the laws are still meaningful because they set the official standards for society. In this regard, when the laws and actual practice differ greatly, then many problems will arise from the laws' inability to accommodate the expected results of the actual practice. Thus, as Korea's economy has grown, the labor situation has been changing and because Korean labor laws has not been able to response promptly to such changes, great discrepancies have arisen between law and practice. Taking into consideration that a time gap is inevitable for the laws to be amended to reflect actual practice, it will take some time for the Korean Government to resolve the current discrepancies between Korean labor laws and the actual practice in the Korean labor market, but because it seems that such reforms of the Government is headed in the right direction, the current discrepancies should not be viewed as an intractable problem in the Korean labor market.

Written by Yang Ho OH, Esq.
Partner
Member of Korean and New York Bar
LL.M. (Harvard 1994).