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[Case Report] Attorney Wonil Chung Wins for Expat’s Korean Severance Entitlement – Foreign Employers Cannot Circumvent Severance Liability through a Contract Manipulation

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There are so many foreign expats working in Korea.  As you know well, Korean labor law recognizes a severance liability of all employers in Korea regardless of the size of their business and also the nationality of the employee(check here as to how the severance pay under Korean law is recognized and operates).  This also applies to foreign employers such as Korean branches of foreign companies.  The problem is that some foreign employers are ignorant of their severance liability under Korean law.  Even further, some foreign employers try to evade their severance liability.  Sometimes they provide wrong information such as “foreigners are not entitled to the Korean severance” to their staffs, designate a foreign law as the governing law of their labor contracts, and have their staffs in Korea enter into the employment contract with their non-Korean entity such as a head office in the U.S. or a Singapore branch.  Those attempts, however, are all meaningless in a sense that regardless of those, they are still liable for the severance pay.  Actually, we have represented foreign employees for their Korean severance claim against the Korean branch and recently we won the case.

This case involved the expats working as ship inspectors in Ulsan Gorgon project.  We filed the severance suit on behalf of the expats and the court on June 24th ordered the defendant, the Korean branch of Brunel, a billion-dollar multinational company, to pay the Korean severance pay.

In this case, the employer all of sudden changed their employment contract so as for a Hong Kong branch to become the employer on the contract.  And the new contract, i.e. 2nd contract, appointed the Hong Kong law as the governing law while the 1st contract chose the Korean law, and deleted the Korean severance clause which the 1st contract had contained.  The defendant argued that they were not the employer as the 2nd contract explicitly provided that the Hong Kong branch is the employer and, as the Hong Kong law shall apply, the plaintiffs were not entitled to the Korean severance.  The Ulsan District Court, however, denied all the arguments from the defendant.  The Court ruled that the defendant is the employer of the plaintiffs regardless of the contract change.

The court first addressed the general rule of how to decide who is the employer.  According to the Supreme Court of Korea, the matter of who is the employer to pay the severance shall be decided not by how the contract sets forth but by the actual relationship between the parties.  Even after the agreement was revised so as to designate the Hong Kong branch as the employer, the plaintiffs had been working at the same workplace, for the same work, and under the same supervision of the defendant.  The 1st contract and the 2nd contract had almost the same terms except for the facts that the defendant had deleted the Korean severance clause and they changed the governing law clause.  During the trial, it also found that the Hong Kong branch had no residing staff in the office.  That said, the court ruled that the Hong Kong branch was deemed as a paper company that had been set by the defendant to circumvent the Korean severance liability, and, thus, the defendant was still liable to pay the severance pursuant to the Korean labor law even under the 2nd Contract.

This ruling is very meaningful in a sense that the court has declared again that the Korean severance entitlement cannot be circumvented through contract manipulation, as it is a statutory right for any employee working in Korea.  There is no doubt that this decision will also likely have important implications for other foreign expats in their matters of Korean severance.  (You can check our previous article which dealt with a similar issue here)

If you have any questions regarding this article or you are in a similar case/situation, please visit our Legal Consultation center or send your inquiry email by clicking here.  Our Korean qualified lawyer will answer your inquiry.

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Author: Korean Qualified Lawyer

Korean Licensed Lawyer 韓国の弁護士

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