Practice Area Articles
January 16, 2023
Christopher Mandel, Lee Tae Eun, Shim Lawrence and Lee Soojung
Back to International Employment Law
KEY DEVELOPMENTS FOR 2023
Korean Supreme Court strikes down a “wage-peak” system as illegal age discrimination
In Korea, many companies have adopted compensation schemes whereby employees’ wages are gradually reduced after they reach a certain age, several years before reaching the employer’s mandatory retirement age. This type of compensation scheme, known as a “wage-peak system,” became more widespread in 2016 after the minimum age at which employers can establish a mandatory retirement age was increased from 55 to 60. However, on 26 May 2022, the Supreme Court held for the first time that an employer’s wage-peak system illegally discriminated against employees on the basis of their age (Supreme Court case no. 2017da292343).
The Supreme Court did not affirmatively hold that all wage-peak systems are per se illegal age discrimination. Rather, the Court laid out a standard by which to evaluate whether other wage-peak systems constitute illegal age discrimination.
The biggest issue left unresolved by this decision is whether wage-peak systems that were adopted to counterbalance an increase in the employer’s mandatory retirement age, may be upheld on that basis. The Supreme Court case involved an employer that already had a retirement age above 60 when the 2016 change in the law occurred, whereas most employers adopted wage-peak schemes in response to the 2016 change. And the reasoning of the Supreme Court’s decision appears to leave open the possibility that wage-peak systems adopted in connection with an increase in the employer’s retirement age may be lawful. There have already been lower-court decisions upholding wage-peak systems on that basis, and litigation is working its way through the court system which may settle that issue.
Employers that have wage-peak systems, or are considering adopting them, should be aware of the status and progress of those cases which could more fully determine their lawfulness.
Supreme Court clarifies when inter-affiliate work assignments may be illegal manpower supply
Korean law very strictly limits the operation of any manpower supply business (a/k/a “Worker Dispatch”). Temporary agency workers (dispatched workers) must be supplied only by licensed agencies, can be used only for specific roles and/or purposes, and can only be used for up to two years, among other restrictions.
Relationships that are formally structured as something other than manpower supply—such as service provision—can be reclassified as illegal manpower supply based on the true substance of the relationship, which can result in significant civil and even criminal liability—including an obligation to directly hire the workers as employees. And this risk exists even with respect to employees who work for an affiliate of their employer.
However, in Supreme Court case no. 2019da299393 (14 July 2022), the Court clarified that inter-affiliate personnel assignments are generally lawful, and only at risk of reclassification where the employer entity is truly operating a business of supplying manpower as opposed to more normal inter-affiliate support activities in pursuit of the corporate group’s business goals. The decision makes clear that inter-affiliate personnel assignments are natural, and generally not presumed to constitute a manpower-supply “business.”
The decision provides some comfort to large corporate groups which often fluidly use personnel at various affiliates to conduct unified business activities.
Supreme Court establishes principle that illegally dispatched workers are entitled to permanent direct employment
On 27 January 2022, the Supreme Court held that absent special circumstances, illegally dispatched workers who are required to be directly hired by a using company due to violations of Korea’s manpower-supply law are entitled to indefinite-term employment, rather than fixed-term employment (Supreme Court case no. 2018da207847).
In the past, companies that were forced to hire illegally-dispatched workers would often offer only a fixed-term contract. But this decision establishes, for the first time, a clear principle that the default obligation is to provide permanent employment to such workers.
This may further increase the risk of arrangements that are susceptible to reclassification as illegal worker dispatch. A business that is required to employ such workers and wishes to use fixed-term contracts will now bear the burden of proving that there are special circumstances justifying only an offer of fixed-term employment—such as showing that the other employees of the business performing similar work are mostly hired on fixed-term contracts, or that the illegally dispatched workers chose to be hired as fixed-term employees despite understanding that they had a right to direct employment.
KEY DEVELOPMENTS FOR 2022
Implementation of The Severe Accidents Penalties Act
The Severe Accidents Penalties Act (“SAPA”), passed at the beginning of 2021, will impose new health-and-safety obligations directly on company CEOs or “responsible executives,” along with severe criminal penalties if serious workplace or public accidents occur due to a failure to comply with these new obligations.
The law came into effect on 27 January 2022, although an additional two-year grace period will apply to companies with less than 50 employees. Companies with less than five employees are exempt from a significant portion of the law’s requirements.
The new obligations themselves are to: (i) implement and operate a health-and-safety system utilizing sufficient resources (including people and finances); (ii) establish and implement adequate contingency plans to prevent reoccurrence of an accident if one occurs; (iii) comply with any corrective order relating to health-and-safety from a governmental authority; and (iv) implement necessary measures to comply with all other health-and-safety laws. More specific details are included in the proposed Enforcement Decree announced on 9 July 2021.
The Enforcement Decree specifies the scope of work-related illnesses (e.g. acute poisoning), and the duties of satisfying health-and-safety obligations to prevent serious industrial accidents and serious public accidents. In respect of the latter, the Enforcement Decree explains establishing and implementing a health-and-safety system, and implementing managerial measures that are necessary to ensure compliance with all applicable health and safety laws.
The best way for employers to prepare for SAPA is to pay close attention to general health-and-safety compliance and best practices. Compliance with specific health-and-safety measures under the Occupational Safety and Health Act is insufficient to guarantee compliance by a responsible executive. An overall system should be maintained to satisfy the health-and-safety obligations.
Additional penalties for workplace harassment
The Labor Standards Act (“LSA”) requires most companies to address non-sexual workplace harassment in their Rules of Employment, and imposes various obligations regarding how to respond to allegations of non-sexual workplace harassment.
The LSA imposes penalties for retaliation against a victim or other employee reporting non-sexual workplace harassment: imprisonment of up to three years or a fine of up to KRW 30 million. Additional administrative penalties came into effect on 14 October 2021. Firstly, an administrative fine of up to KRW 10 million now applies to an employer (or certain family members of an employer, the scope of which is yet to be decided) who commits workplace harassment. Secondly, an administrative fine of up to KRW 5 million applies to (i) an employer who does not immediately commence an investigation after receiving a report or gaining knowledge of workplace harassment; (ii) an employer who, after confirming the occurrence of workplace harassment through such investigation, fails to take adequate protective measures for the victim, upon the victim’s request; (iii) an employer who, after confirming the occurrence of workplace harassment through such investigation, fails to take adequate measures regarding the harasser, or takes such measures without soliciting the victim’s opinion; and (iv) anyone who was involved in the investigation and leaks any confidential information gained through such investigation, against the victim’s will.
Employers should be well-acquainted with workplace harassment rules because the law has been increasingly focusing on the organizational culture of the workplace in addition to individual actions.
New remedies for gender discrimination and sexual harassment in the workplace
The Equal Employment Act already provides administrative penalties for acts of gender discrimination in the workplace and workplace sexual harassment. However, employees will soon be able to file petitions with the Labor Relations Commission for relief in gender-discrimination and sexual-harassment cases.
Although Korean law already prohibits gender-based discrimination, and imposes certain obligations on employers in relation thereto, available remedies have been perceived by some as quite limited. However, with effect from 19 May 2022, employees will be able to file a petition with the Labor Relations Commission against their employers for gender discrimination (gender discrimination includes wage, promotion, recruitment, etc.), sexual harassment, or failure to take certain measures in response to reports of sexual harassment. The burden of proof in defending against such petitions will be on the employer to prove that it did not engage in gender discrimination or sexual harassment, or that it did take required measures in response to reports of sexual harassment. If the Labor Relations Commission finds for the employee in such cases, the employer may have to pay compensation of up to three times the actual damages to the employee, and the commission may also issue a corrective order.
Note that it is mandatory to provide preventive education regarding sexual harassment at least once a year. Records must be preserved, and compliance is subject to regular audit by the Ministry of Employment and Labor.
KEY DEVELOPMENTS FOR 2021
New Severe Accidents Penalties Act
A new law, passed at the beginning of 2021, imposes new safety-and-health obligations directly on company CEOs, along with severe criminal penalties if serious workplace or public accidents occur due to failure to comply with these new obligations.
The law is scheduled to take effect as of 27 January 2022, although an additional two-year grace period will apply to companies with less than 50 employees. Companies with less than five employees are exempt from a significant portion of the law's requirements.
The new obligations are to:
- implement and operate a health-and-safety system by utilizing sufficient resources (including people and finances);
- if an accident occurs, take measures to establish and implement adequate contingency plans to prevent reoccurrence;
- comply with any corrective order related to health-and-safety from a governmental authority; and
- implement measures that are necessary to comply with all other health-and-safety laws.
Although the law is intended to represent a significant imposition of responsibility and legal jeopardy on companies' top leaders, several important questions remain.
The new requirements are very broad and far-reaching, especially the first and fourth listed above. Even after contemplated regulations are put in place to further clarify them, it may remain unclear what exactly companies will need to do to comply with these requirements.
In addition, the language in the law is ambiguous as to whether the new obligations—and their associated criminal penalties—can be fully assigned to another senior executive responsible for health and safety, or if the CEO will nonetheless remain liable for compliance.
This new law comes on the heels of significant amendments to the existing Occupational Safety and Health Act, Korea's major workplace safety law. Among other things, those amendments broadened companies' responsibility for the health and safety of employees of outside contractors, and increased the penalties for certain violations.
With much still unclear about the new law, close attention to general health-and-safety compliance and best practices is the best way to prepare for it.
Union law amendments
Korea's primary law governing private-sector unions, the Trade Union and Labour Relations Adjustment Act (the "Union Act") was significantly amended on 6 July 2021. The most important changes were:
- allowing ex-employees to be members of enterprise unions, subject to certain restrictions such as being excluded from union leadership, or voting to strike (ex-employees could previously only remain enterprise-union members if they were challenging their dismissal as an unfair labour practice);
- extending the maximum effective period of a collective-bargaining agreement from two years to three years; and
- transferring authority to regulate the legal limits on paid time off work union officers can be allowed for engaging in union-management activities, to a different regulator that expanded those limits to allow more full-time paid union officials.
As part of the same package of amendments that have revised the Union Act, other labour and employment laws have also been amended. These amendments include changes relating to so-called "workers in special types of employment," a term used for certain kinds of non-employee contractors that include many gig or platform workers. "Workers in special types of employment" are already required to be enrolled in workers' compensation insurance; after the new amendments take effect, they will also be eligible for enrolment in the unemployment insurance scheme, with the worker and "employer" each responsible for half the premium. Additionally, subject to certain requirements, they will be allowed to opt out of workers' compensation insurance.
The gig economy and its workers continue to be a significant issue in Korean employment law, with various groups of gig workers attempting to claim legal rights as employees. Korean law applies a fact-intensive "totality of the circumstances" standard to determining employee status, which particularly focuses on the degree of supervision and control by the alleged employer. Without any clear bright-line standard to rely on, many gig-economy arrangements are potentially vulnerable to such challenges.
KEY DEVELOPMENTS FOR 2020
Enhanced Parental and Family Leave
A recent amendment to the Equal Employment Opportunity and Work-Family Balance Assistance Act (the "Equal Employment Act") has significantly increased employees' rights to family-related unpaid leave and reduced working hours, as follows:
Paid paternity leave has been increased from three to ten days, and employees can now use it as two separate leave periods rather than having to use it continuously.
Childcare Leave and Reduced Hours
Under previous legislation, a parent with at least six months' continuous service could take up to one year of either (i) unpaid leave; (ii) reduced working hours (with pro-rata pay reduction); or (iii) a combination of the two, to take care of a child aged 8 years or less (or in the second grade or below). As a result of the recent amendment, parents of young children are now entitled to one additional year of reduced working hours.
Family-Care Leave and Reduced Hours
Under previous legislation, an employee with at least six months' continuous service was entitled to take up to 90 days' of unpaid family-care leave in one year to take care of a sick or elderly parent, parent-in-law or child. This family-care leave had to be taken in portions of at least 30 days at a time. Under the new law, grandparents and grandchildren are also included in the scope of 'family members' for the purpose of family-care leave. Moreover, an employee can use 10 of the 90 days on an individual basis to care for sick or elderly family members or to take care of children (e.g., attend school events). An additional change is also being phased in according to workforce size (from 1 January 2020 to 1 January 2022), which provides that employees will be entitled to reduced working hours (with pro-rata pay reduction) instead of taking family-care leave. Reduced hours may also be utilised for a wider variety of purposes, including an employee's own illness or injury (noting that there is no general legal right to sick leave in Korea for non-work-related illnesses), retirement preparations (for those aged 55 and over) and for academic study.
New Workplace Harassment Law
Korea's new workplace-harassment law has, for the first time, specifically prohibited non-sexual bullying and harassment in the workplace.
The new workplace harassment law requires employers to update their rules of employment - which is similar to an employee handbook and must generally be filed with the Labor Office - to reflect the new law. The law also obliged employers to respond to an allegation of workplace harassment in a similar manner to sexual harassment, requiring them to conduct a prompt investigation, maintain confidentiality, take protective measures and take any appropriate disciplinary action. However, the new workplace harassment law is somewhat less demanding of employers than existing law prohibiting sexual harassment in the workplace. For example, although the new workplace harassment law also requires an employer to promptly investigate an allegation of harassment, unlike the sexual harassment law, it does not impose any express fines or penalties for failure to do so. Rather, failure to follow the law and promptly investigate could lead to a comprehensive labor audit if reported to the Labor Office. However, retaliation is a serious criminal offence under both laws.
Despite the workplace harassment law being less exacting on employers than the sexual harassment law, many employees are aware of their rights under the new law and may well rely on the law to file internal grievances or lodge complaints with the Labor Office.
The South Korean Government has taken significant measures, such as temporarily shutting down schools and day care centres as a result of the coronavirus outbreak. Operation of schools and day care centres have gradually resumed since June. On the employment side, the Ministry of Employment and Labor ("MOEL") has published guidelines for how businesses should act during this crisis. Under the relevant laws, private employers do not have significant direct legal duties to deal with this type of infectious disease, although all employers do have a general duty to provide a safe workplace and can be liable to employees for civil damages if any workplace injury or illness is caused by the employer's negligence. Moreover, employers are required to comply with any orders issued by competent Government authorities (such as the Ministry of Health and Welfare or relevant regional Government) to take protective measures against an infectious-disease outbreak. Such measures may include temporarily shutting down a workplace and disinfecting it. Employers also have a general duty to prohibit or restrict the work of an employee who is infected by a contagious disease, in accordance with the diagnosis of a doctor, and to report any detected cases of certain infectious diseases—which would include COVID-19—to a public health clinic.
Payment of Wages & Government Subsidies
If the Government orders a workplace to be shut down due to a confirmed or suspected case of coronavirus, the employer is not legally required to pay any wages to the employees who work at the shut-down location. However, the Government recommends providing employees with pay to the extent possible.
If an employer closes down a work location or otherwise mandatorily places any employees on furlough or reduced hours at its own initiative without any confirmed or suspected case—for example, as a mere precaution due to fears of coronavirus, or because of loss of business due to coronavirus—the employer must pay a 'shutdown allowance' of at least 70% of an employee's average wage or 100% of the employee's ordinary wage, whichever is lower.
The Government will provide an employment-retention subsidy to help defray the cost of the shutdown allowance. This subsidy must be claimed by the employer and is subject to various conditions. The amount of the subsidy (subject to a KRW66,000 per person per day cap and a 180-day limit per company) is, at the time of writing: (i) 90% for employers below a certain workforce-size threshold of between 100 and 500 employees, depending on the industry; and (ii) 2/3 or 3/4 depending on whether one is in a 'special employment support' industry (e.g., travel). The 90% subsidy rate is set to expire after June 2020, except for employers in 'special employment support' industries, for whom these increased rates are to continue through September 2020 (although these periods are likely to be extended).
Even if the workplace has not shut down, in the event that an employee is unable to work due to being hospitalized/quarantined as a confirmed or suspected carrier of COVID-19, the employer is not legally required to pay wages for the period in which the employee cannot work. However, again, employers are recommended to pay wages to the extent possible, and can apply for a Government subsidy of up to KRW 130,000 (approximately $108 USD) per day to support offering paid leave to those employees. If an employer applies for such subsidies, as a condition of receiving these, it is legally required to grant paid leave to the employee and this must be equal to the value of the subsidy. In other cases, an employee can choose to use statutory annual leave or sick leave if any is available for use or permitted under company policy. Additionally, employees who use unpaid 'family-care leave' to take care of young children or other family members who have been quarantined can apply for a temporary Government subsidy (KRW 50,000 or roughly $42 USD per day) for up to five days.
KEY DEVELOPMENTS FOR 2019
Changes to working hours
An amendment to the Labor Standards Act (“Amendment”) came into force on 20 March 2018 and made the following changes:
- it reduced the maximum weekly working hours from a possible 68 hours per week to 52 hours per week;
- it defined “one week” for purposes of working hours as seven consecutive days (previously, the statute did not specify whether it meant a workweek or a calendar week); and
- it specified that for holiday work, the applicable pay rates would be time and a half for the first eight hours and double time for any work hours over eight.
The Amendment also included a phased introduction of the weekly working hour limit, based on the number of employees working for an employer. Businesses with 300 or more employees and public agencies were required to be compliant by 1 July 2018, businesses with 50 to 299 employees by 1 January 2020, and businesses with five to 49 employees by 1 July 2021. Additionally, the scope of businesses falling under the special categories regarding working hours was reduced from 26 types to five types and with respect to the 21 types of businesses that are now excluded, for businesses with 300 or more employees, the 52 working hours per week cap will be effective as of 1 July 2019.
Increased Ministry of Employment and Labor ("MOEL") enforcement
In March 2018, the MOEL announced its intent to gradually increase the number of inspection targets, and to conduct labor inspections that will have actual social impacts. We expect that in 2019, the MOEL will continue along this path, along with increased inspections concerning working hours and workplace safety inspections.
With regard to occupational health and safety matters, the Korean government has set “the establishment of a workplace guaranteeing workers’ lives and safety” as a key policy goal, with the aim to achieve a 50% reduction in the number of deaths due to occupational accidents from current levels by 2022. In this regard, the MOEL submitted a draft amendment to the Occupational Safety and Health Act on 1 November 2018 which aims to expand the responsibilities of service recipients and project owners (in the construction industry) in connection with workers’ safety and health in order to prevent tower crane accidents at worksites, which has drawn substantial social and media attention.
Employee relations/labor union issues
Over the last couple of years, labor unions in Korea have become more active in attempting to unionize industries that have not historically been unionized. To date, only a few international companies in the Korean IT industry have become unionized and unionization has been relatively uncommon in the Korean IT industry.
Given that unpaid overtime work has been a chronic issue in Korea's IT industry, and also in light of the reduction of working hours by legislative amendment (implemented in phases from July 2018), IT companies’ unionization may be a precursor for broader union developments across the industry. Developments at the top domestic IT companies are likely to impact broader industry practices, and may merit close attention going forward.