JULY/AUGUST, 1999 KOREA: Labor Law Update for Foreign Investors David A. Laverty Labor matters continue to reside towards the top of issues of concern to foreign investors in Korea. Behind many of the recent acquisitions in the country by foreign companies is a desire to revitalise management and improve efficiency. For example, Volvo announced earlier this year that it was considering significant lay-offs in the construction equipment company it had acquired from Samsung in mid-1998. The last few years have seen the addition of flexibility into the Korean labor market through changes in laws designed to permit such lay-offs and clarify an employer's obligation to departing employees. Laws concerning lay-offs Formed in early 1998, a "Tripartite Commission" composed of representatives from labor, management and the Korean government has attempted to reach consensus on labor-management relations in Korea's post-crisis environment. One of the products of this Commission was legislation that permitted lay-offs in the context of acquisitions and structural adjustments upon the meeting of certain conditions. In February 1998, the legislation came into effect as part of Korea's Labor Standards Act (the Act). Article 31 of the Act now provides in part that an "urgent managerial need" is required for the dismissal of a worker. Such a need is deemed to exist in cases of a transfer, acquisition or merger of a business aimed at avoiding financial difficulties. Every effort is be made to avoid such a dismissal, and the company is to establish fair standards for such a dismissal. To help assure that such efforts are being made, a company is to give 60-days' notice to the company's trade union, if such exists, or to an employee representative of the employees, in order to enter into consultations. A dismissal of more than a defined number of workers is to be reported to the Ministry of Labor. Laws concerning notice and severance With limited exceptions, Article 32 of the Act requires employers to give employees at least 30 days advance notice of dismissal. Article 34 of the Act requires severance pay equivalent to 30 days of average wages for each year a worker has been employed by the company, so long as the worker has been employed by the company for more than one year. To reduce any final balance, an employer may pay-out the payment in advance, before severance or retirement, provided that there is an agreement to do so with the employee. Companies which have established certain pension insurance or retirement plans of at least the value of the Article 34 severance pay may be able to satisfy the severance requirements. Current labor issues of interest to foreign investors Companies in Korea, including those owned by foreign investors, are facing several possible labor-related changes now under discussion. Foreign-invested companies are expressing their opposition to a move by workers to revise the labor laws to allow full-time union representatives to be paid by the companies whose employees they represent, even though they are not engaged in daily company work. The labor laws currently prohibit such payments except by companies already paying union representatives, in which case such compensation is prohibited from January 1 2002. This issue is on the Tripartite Commission's agenda, though employer representatives have insisted upon preserving a "no work, no pay" principle. Also on the Commission's agenda is a worker request for a reduction in work hours, while maintaining current wage levels, in order to create additional jobs and lessen the impact of lay-offs and other restructuring efforts. Hyeong Gun Lee at Lee & Ko in Seoul contributed to this update back to top | update index | home © Copyright 1997-2006, InternationalCounsel. All rights reserved. Disclaimer.