Redundancy Dismissal in Korea
(“Dismissal for Managerial Reasons”) – The Four Statutory Requirements
Dismissal for Managerial Reasons
Under the Labor Standards Act (LSA), redundancies and layoffs are treated as “dismissals for managerial reasons.” Article 24 of the LSA sets out the statutory requirements governing such dismissals. In Korea, the employer must satisfy all four of these requirements in order to lawfully carry out a dismissal for managerial reasons.
The Four Statutory Requirements
All Conditions Must Be Satisfied for a Lawful Redundancy
1. Is There an Urgent Managerial Necessity?
An urgent managerial necessity must exist for an employer to carry out dismissals for managerial reasons. This is the most critical requirement. If this condition is not satisfied, the remaining three requirements will not even be examined. Whether an urgent managerial necessity exists is assessed not by reference to the condition of a particular department or workplace alone, but from the perspective of the company’s overall managerial and financial circumstances.
The courts will examine whether the employer’s situation reflects more than a temporary or short-term downturn, and whether workforce reduction is genuinely unavoidable for the continued operation or survival of the business.
In this regard, dismissals implemented merely for managerial efficiency, cost reduction, or future restructuring objectives are unlikely to satisfy this requirement. Employers must be able to demonstrate that, without workforce reduction, the company would face serious managerial difficulty that cannot reasonably be addressed through alternative measures.
2. Have All Reasonable Alternatives Been Exhausted?
Even when an urgent managerial necessity exists, the employer must take all reasonable efforts to avoid dismissal before resorting to it. In other words, a dismissal for managerial reasons should only be considered as a measure of last resort, where no alternatives remain despite the employer having taken sufficient steps to avert redundancies.
The methods for avoiding dismissals will vary depending on the company’s circumstances. The employer is expected to take all reasonable preemptive measures to overcome the managerial crisis, such as rationalizing management policies and work practices, halting new recruitment, implementing temporary furloughs or voluntary resignations, redeploying or reassigning employees, reducing welfare benefits, and downsizing executive positions.
3. Was the Selection Fair and Based on Objective Criteria?
The criteria for selecting employees for dismissal must be reasonable and fair, and the application of those criteria must likewise be reasonable and fair. Arbitrary or overly subjective criteria set by the employer will not be accepted. The Supreme Court has held that the selection criteria must strike a balance between the employer’s business interests and the employee’s need for livelihood protection.
Relevant selection criteria may include work performance, capability, and disciplinary history, as well as employee-protection factors such as age, length of service, and number of dependents. Ideally, such criteria should be established and applied pursuant to an agreement with the employees’ representative.
4. Were Consultation and Notice Properly Provided?
50-day advance notification and good-faith bargaining
At least 50 days before the intended date of dismissal, the employer must notify and consult in good faith with the majority labor union, if one exists, or otherwise with the representative of a majority of the employees, regarding measures to avoid dismissals and the criteria for selecting employees for redundancy.
Why Redundancies Are Difficult in Korea – and Practical Alternatives for Employers
As discussed above, the Labor Standards Act sets stringent conditions for the lawfulness of dismissals for managerial reasons. Because such dismissals can deprive employees of their livelihood despite the absence of any fault on their part, the law is understood to impose tighter constraints on the employer’s discretion in these cases.
In practice, employers find it particularly challenging to satisfy all four statutory conditions for a dismissal to be deemed fair. For this reason, many companies in Korea opt not to carry out dismissals for managerial reasons, but instead reduce surplus personnel through voluntary resignation or mutual separation agreements. If you require assistance in implementing such arrangements, please feel free to contact us.
(“Dismissal for Managerial Reasons”) – The Four Statutory Requirements
Under the Labor Standards Act (LSA), redundancies and layoffs are treated as “dismissals for managerial reasons.” Article 24 of the LSA sets out the statutory requirements governing such dismissals. In Korea, the employer must satisfy all four of these requirements in order to lawfully carry out a dismissal for managerial reasons.
All Conditions Must Be Satisfied for a Lawful Redundancy
An urgent managerial necessity must exist for an employer to carry out dismissals for managerial reasons. This is the most critical requirement. If this condition is not satisfied, the remaining three requirements will not even be examined. Whether an urgent managerial necessity exists is assessed not by reference to the condition of a particular department or workplace alone, but from the perspective of the company’s overall managerial and financial circumstances. The courts will examine whether the employer’s situation reflects more than a temporary or short-term downturn, and whether workforce reduction is genuinely unavoidable for the continued operation or survival of the business.
In this regard, dismissals implemented merely for managerial efficiency, cost reduction, or future restructuring objectives are unlikely to satisfy this requirement. Employers must be able to demonstrate that, without workforce reduction, the company would face serious managerial difficulty that cannot reasonably be addressed through alternative measures.
Even when an urgent managerial necessity exists, the employer must take all reasonable efforts to avoid dismissal before resorting to it. In other words, a dismissal for managerial reasons should only be considered as a measure of last resort, where no alternatives remain despite the employer having taken sufficient steps to avert redundancies.
The methods for avoiding dismissals will vary depending on the company’s circumstances. The employer is expected to take all reasonable preemptive measures to overcome the managerial crisis, such as rationalizing management policies and work practices, halting new recruitment, implementing temporary furloughs or voluntary resignations, redeploying or reassigning employees, reducing welfare benefits, and downsizing executive positions.
The criteria for selecting employees for dismissal must be reasonable and fair, and the application of those criteria must likewise be reasonable and fair. Arbitrary or overly subjective criteria set by the employer will not be accepted. The Supreme Court has held that the selection criteria must strike a balance between the employer’s business interests and the employee’s need for livelihood protection.
Relevant selection criteria may include work performance, capability, and disciplinary history, as well as employee-protection factors such as age, length of service, and number of dependents. Ideally, such criteria should be established and applied pursuant to an agreement with the employees’ representative.
50-day advance notification and good-faith bargaining
At least 50 days before the intended date of dismissal, the employer must notify and consult in good faith with the majority labor union, if one exists, or otherwise with the representative of a majority of the employees, regarding measures to avoid dismissals and the criteria for selecting employees for redundancy.
As discussed above, the Labor Standards Act sets stringent conditions for the lawfulness of dismissals for managerial reasons. Because such dismissals can deprive employees of their livelihood despite the absence of any fault on their part, the law is understood to impose tighter constraints on the employer’s discretion in these cases.
In practice, employers find it particularly challenging to satisfy all four statutory conditions for a dismissal to be deemed fair. For this reason, many companies in Korea opt not to carry out dismissals for managerial reasons, but instead reduce surplus personnel through voluntary resignation or mutual separation agreements. If you require assistance in implementing such arrangements, please feel free to contact us.
