A Reasonable Employee Response
to Receiving a Notice of Dismissal

Bongsoo
Jung (Labor Attorney, KangNam Labor Law Firm)

I. Introduction

In early April 2025, an HR
manager from a company’s U.S. headquarters visited Korea and notified the
Korean subsidiary that the organization would be downsized and relocated to a
smaller office. The HR manager interviewed the three employees affected by the
downsizing?the team leader, Employee A, and Employee B?and delivered notices of
dismissal effective April 30. The HR manager explained that if they signed a
mutual separation agreement, the company would pay one month’s salary in lieu
of dismissal and one month’s salary as a “consolation payment.” The team leader
accepted the company’s conditions and resigned after being offered the
condition of entering into an agency agreement for the business that was being
discontinued. However, Employee A and Employee B refused to sign the mutual
separation agreement.

Employees A and B, who had
received notices of dismissal, came to KangNam Labor Law Firm for consultation.
I explained that Korean labor law applies equally to foreign companies, and
that in this case, if the company wished to dismiss the employees, it had to
follow the procedures for dismissal for managerial reasons, and only when those
procedures were strictly complied with could the dismissal be recognized as
justifiable. I also informed Employee A and Employee B that they had faithfully
worked for this foreign company for 12 years and 10 years, respectively, and
that dismissing them while paying only one additional month of consolation
money would constitute unfair dismissal.

In general, labor cases are
resolved after a dismissal or wages go unpaid, through applications for remedy
or complaints filed with the Labor Relations Commission or the Labor Office.
However, in this case, I judged that the issue arose from the foreign company’s
lack of understanding of Korean labor law, and therefore determined that it
would be desirable to explain Korean labor law to the foreign company
headquarters and seek a reasonable resolution. Accordingly, this was done with
the HR manager at the U.S. headquarters and an appropriate settlement was requested.
In response, the foreign company also retained legal counsel, accepted my
requests, and ultimately reached a final settlement through several rounds of
consultation.

The major issues that arose during the consultation
process were: (i) the differences between Korean labor law and Anglo-American
law; (ii) whether a restructuring decision by the headquarters of a foreign
company would be exempt from the need to follow the procedures for dismissal
for managerial reasons at the Korean branch; (iii) the criteria for determining
an appropriate level of settlement; and (iv) the burden of proof for overtime
work and the period during which unpaid overtime allowance could be claimed.

II. Request for the Company to Withdraw its Dismissals
and an Understanding of Related Labor Law

1. Differences Between Korean Law and Anglo-American
Law

On April 23, 2025, on behalf
of Employees A and B, I sent an email to the HR manager at the U.S.
headquarters explaining that the company’s notice of dismissal violated Article
24 of the Labor Standards Act and
would be liable for an application for remedy for unfair dismissal, and that
the unpaid overtime allowance would also justify a wage complaint. In response,
on April 30, the day the employees were to be dismissed, the company notified
the two employees that they would be placed on paid leave for one month and
accepted the request for settlement.

The pertinent text of the email that I sent to the
company’s HR manager is as follows.

Korean labor law protects employees against dismissal through
strict standards (Article 23 of the Labor
Standards Act). If an employee believes that his or her dismissal is
unfair, the employee may file an application for remedy for unfair dismissal
with the Labor Relations Commission and seek prompt relief. However, in countries
whose legal systems are based on common law, such as the United Kingdom, the Commonwealth
countries, and the United States, disputes over employee dismissal are handled
in civil courts. Resolving disputes through civil courts requires considerable
time and money, and flexibility in dismissal is generally recognized broadly
under the principle of freedom of contract under common law.

2. Whether Restructuring by the Headquarters of a
Foreign Company Allows the Korean Branch to Skip the Procedures for Dismissal
for Managerial Reasons

Even if a company has its headquarters overseas, a
foreign company’s Korean branch located in Korea is subject to Korean labor
law. In other words, the territorial principle set forth in Article 12 of the Labor Standards Act requires that Korean
labor law applies. Therefore, dismissals for managerial reasons can be
recognized as justifiable only if the company follows the proper procedures.
However, in this case, the Korean branch of the foreign company proceeded with
dismissal for managerial reasons without complying with the four requirements
necessary, and unilaterally notified the employees of their dismissal.

The foreign company came to recognize that, as long as
the employees of its Korean branch are subject to Korean labor law, it must
satisfy the four requirements for dismissal for managerial reasons under
Article 24 of the Labor Standards Act.[1]The company’s Korean branch acknowledged that its notice of dismissal to
the two Korean employees was unfair according to Korean law, and initially
sought to induce an agreed resignation by offering monetary compensation
equivalent to two months’ salary, including a dismissal notice allowance.
However, when the employees did not accept this, the company offered two more
months, requesting an agreed resignation in return for compensation equivalent
to four months’ salary. When the employees concerned rejected the company’s
additional compensation, the company retained a law firm and requested an
appropriate settlement.

III. Criteria for Determining an Appropriate Level of Settlement

1. Determination of Retirement Consolation Payment[2]

In
general, a voluntary retirement program refers to a system of recommended
resignation in which, when an employer can no longer continue employing an
employee due to the employee’s misconduct or the existence of excess personnel,
the employer induces the employee to leave the company by asking the employee to
willingly submit a “voluntary” resignation letter in return for a certain
amount of compensation.

Once a company
determines and gives out a retirement consolation payment, that amount becomes
a standard and may serve as a reference point for other employees subject to
the same process. Therefore, it must be determined carefully. As much as
possible, it is advisable to handle the retirement consolation payment as a
confidential matter between the individual employee and the company.

When
a company persuades an employee to leave the company by paying a retirement
consolation payment, it must consider how to prevent employment insecurity
among the remaining employees. In addition, if a voluntary retirement program
is used often, employees may distrust the company and seek to move on to a more
stable job where employment is better guaranteed. Therefore, it should be
carefully reviewed and implemented in consideration of the company’s plans for
its long-term development.

(1) Minimum condition: Under Article 26 of the
Labor Standards Act, “when an
employer dismisses an employee, the employer shall give notice of dismissal at
least 30 days in advance. If the employer fails to give advance notice of
dismissal, the employer shall pay at least 30 days’ ordinary wage.” Therefore,
under this provision, the minimum standard is to pay one month’s wages and
immediately dismiss the employee.

(2) Maximum condition: In the manufacturing
industry, where labor unions are sometimes militant, the amount of voluntary
retirement payment may be predetermined in a collective agreement. In such a
case, negotiations begin based on the amount stated in the collective
agreement. As shown below, the standard therein becomes the minimum standard
when the company dismisses for managerial reasons, and negotiations proceed
between labor and management based on that. In this case, because the amount is
higher than the standard in the collective agreement under any circumstances,
the standard in the collective agreement effectively becomes the minimum standard.

(3) General standard: In general, the amount
of retirement consolation payment is based on the employee’s years of service,
which may reflect the employee’s contribution to the company, and also based on
the company’s ability to pay.

①Years of
service: The payment amount is determined
according to the employee’s years of service with the company. In many cases,
where an employee has worked for five years or more, an amount equivalent to
approximately six months’ wages is proposed, and where the employee’s years of
service are shorter, an appropriate consolation payment is determined
accordingly.

②Company
ability to pay: The company’s ability to pay
is determined by the company’s competitiveness and other factors. For banks or
stable public enterprises, the amount is often equivalent to one year or more.
However, where the company is significantly smaller in size or does not
generate substantial profits, the amount is set at a maximum of six months.

2. Case in the Relevant Negotiation Mentioned Herein

The
company took one month to carefully reconsider its dismissals. The initial
retirement consolation payment of two months was extended to four months.
However, because the company had violated the dismissal procedures, the
employees rejected the offer of additional compensation.

The employees explained
the unfairness of the company’s dismissal for managerial reasons and requested
additional compensation equivalent to one month’s wages for each year of
service, which was highly likely to lead to settlement. In reality, because the
company’s organizational structure had been reduced and the office was also to
be relocated to a smaller space, the employees could not realistically consider
reinstatement and agreed resignation was the only choice. Ultimately, the
company also considered its chances of success and legal costs if the case surrounding
this unfair dismissal proceeded, and accepted the proposal made by the
employees.

IV. Burden of Proof for Overtime Work and the Period
During Which Unpaid Overtime Allowance May Be Claimed

1. Burden of Proof for Overtime Work

The employment contracts of
the employees concerned set forth their monthly wages and stated that overtime
allowance was included in those wages. An inclusive wage system stating that
overtime allowance is included in the monthly ordinary wage is invalid because
it violates Article 17 of the Labor
Standards Act. Therefore, if overtime work actually occurs, overtime
allowance must be calculated and paid as an additional amount for the working
hours exceeding contractual working hours. However, the employee must prove that
overtime work was performed and the number of hours worked overtime.

Article 29 of the company’s
Rules of Employment, “Overtime Work (Extended Work and Holiday Work),” provides
that overtime work, including extended work and holiday work, is in principle
recognized only when it is ordered or approved in advance by a superior. In
this regard, court precedents state that the type of work stipulated in an
employment contract does not necessarily mean only the work itself, and that
preparatory acts indispensable for the actual work and time spent cleaning up
after the work is completed are also included in actual working hours.[3]Accordingly, even if there was
no prior approval from a superior, if overtime work was performed due to
business necessity, an overtime allowance must be paid.

The company had never paid overtime allowance to the
employees concerned. However, the company covered the cost of taking the taxi home
when employees left work after 8:30 p.m. Based on this, I decided to claim
overtime allowance only for the days on which taxi fare had actually been paid.
The employees concerned submitted Kakao Taxi usage records corresponding to the
dates on which they received taxi support, together with records of the
company’s taxi expense support. With these materials, unpaid overtime was
calculated by treating as working hours the period from 6:30 p.m., after
excluding 30 minutes of break time following the regular working hours of 9:00
a.m. to 6:00 p.m., until 10 minutes before the taxi boarding time. After
calling Kakao Taxi, the distance from the office to the road (where the taxi
would meet them) was within 10 minutes.

2. Period During Which Unpaid Overtime Allowance May
Be Claimed

The statute of limitations for
prosecuting crimes involving violations of labor-related laws due to unpaid
wages was extended in 2007 from the previous three years to five (Article 249,
Paragraph 1, Subparagraph 5 of the Criminal
Procedure Act). The starting point of the statute of limitations refers to
the period “from the time the criminal act is completed” (Article 252) until
“14 days have passed from the wage payment date or the retirement date.” In
contrast, the extinctive prescription period for wage claims is three years
(Article 49 of the Labor Standards Act).
Even if the three-year extinctive prescription period for wage claims has expired,
criminal punishment of an employer who has failed to pay wages is still
possible because the statute of limitations for prosecution remains.[4] Therefore, based on the
statute of limitations for prosecution, the employees were able to claim unpaid
wages for five years.

For the employees concerned,
unpaid overtime allowance for the past five years was claimed by calculating
the dates on which taxi fares were covered and the Kakao Taxi usage times on
those corresponding dates. For Employee A and Employee B, additional compensation
equivalent to two months’ wages were calculated, respectively.

V. Implications

Employees A and B, who came
for consultation after receiving notices of dismissal, had been offered two
months’ wages by the company, including a dismissal notice allowance. After
consulting with me, the employees raised the unfairness of the dismissal with
the company. The company then offered the employees two more months’ wages, for
a total of four months, and proposed an agreed resignation in return. However,
the employees did not accept this and entrusted me with both the dismissal case
and the unpaid wage case.

I raised the company’s violation of procedures,
including those for dismissal for managerial reasons, and requested appropriate
compensation. In response, the company retained legal counsel and entered into
negotiations with me. The employees also accepted settlement on the judgment
that reinstatement would be difficult because the Korean branch had been
restructured and moved to a smaller location. The employees demanded additional
payment of one month’s wage for each year of service. The company also reached
a settlement, judging that, considering its failure to comply with the
procedures for dismissal for managerial reasons and the costs that would arise
if the matter developed into litigation, it would be reasonable to pay
additional wages equivalent to one month’s wage for each year of the employees’
service.

Through this negotiation process, Employee A received
12 months’ wages in consideration of 12 years of service, one month’s wages in dismissal
notice allowance, one month’s wages in additional paid leave, and approximately
two months’ wages in overtime allowance. In total, Employee A received
additional wages equivalent to 16 months’ wages. In the case of Employee B, the
employee also received a total of 14 months’ additional wages, consisting of 10
months’ wages for 10 years of service, one month’s wages in dismissal notice
allowance, one month’s paid leave, and two months’ wages in unpaid overtime
allowance.

As shown in this case, knowledge of labor law becomes
a great source of strength in protecting oneself and asserting one’s rights.
Although this case concerns a foreign company, it also has significant
implications for employees of domestic companies. In other words, the fact remains
that only those who know the law and exercise their rights can receive the
protection of the law.