Monthly Contributions

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.