Is a Non-Registered Company Director in Korea an Employee under Korean Labor Law

Is a Non-Registered Company Director in Korea an Employee under Korean Labor Law

Many non-Korean workers for Korean and international companies doing business in Korea are hired under the title Director. Many of these workers are, in reality, executive employees working as executive-level managers. Many of these workers are “employees” under the Korean Labor Standards with all of the protections afforded employees. For an article on the dismissal of Foreign Executives in Korea please see: Unfair Dismissal of Foreign Executives under Korean Term Contracts and Dismissal of Employees in Korea.

Korean Labor Standards Act Article 27

Article 27 of the Labor Standards Act of Korea stipulates that all “employees” shall be notified in writing of the reason for dismissal and may, only, be terminated for “fault attributable to the employee” or “urgent managerial necessity.” In most cases, 30-days notice or 30-days pay in lieu of notification is required to terminate the employment of those classified as “employees” under the Korean Labor Standards Act and these employees may,  only, be terminated for “fault attributable to the employee” or “urgent managerial necessity.”  The burden is on the employer to prove “justifiable grounds for termination.”

Directors under the Korean Labor Standards Act

Directors are, typically, not deemed “employees” under Korean Law. However, exceptions exist. We wrote an article on these exceptions at: Factors in Determining if a Worker is an “Employee” under the Korean Labor Standards Act of Korea.

A recent case filed against TongYang by a “director” sheds light on the basics of the law associated with terminating non-registered directors/senior executives under Korean Labor & Employment Law.

Labor Standards Act of Korea on Termination of a Non-Registered Director 

The Seoul High Court ruled in favor of the “employee” plaintiff in 2015Na2017454 noting that:

“Although [the worker] and the others were in executive positions, they received instructions and approval from the Representative Director, Head Manager and so forth in order to carry on the business . . . [the worker] and the others received remuneration and retirement benefits, and vehicle and entertainment money and so forth . . . so in the circumstances it could not be denied that these workers were of the nature of employees. Therefore, without written notice, the dismissal of these people is invalid, so TongYang Group is ordered to pay unpaid wages for the period of the invalid dismissal in the amount of 1.1 billion won in salary until the date of reinstatement.”

Factors in Determining if a Worker is an “Employee” under the Labor Standards Act of Korea 

The Korean courts look to specific factors in determining if a worker is an “employee” under the Labor Standards Act of Korea. The factors include the following:

  • Does the company have decision-making power over the work of the worker?
  • Are the company’s work rules applied to the worker?
  • Does the company have considerable control over the work processes of the worker?
  • Does the company set the time and date and other specific work for the worker?
  • Does the company own the work assets of the worker?
  • Can the worker delegate to a third party the work of the worker?
  • Does the worker have business risks associated associate with the tasks performed for the company?
  • Are earnings based on work – not merely success?
  • Does the worker nearly exclusively depend on work from the company?
  • Is the work with the company continuous and, thus, not a temporary position?
  • Is the worker deemed an employee under the Social Security System?

The Seoul High Court looked to these factors and, specifically, emphasized the fact that these workers’ “decision-making power” was controlled by the company and “earnings” were based on work and “not merely success.” These “employees” under the Labor Standards Act of Korea shall receive back pay and must be reinstated. If not terminated properly under Korean Law, payments will need to be paid to these employee’s retirement.

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