Hirschfeld Kraemer LLP attorney Robert R. Flemer and Kim & Chang Senior Partner C.W. Hyun published the Law360 article "Where US and Korean Labor Laws Divide." In January 2014, Rob began a two-year residency in Seoul with Kim & Chang.
Text of the article is below and can be viewed on Law360 by clicking here.
Where US And Korean Labor Laws Divide
Businesspeople, attorneys, human resources professionals and other newcomers to the Korean labor market often encounter hurdles that are unique to Korea. In fact, people who have done business in Korea may have heard the saying "This is Korea, Korea is Korea" — or something similar — in response to their questions concerning Korean labor practices. Like any country, Korean labor and employment law is based on the historical and cultural experiences of its people.
Korean labor and employment law is codified in legislation first drafted after the end of the Korean War and in the 1960s. However, some of its roots go back further to Japanese labor law, which was itself modeled after German labor law. Many other current labor and employment laws were drafted during the country's transition to democracy in the late 1980s and early 1990s. It was during this time period that Korean organized labor became more politically organized and active. Because of the short time between this transition and today, Korean labor and employment law is still developing.
From the perspective of someone coming from the U.S., the laws and practices are quite different than those in the American workplace. This article will highlight some notable differences between Korean and U.S. labor and employment law, which can be surprising to someone who has not experienced them before.
Employers can be Criminally Liable for Violations of Labor Law
Unlike labor and employment laws in the U.S., many Korean labor laws specify criminal sanctions for certain violations. Both the Korean Labor Standards Act and Trade Union and Labor Relations Adjustment Act contain such provisions. For example, unfair labor practice charges filed against an employer can result in substantial monetary penalties as well as prison time for its chief executive, representative director or other responsible representative of the company.
The Korean Labor Market is Less Flexible
Compared to the U.S., the Korean labor market is very inflexible. This inflexibility stems from a key philosophical difference concerning employment reflected by Article 32 of the Korean Constitution, which gives Korean workers a right to employment. While the U.S. Declaration of Independence states that citizens should have the right to "pursue happiness," the U.S. Constitution does not enshrine such a right to employment.
Greater Government Intervention in the Labor Market
The Korean citizenry generally expects the government to play an active role in creating jobs and protecting employees that already have jobs. For example, the current administration of President Park Geun Hye has set a specific target of 70 percent participation by the labor force in the labor market — labor market participation is presently around 65 percent — and has announced the policy goal of limiting attrition among current job holders.
The Park administration has tasked its ministries, including the Ministry of Employment and Labor ("MOEL"), to carry out these policy goals. Most commentators believe that this means the MOEL will resist companies’ efforts to conduct any reductions in force or mass layoffs, although there is no objective evidence to support that assumption yet.
It is unlikely that an American president would be announce similar steps, especially where an executive branch department would be expected to stop employers from making layoffs. In fact, to the extent that the main political parties in the U.S. can agree on anything, they generally agree that market forces should be allowed to create employment opportunities, with the government helping by way of policies to assist or nudge it along when necessary. The Korean government, with a history of much more government involvement in the labor market, and other parts of its citizens’ lives, is not content to let the market do all of the work.
No At-Will Employment
The philosophical differences between the Korean and American labor markets are also reflected in the processes for terminating employment. In Korea, the concept of “at-will” employment, where an employer or employee may terminate the employment relationship at any time, with or without notice, for any — or no — reason, does not exist. Instead, employers must meet a “just cause” standard to terminate employment, which is more burdensome.
Although just cause is not clearly defined by Korean labor law, it can be based on an employee’s misconduct or poor performance or on the employer’s “urgent business necessity.” An employee’s poor performance must be well-documented and severe, and an employer must give the employee an opportunity to rectify it or risk having the termination overturned. For example, an employee’s verbal confrontation with a supervisor may not rise to the level of just cause for termination of employment and employers would have to settle for some lesser discipline instead. Under such circumstances, or where an employee’s performance is simply unacceptable, employers often approach employees to see if they will agree to voluntarily resign and sign a release in exchange for a small monetary payment.
Urgent business necessity is also a much higher standard in Korea than in the U.S. Generally, an employer must be able to show that its financial condition is grave and that it has been losing money over a period of years before undertaking the layoff. Further, the employer must have made efforts to avoid the layoff, such as freezing wages, reducing working hours, and/or seeking voluntary resignations or early retirements. For these reasons, employers in Korea often go through a very thorough review and strategy process prior to any reduction in force — even a reduction in force involving just a handful of employees.
Historically, labor relations in Korea were quite paternalistic. The head of a company was viewed as the father of the workers. This dynamic has changed in recent years, but there is still an expectation that a head of a Korean company will exercise a great deal of influence over the company’s operations and he will receive much of the praise — or blame — for the company’s performance.
Although Korean labor unions are presently governed more by law and market forces, in the past they fit into this paternalistic dynamic by being viewed as children who needed to be managed and controlled. As mentioned previously, labor unions actively participated in Korea’s turn to democracy in the 1980s and 1990s and are no longer controlled by the government. Instead, the two main umbrella union organizations in Korea, the Federation of Korean Trade Unions (“FKTU”) and the Korean Confederation of Trade Unions (“KCTU”) operate independently, with the KCTU being the more militant of the two organizations. Although unionized workers represent approximately 11 percent of the Korean workforce, these organizations exercise outsized influence because most of the large Korean companies, which represent a disproportionate share of Korea’s GDP, are unionized.
Forming a union in Korea is much easier than in the U.S., as only two workers need to get together to form a union. No notice to the employer is required, so a company could learn about a union’s existence only after receiving its demand to begin the collective bargaining process. In reality, though, unions tend to make themselves known early on so that employers are not often surprised. Additionally, Korean labor law provides for a single collective bargaining channel, so that an employer does not have to bargain with each union in the workplace separately.
Some of the key differences between Korean and U.S. labor law come to the fore when collective bargaining breaks down and unions engage in collective actions, such as strikes. In Korea, unlike the U.S., striking workers cannot be replaced by hiring replacement workers or outsourcing the work duties of the striking workers. However, nonunionized employees or union members not participating in the strike can continue to perform those duties. So, although Korean workers may have to forego being paid during a strike, they know that their jobs will be waiting for them when the strike is over. Unions are also not subject to unfair labor practice charges, unlike unions in the U.S.
While unions and workers can be subject to criminal liability if they destroy company property or engage in other illegal conduct, due to past government abuses during the years of the military rule, the government is very reluctant to intervene in labor disputes. Finally, unlike the U.S., Korean companies cannot actively campaign against unionization as this could be an unfair labor practice.
Outside the unionized or public employee workplaces, U.S. employers are accustomed to a merit-based wage system. In Korea, the traditional method of determining an employee’s wages involved the Hobong system, where a strict scale based on an employee’s job title and years of service determines that employee’s rate of pay or salary. This system is gradually being replaced, but one may still encounter at well-established companies with larger workforces.
Additionally, Korean employers often pay their employees a wide array of bonuses and allowances, such as every other month bonuses, holiday bonuses, allowances for automobiles and children’s education and payments for births, weddings and deaths in the family. These payments have supplemented employees’ regular wages, which were kept artificially low during the 1960s and 1970s to maintain Korea’s global competitiveness. Employers are now reevaluating bonuses and allowances in the wake of several recent Korean Supreme Court rulings that many of the bonuses and allowances must be included in the “ordinary wage” and average calculations used to determine employee overtime and other payments.
The average wage calculation is also used to calculate another benefit that many Korean employees enjoy, statutory separation pay. The minimum amount allowed by law is one month of an employee’s average pay for each year of service to the employer. This benefit only need be paid if the employer does not have some other type of retirement plan, such as defined benefit or defined contribution retirement plans. This fact, plus changes to Korean tax law that make statutory separation pay less favorable, is causing many employers to adopt one of these two types of retirement plans.
In Korea, certain practices that are unlawful in the U.S. are allowed. For example, Korean employers may set a minimum retirement age, as long as it is not younger than 60 years old. With limited exceptions, such a policy would violate the U.S. Age Discrimination in Employment Act. Korean employers may also ask job applicants questions concerning their marital status, age and background — indeed many applicants freely provide this information, as well as a picture, with their applications. In the U.S., these questions would violate anti-discrimination laws.
Staying open-minded and adjusting one’s expectations as to what constitutes "normal" labor practices are important steps when moving from the U.S. to Korea. Furthermore, as a modern, industrialized democracy, Korean labor and employment law is quite similar to U.S. labor and employment law in many areas. Keeping this in mind will assist recent transplants adjust to any differences.
—By C.W. Hyun and Robert R. Flemer
C.W. Hyun is a senior partner at Kim & Chang and is chairman of the firm’s labor and employment practice group. Hyun was a long-time legal counsel for the Korean Ministry of Employment and Labor.
Robert Flemer joined Kim & Chang as a two-year resident in January 2014 after practicing labor and employment law in California for 10 years at Hirschfeld Kraemer LLP, where he remains an attorney. Many points herein are based on his observations.
Originally published on Law360, June 3, 2014. Posted with permission.