Two Labor Cases of Unpaid Severance Pay to Foreign Teachers / Directors -
Case ①: When a labor contract is renewed every 10 months each year;
Case ②: Whether severance pay should be provided when the employee is under an annual salary system that includes severance pay.

By Bongsoo Jung / Korean labor attorney / Kangnam Labor Law Firm

Case ①: When a labor contract is renewed every 10 months each year

I. Summary
International School A (hereafter refer to as ‘school’) established in 1999 according to the ‘Elementary, Middle and High School Act’ has regular curriculums of kindergarten, elementary and middle school. Every year, the school renews employment contracts with foreign teachers for 10 months which does not include the summer vacation period. When the foreign teachers stopped working at the school, the school did not pay them severance pay. As a result, 7 foreign teachers (hereinafter refer to as “teachers”) who resigned in July 2023 visited our Kangnam Labor Law Firm to seek legal assistance in claiming for unpaid severance pay on grounds of that they had been providing their labor service continuously for more than a year to the school but the school had not paid them their deserving severance pay.

II. The School’s claim
Every year, the school begins a new academic year in August and finishes it in June of the following year. In order to be in line with such an educational schedule, employment period were therefore contracted for 10 months from August each year to June of the following year, where summer vacation period from July to August was not considered as employment period. Every year, the school discussed such employment contracts with the teacher, and the new employment contracts took effect only with the agreement of the teachers. In the two months following the end of each annual employment contract, no wages were being paid to the teachers. In the school’s opinion, as their employment ended properly and as the employment terms were contracted based on their free will, severance pay was therefore not paid.

III. Teachers’ Claim
In the teachers’ opinion, however, as they have been renewing their annual contracts in the capacity as an employee and as they have also been continuously working for more than a year, the school should be paying them a severance pay in accordance with the law.
Every year, they sign a 10 month contract with the school in their capacity as teachers, and except for the summer vacation period, they have continuously been providing their labor service
As the teachers are short-term contract employees, ‘Private Teachers’ Pension Act’ is not applicable to them. The awarding of severance pay to persons holding the position of teachers should duly be in accordance with any employees receiving due protection from the ‘Employee Retirement Benefit Security Act’. The teachers’ working hour starts from 7:45 in the morning and finished at 3:30 in the afternoon from Monday to Friday, and they receive a fixed wage, comprising of a basic pay and a performance incentive.
It appears that the objective for the school to make 10 months-long annual renewal employment contracts is to evade their obligation in paying severance pay. On average, each teacher who is participating in the appeal has worked for four years, and unless there is apparent drop in the ability of the teachers, the school would continue to renew the contracts. The contents of the contracts have been the same every year except for increased wages and the academic level which each teacher is in charge of .

IV. Analysis of Related Administrative Interpretations

1. Standard governing length of continuous employment service of a short-term contract teacher (June 1, ’01, Kungi 68207-1780)
With the exception of vacation period where there is no class, if a short-term contract employee has repeated working periods, his/her previous employment period may be deemed as part of a continuous work. However, the vacation period when the teacher did not provide any labor service, shall be excluded in the calculation of continuous employment service.

2. With the exclusion of vacation period, repeated employment period also may be deemed as continuous work but vacation period where no actual work is provided may not be included in the computation of severance pay
(June 7, 2004, Kungi-2811)
A school has been hiring temporary teachers and has repeatedly been employing them except during vacation periods. With the exception of vacation period, previous employment period in repeated employment periods may be deemed as continuous work in the computation of severance pay.

V. Conclusion
In conclusion, the labor office, based on the above mentioned incidents of administration interpretations, instructed that the school would have to pay the teachers severance pay.


Case ②: Whether severance pay should be provided when the employee is under an annual salary system that includes severance pay.

I. Summary
Company D introduced an annual salary system for its all directors in January 2020 and paid interim severance pay for their service provided until that time. Thereafter, the company did not pay any severance pay in accordance with the annual salary contract which clearly includes severance pay for each year of service. When three retired directors of the company recently heard concerning a related judicial ruling that severance pay shall not be paid together with monthly wages, they visited our Kangnam Labor Law Firm and commissioned us to file a legal claim for the severance pay not paid to them.

II. Company D’s claim
When the employees became directors, the company implemented the interim adjustment of severance pay as a formality to confirm that they are no longer holding the status of an employee. Employees up the Bujang (department head’s level) are subordinated to the employer’s direction and supervision, but when an employee becomes a director, he/she receives assignment from the company within a certain work scope and takes initiative and leadership in handling such work scope. In addition, a director also carries the name card of a “director” and, in the capacity as a person in-charge of “business development”, represents the company in external associations or organizations. In particular, the director can attend the executive meetings while Bujang or lower positions are not allowed to attend such meetings. Even in the aspect of welfare, directors are different from employees, as the directors are in accordance with director’s welfare systems with subsidies for comprehensive medical examination and with car maintenance allowances. Directors can also use the corporate card for their expenses. Therefore, as company directors can not be regarded as employees, the company has no obligation to pay severance pay to its directors.

III. Employees’ claim
When Employees A and B were working as directors around Jan 2020, the company, on its own accord, instructed for the implementation of the interim severance pay and also drawn up the annual salary contract with severance pay included therein. For employee A, although he was working as a director of the research institute, which is equivalent to a company executive director, he was actually working in subordination to the company president’s direction and supervision. He resigned on notification by the Vice President of the cancellation of the employment contract in June 2024. As for employee B, while he was working as a General Manager of Company D, he was registered as a Vice President of the company’s subsidiary under the direction of company D, and he received salary paid by the subsidiary. However, in actual fact, he had been working under the direction and supervision of Company D until his resignation in March 2024.
In the case of employee C, he was holding the position of a Bujang in Company D before being promoted to Senior Director in April 2020. At the request of the company, he then accepted the implementation of the interim severance pay and went on to conclude the severance pay included annual salary contract. Employee C resigned in January 2025.

IV. Related Judicial Rulings
Person who provides specific service under the direction and supervision of others such as directors and who receives a fixed pay as a remuneration can be regarded as an employee defined by the Labor Standards Act. (Supreme Court, 2002 da 64681)
Whether it is appropriate to regard a director as an employee defined by the Labor Standards Act has nothing to do with the manner in which the contract is made but it should be judged based on whether the director was paid to provide a service that requires him to be in subordination. Regardless of whether he/she is holding the position or title of a company director or auditor, in the real sense or just in name, as long as he/she receives a remuneration as a compensation for providing a specific labor service under the direction and supervision of the employer or he/she receives a remuneration as a compensation for taking charge of specific labor service under the direction and supervision of persons such as the representative director in addition to the duties assigned to him/her by the company, such director can be regarded as employee defined by the Labor Standards Act.

Even if the company pays, as part of the employment contract, a severance pay in advance with annual salary, such payment does not have the same effect as the lawful severance pay stipulated in Article 34 of the Labor Standards Act. (Daegu district court, 2006 kadan 2947)

V. Conclusion
The labor inspector investigated the company and the employees who filed for the appeal. It was concluded that employees A and C were employees. However, employee B was judged as not an employee because he was a registered director of a subsidiary and received salaries from the subsidiary. Following this, it was concluded that the company shall pay severance pay to employees A and C.