Question) I am an American expat working in South Korea.  Originally I was working for a U.S. company incorporated in the state of New York, but 3 years ago I was seconded to the Korean branch of my U.S. company, and have been working for the branch until now.  When I was seconded, my new employment contract provided that the New York state law shall apply to my employment relation in Korea.  Now, my employment contract is expiring and I would like to know whether I am entitled to the severance pay under the Korean labor law.  I know my employment contract and my company’s policy do not provide the right to severance pay.  But, as I have been working in Korea for 3 years, I am wondering if the statutory rights of severance pay under the Korean labor law could be given to me.

Answer) The answer is Yes.  Expats are entitled to severance pay under the Korean labor laws.  (check here as to how the severance pay under Korean law is recognized and operates)

This answer could sound quite surprising considering the fact that the parties had previously agreed (i) the Korean labor should not apply and (ii) the severance pay should not be awarded.  How come the Korean labor law intervenes in the parties’ employment relation?  The answer lies in the provisions of the Private International Act of Korea which provides the general principles for the choice of law in Korea.

When a legal relation has certain foreign elements, the court must decide which jurisdiction’s law shall apply to interpret that legal relation.  In Korea, the Private International Act provides the general rules and principles for the governing laws of the various types of legal relations.  Specifically, the Act provides that if the employer and employee agree, the employment contract is governed by the law chosen by the parties.  But, this does not mean the parties can freely determine which law and regulations apply to their employment relation.  It is true in Korea that the party autonomy is a general principle of governing laws, but party autonomy is subject to limits imposed by the overriding public policy and mandatory rules.

Accordingly, the Act provides that even though the employer and employee mutually choose the law of certain nations as their governing law, the employee is still able to enjoy the rights and protections under the mandatory rules of the nation where her workplace is located.  In this regard, the Korean courts interpret the severance pay rules and regulations under the Korean labor laws are the mandatory rules applicable to the employment contract regardless of the parties’ choice of law.

What does this mean?  It means, in case of an international employment contract, the employee has the double protections from both the law chosen by the parties and the mandatory rules of the nation where the workplace is located, and, therefore, the law and rules most favorable to the employee shall be applied.

For example, in case of an international employment contract where the employee agreed to work as a director of the employer’s branch in Korea and the law of Cyprus was chosen by the parties as the governing law, the Seoul High Court held that irrespective of the parties’ choice of Cyprus law the employee is still entitled to the rights and protections under the Korean labor and severance pay laws, as the labor-related rules and regulations of Korea where the workplace was located were the mandatory rules which should not be forsaken.

Let’s get back to our question.  Here, the foreign parties agreed to choose New York state law as their governing law for the interpretation of international employment contracts.  But, this does not prevent the Korean court from applying the mandatory Korean rules, as the employee is working in the jurisdiction of Korea.  The Korean severance pay law is recognized as the mandatory rules to be applied irrespective of the parties’ choice of law.  As it seems neither New York state law which the parties chose nor the employer’s policy does recognize the right to the severance pay, it goes without saying the Korean severance pay law is more favorable to the employee.  Thus, the Korean court will grant the expat the right to the severance pay pursuant to the Korean severance pay law.

This conclusion is not limited to the situation of an employee from New York.  Any other foreign employees working in Korea can benefit the same conclusion even though their employment contracts do not provide a right to severance pay.  That is what the Private International Act of Korea and the Korean labor laws aim for, i.e. securing equal protection and welfare of the employees in Korea.

Also, this conclusion implies to the foreign companies that they must fully speculate on the severance pay issue when they hire staffs for the operation of the Korean branch.  Just designating a foreign law which does not recognize the severance pay as the governing law cannot exempt them from the accountability for the severance pay under the Korean labor laws.  The lack of attention to this issue could cause a substantial financial burden and loss on their business in Korea.

(You can check our winning case regarding this issue here)

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© 2014 Wonil Chung, a Korean Licensed Lawyer, Chung & Partners, a Korean Law Firm.  All rights reserved.