[Case Report] Attorney Wonil Chung Wins for Seconded Employee’s Korean Severance Pay Entitlement

There are so many seconded workers in Korea.  The secondment of an employee creates various legal issues in Korea. One of them is the seconded employee’s severance pay in Korea. The Korean labor law recognizes the severance payment liability of all employers having business in Korea. This doesn’t ask the nationality of the employee. (Please check here as to how the severance pay under Korean law is recognized and operates) The problem is that some foreign companies are ignorant of their severance pay liability under Korean law.  Even further, some foreign employers try to evade their severance liability intentionally.

Manipulative Measures Taken by Foreign Employers

There are several typical measures that the foreign companies deploy in an attempt to circumvent their severance pay liability in Korea.

  • Foreign companies provide wrong information with their staffs such as “foreigners are not entitled to the Korean severance”.
  • Foreign companies designate a foreign law, where severance pay is not recognized, as the governing law of their labor contracts.
  • Foreign companies insist their staff shall be contracted with their non-Korean entity such as an HR office in Hong Kong, Singapore and some other locations.
  • Foreign companies require their staff to hand over a written waiver, when the staff is given a salary or any remuneration, that any claims in connection with his employment shall be deemed fully settled.

We found these quite often in a case where a highly skilled individual or a person with a special executive ability such as pilots, internationally renowned hotel managers, and ship inspectors are assigned or seconded to South Korea by multi-national companies.

Korean Legal Standard

Those attempts, however, are meaningless in the sense that regardless of those, they are still liable for the severance pay. That is because the Korean courts review the totality of the circumstances, not how the employer set the contractual structure, in determining who is the employer. And there is a special law in Korea which invests a severance pay entitlement to any foreign employees working in Korea regardless of how their contracts say about the severance pay.

Actually, we have represented foreign employees working as ship inspectors for the LNG module fabrication in Ulsan, and recently we won their severance case.

Case Facts

The plaintiffs were the expats working as ship inspectors in the Ulsan Gorgon project.  Gorgon project, a joint venture project between Chevron, Shell, and Exxon Mobil, is one of the world’s largest LNG projects. One of the plant supply locations is located in Ulsan, Korea. The plaintiffs were hired by a global recruitment agency in the oil and gas industry and seconded to the shipyard in Ulsan. The plaintiffs completed several years of service and claimed for the severance pay. The employer denied it. We filed the suit on behalf of the plaintiff. And the Ulsan court on June 24th, 2017 ordered the defendant to pay the Korean severance pay.

Court’s Reasoning

What the employer did in this case was all of a sudden they changed their employment contract in the middle of the contract term that a Hong Kong branch became the employer.  And the new contract, i.e. 2nd contract, designated the Hong Kong law as the governing law while the original contract chose the Korean law. The 2nd contract also deleted the Korean severance clause which the original contract had contained.  

The defendant argued at the court that they were not the employer as the 2nd contract explicitly set forth that the Hong Kong branch is the employer.

The Ulsan District Court, however, denied all the arguments from the defendant.  The Court ruled that the defendant is the employer of the plaintiffs on the following grounds.

Who Is the Employer?

The court first addressed the general rule of how to decide who is the employer.  This is important because only the employer is required to pay the severance under Korean law. According to the Supreme Court of Korea, the matter of who is the employer shall be decided not by how the contract sets forth but by the actual relationship between the parties.  

In our case, even after the agreement was revised, 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 the defendant deleted the Korean severance clause and 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 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.

What If the Labor Contract Is Governed by a Foreign Law?

This ruling didn’t explicitly address the issue of whether the employees can claim for severance pay when a foreign law governs their labor relationship.

It is, however, Korea court’s long-lasting position that irrespective of the parties’ choice of law every employee working in Korea is entitled to the severance pay under the Korean labor laws. That is because, under the choice of law rule of Korea, the severance pay statute is interpreted as mandatory legislation that cannot be circumvented by the party’s private agreement.

Choice of Law Can’t Deprive the Seconded Employee of the Severance Pay under Korean Law

This ruling is very meaningful in that the court has declared again that the Korean severance entitlement cannot be waived through the employer’s manipulation. Severance pay is a statutory right for any employee working in Korea including a seconded employee.  There is no doubt that this decision will also likely have important implications for other foreign workers in their matters of Korean severance pay.  

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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