From the Korea Herald on 2007.11.14:
One concern employers often have is to what extent and under what conditions employees can be laid off under Korean law. Although it is more difficult than in the United States, for instance, it is not impossible to lay off staff when conditions warrant.
To start, the legal requirements under the Labor Standards Act will apply to any employer having five or more employees, unless such employer has any internally adopted rules of employment or has a collective bargaining agreement providing rights and protections greater than the minimum provided under the LSA.
Under the LSA, there are several requirements which must be strictly met before an employer may commence layoffs. The relevant requirements can be summarized as follows: (i) the existence of an urgent managerial necessity; (ii) the employer’s exercise of best efforts to avoid termination; (iii) reasonableness and fairness in the selection of the employees to be terminated; (iv) consultation with the employees’ designated representative regarding the proposed termination; and (v) depending on the number of employees laid off, a report to the Minster of Labor.
Regarding “urgent managerial necessity,” Korean courts have historically limited this to mean only those cases where it was necessary to avoid bankruptcy. However, more recent case law has broadened that scope to include situations where, from a long-term perspective, layoffs are objectively and reasonably believed necessary to prevent a potential business crisis. Although the Supreme Court has rendered several decisions attempting to further define “urgent managerial necessity,” it has yet to accept layoffs effected solely to increase profits or enhance productivity.
Next, regarding “best efforts to avoid termination,” some of the factors that the Supreme Court has accepted include but are not limited to: improvement in management policies; cancellation or non-renewal of subcontracts; scaling down of office size; and reduction of expenditure.
Regarding “reasonableness or fairness in selecting employees for termination,” factors that may be considered include but are not limited to: tenure; prior performance reviews; special credentials (education or licensing); health; and number of family members.
Next, regarding consultation requirements, the LSA requires an employer to conduct good faith consultations on the layoff for 50 days with either the union representative or a duly selected employee representative (who represents at least half of the employees at the workplace). The consultations should cover such matters as the reason for the layoffs, the conditions for layoff and measures to avoid layoffs. The employer need only show it sincerely and honestly engaged in such consultations, and a final agreement between the employer and relevant employee is not required.
Next, the employer should in general report the layoffs to the Ministry of Labor at least 30 days in advance of the layoffs if 10% or more of the employees (or if there are 1000 or more employees, then 100 or more of them) will be laid off.
Finally, once it has been determined that certain employees will be terminated, at least 30 days’ notice of termination or salary in lieu of notice must be provided to each employee concerned.
By Colin Nam
Colin Nam is a foreign legal counsel at Hwang Mok Park, P.C., one of Korea’s leading law firms. HMP may be contacted at email@example.com or (02) 772-2700 — Ed.