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[LIN] Employment structures in South Korean Labour Law

In Korean, the phrase for forming a relationship is “gwanggye-reul maetneunda”, which literally means “to tie a relationship”. In contrast, ending a relationship is expressed as “gwanggye-reul kkeuneunda”, or “to cut a relationship”. This linguistic contrast – to cut rather than a more symmetrical term like “untie” – offers a glimpse into the emotional and social complexity surrounding the dissolution of relationships in Korean culture. While forming a bond is often harmonious and mutual, ending one can be abrupt, painful or even adversarial, hence the expression of “cutting” rather than “untying”. This idea carries over to employment relationships and, in particular, the concept of dismissal. Legal grounds for dismissal (1) Managerial necessity. South Korean labour law recognises two primary forms of dismissal. The first is dismissal for managerial reasons, governed by article 24 of the Labour Standards Act. To dismiss an employee on this basis, an employer must demonstrate “urgent managerial necessity”. Procedural requirements include efforts to avoid dismissal (such as wage or hour adjustments), fair and reasonable selection criteria, and good-faith consultation with a majority employee representative or labour union. Discriminatory practices, particularly on the basis of gender, are strictly prohibited in the act. Case law interprets “urgent managerial necessity” narrowly. It applies only when the company is facing a severe crisis such as business closure, bankruptcy or liquidation that threatens its overall survival. Moderate financial difficulties or department-specific restructuring generally do not meet this threshold. Objective, credible evidence must show that the company is unlikely to recover or improve its performance in the foreseeable future. (2) Employee misconduct. The second category is disciplinary dismissal, under article 23 of the Labour Standards Act, which prohibits dismissal without “justifiable cause”. Courts define this as misconduct that renders continued employment unreasonable under prevailing social norms. Common examples include : Criminal conduct (e.g., assault, theft, sex crimes); Willful harm to the employer (e.g., embezzlement, breach of trust); Chronic absenteeism or unauthorised departures; and Fraudulent behaviour during recruitment (e.g. submitting false credentials). (3) Poor performance. Poor performance may constitute justifiable cause, but only under stringent conditions: Internal rules or policies, such as Rules of Employment, must explicitly recognise poor performance as grounds for dismissal : Evaluation criteria must be objective and fairly applied; The employee’s performance must fall significantly below minimum expectations; and The employee must have been given a reasonable opportunity to improve, with little prospect of recovery. While courts are gradually becoming more receptive to such cases, South Korean law remains far more restrictive than common law jurisdictions that permit “at will” termination. Union protection Dismissal on the grounds of union activity raises serious legal concerns. While misconduct such as property damage during union-related activities may warrant disciplinary action, such conduct must be clearly distinguishable from lawful union participation. Under the South Korean Constitution and Trade Union and Labour Relations Adjustment Act, employees are guaranteed the rights to organise, bargain collectively and take collective action. Any adverse employment action, including dismissal, taken solely in response to a lawful union activity constitutes unfair labour practice and may expose the employer and responsible individuals to criminal liability. Employers must be especially cautious to avoid any appearance of retaliation against union involvement. Fixed-term employment Under article 4 of the Act on the Protection of Fixed-Term and Part-Time Employees, the standard limit for fixed-term employment is two years. Beyond this, the employee is considered a regular, indefinite-term employee, unless the role falls within one of the statutory exceptions, such as elderly workers, professionals, or temporary replacements. Employers must carefully assess whether a particular fixed-term arrangement qualifies as an exception. Extending a contract beyond two years without such qualification risks automatic conversion to regular employment, subject to all associated protections, including the requirement of just cause for dismissal. Indirect, flexible arrangements In response to the strict regulations on employee dismissal, many companies turn to more flexible employment structures such as outsourcing, freelancing and in-house subcontracting. Estimates suggest that one to three million workers are currently engaged under such alternative arrangements. The labour law draws a strict distinction between sub-contracting and dispatch work: Sub-contracting involves outsourcing a specific task or result; and Dispatching involves the supply of manpower. The Act on the Protection of Dispatched Workers limits dispatch work to certain roles and caps its duration at two years. If an arrangement is classified as illegal dispatch, the principal employer may face criminal penalties and be required to hire the worker directly. Furthermore, if there is discriminatory treatment in working conditions, such as disparities in salary between sub-contracted workers and regular employees performing the same or substantially similar tasks, the employer may be held liable for the retroactive payment of the wage difference. On the other hand, to maintain a legally valid sub-contracting relationship: The sub-contractor must be operationally independent, with its own workforce and management systems; Work must be assigned, supervised and evaluated by the sub-contractor, not the main contractor; and The main contractor may evaluate the outcomes of the sub-contracted work, but must not interfere with how the individual sub-contracted workers carry out their tasks. In practice, sub-contracted workers often work side-by-side with regular employees, making strict separation difficult. Even indirect control such as giving instructions through internal communication tools, or real-time monitoring, may result in reclassification as an illegal dispatch under the labour law. Freelancers, platform workers Historically, freelancers included individuals like delivery drivers, insurance agents, golf course caddies and private tutors. But in recent years, the rise of the IT industry and platform economy has dramatically expanded freelance work into areas like web development, digital design and remote consulting. A key legal issue is control and supervision. If a platform dictates work schedules, scope and payment, the freelancer may be reclassified as an employee. In a landmark 2024 Supreme Court decision, a ride-hailing platform driver was found to be an employee due to its control over his working hours, rules and compensation. Legislative efforts are underway to extend full labour rights – including unionisation and collective bargaining – to platform workers. Practical issues, strategies Despite comparatively rigid labour regulations, employers have a variety of lawful options to navigate the employment relationship. Probationary period. Employers may retain discretion by clearly stating that final employment is subject to a probationary period, typically up to three months. If properly implemented, this provides flexibility in early termination decisions. Voluntary resignation. South Korean courts do not apply the constructive dismissal doctrine as broadly as many Western jurisdictions. If an employee formally resigns, even under subtle pressure, courts generally refrain from reclassifying the resignation as an unlawful dismissal. This provides companies with some latitude in offering voluntary resignation programmes. Conclusion For global companies operating in South Korea, compliance with local labour laws is not only a legal necessity, but also a practical imperative. Encouragingly, access to information and legal support has become more accessible in recent years, with many law firms offering tailored services for foreign-invested businesses. Crucially, building constructive and culturally informed labour management relationships is key. Understanding the values that underpin the employment culture – such as diligence, integrity and mutual respect – can help companies foster stability, trust and long-term success in this market. Please refer to the original article below. Asia Business Law Journal View original article▼ https://law.asia/employment-structures-in-south-korean-labour-law/

2025.05.21

News Letter

[Mobility Legal Updates] [Issue]

LIN's Mobility Team closely monitors not only domestic regulatory trends in industries such as automotive, energy, and AI, but also U.S. policies that may directly or indirectly impact these sectors. In January 2025, towards the end of the Biden administration's term, the U.S. Department of Energy (DOE) included South Korea in its 'Sensitive and Other Designated Countries List (SCL)’, and this measure took effect as scheduled on April 15, 2025. As this designation as a sensitive country is expected to affect the U.S. market entry and technological cooperation of domestic companies and research institutions, this issue report aims to examine the meaning of the sensitive country designation, its impact on businesses, response strategies, and implications. 1. Significance of the Sensitive Country Designation1 The U.S. DOE internally maintains and regularly updates the Sensitive Country List (hereinafter "SCL") based on concerns related to national security, nuclear non-proliferation, and support for terrorism, imposing restrictions on research cooperation and technology sharing with those countries listed. In the latest SCL, the DOE classified countries such as North Korea and Iran as 'State Sponsors of Terrorism,' countries such as China and Russia as 'Countries of Concern,' and South Korea, Taiwan, and Israel into the lowest tier, 'Other Designated Countries2. South Korea has been re-included in the SCL after 30 years, having previously been listed for approximately 13 years from 1981 to 1994. Once designated as a sensitive country, ① the sharing of advanced technology information, such as nuclear energy and artificial intelligence (AI), with the U.S. may be restricted, and ② researchers from the designated country must undergo enhanced special approval procedures, including submitting background check documents at least 45 days prior to visiting DOE- affiliated research facilities. Furthermore, stricter security standards apply when DOE employees or related researchers visit or interact with South Korea. 2. Potential Impact on Businesses and Research Institutions The DOE has not yet officially disclosed the specific reasons for designating South Korea as a sensitive country. However, the DOE maintains that this measure was taken as part of strengthening technology security and is unrelated to foreign policy3. Therefore, with the SCL taking effect, the immediate surface-level impact is likely limited to restricting domestic companies' access to DOE facilities. However, if the designation is not lifted and becomes prolonged, reduced cooperation and decreased national credibility could lead to various regulations and restrictions in areas such as contractual relationships with U.S.-based companies, technology transfer and joint research, personnel exchange, export controls, M&A, and compliance. A. Increased Overall Contract Risk Inclusion in the SCL may lead to decreased national credibility and potentially hinder cooperation between companies or institutions. This could result in disadvantages during contract negotiations with U.S. companies regarding terms such as performance conditions or confidentiality clauses. Particularly in technology transfer and joint research projects within the energy, nuclear, and advanced technology sectors, the sensitive country designation could cause delays in contract performance or make concluding contracts more difficult. This is because psychological uncertainty stemming from concerns about heightened U.S. regulations might lead to hesitation in entering new contracts. Furthermore, there could be associated risks, such as liability for damages arising from non-performance of contracts. A prime example is the potential difficulty in concluding the Reciprocal Defense Procurement (RDP) Agreement, often referred to as the FTA for the defense industry between the U.S. and South Korea, which has been under preparation for a long time. While some view that the sensitive country designation could negatively impact small modular reactor (SMR) development projects or the ongoing efforts to conclude the nuclear power plant export contract with the Czech Republic, the prevailing view is that these projects are unlikely to be significantly affected by the designation at present. B. Restrictions on Personnel Exchange Sending domestic research personnel and technical experts to U.S. research institutions for assignments or training may become difficult, and visits by U.S. experts to South Korea could also face constraints due to enhanced security procedures. It cannot be ruled out that the designation as a sensitive country might influence decisions when selecting international students or visiting researchers from South Korea, or negatively impact the standing of South Korean researchers within U.S. research institutions. Consequently, companies may face challenges in securing key personnel, and there are concerns that long-term technological cooperation and innovation between the two countries could be hampered. C. Export Controls The SCL is linked to U.S. national security policies and export control regulations4 Therefore, cooperation with domestic institutions in research areas such as nuclear energy, high- performance computing, and dual-use (civilian and military) technologies may potentially be restricted. While the SCL itself does not directly regulate exports, individuals and institutions from sensitive countries may be subject to additional screening under U.S. export control laws. Additionally, screening for exports of specific technologies and equipment between South Korea and the U.S. could be tightened, and obtaining export licenses for technologies related to U.S. national security might be delayed. Notably, given that most major South Korean defense export products utilize U.S.-made components, there is a possibility of disruptions in U.S. export approvals for products incorporating these components. D. Other Impacts The sensitive country designation could indirectly affect cooperation not only with the DOE but also with other U.S. government agencies. Furthermore, it might raise concerns about South Korea's overall technology security and reliability, leading to increased compliance burdens, such as requirements for higher security standards. Moreover, beyond export controls, difficulties in U.S. market entry could arise, such as restrictions on equity investments in U.S. companies in advanced technology fields like energy, AI, and semiconductors, or more stringent procedures for establishing corporations, obtaining business approvals, or other verification processes within the U.S. 3. Response Strategies and Implications Admittedly, the sensitive country designation itself seems unlikely to directly impact domestic corporate activities immediately. However, since it is uncertain when the designation will be lifted,5 proactive measures are necessary while the designation is in effect to minimize potential risks. Primarily, domestic technology companies should continuously monitor diplomatic policy developments between South Korea and the U.S. and government responses. They must also meticulously review the contents of existing contracts or those currently under negotiation with U.S. companies to preemptively identify potential dispute factors related to the sensitive country designation, such as technology access rights, security and confidentiality clauses, grounds for contract termination or modification, and damage compensation clauses. Additionally, it is crucial to strengthen internal compliance and security systems to prevent devaluation of corporate value due to the sensitive country designation, thereby thoroughly preparing for future partnerships or M&A activities with U.S. companies. Today, the mobility industry, led by electric and smart vehicles, has become inextricably linked with the AI and energy industries. Correspondingly, technological cooperation with the U.S. plays a vital role in the development and commercialization of autonomous driving and AI technologies. Therefore, if tensions in technological cooperation between South Korea and the U.S. intensify, it could become a significant obstacle to the advancement of the domestic mobility industry. LIN's Mobility Team will closely monitor these internal and external changes surrounding the mobility industry, promptly diagnosing potential legal risks companies may face and proposing optimal response strategies. ---------------------------------------------------------------------------------------------- 1 Legal Basis: ①Order concerning the Unclassified Foreign National Access Program (DOE Order O 142.3B), ② 50 U.S. Code § 2652 - Restrictions on access to national security laboratories by foreign visitors from sensitive countries, which stipulates: "The Secretary of Energy and the Administrator may not admit to any facility described in paragraph (3) of subsection (c) other than areas accessible to the general public any individual who is a citizen or agent of a covered foreign nation or a nation on the current sensitive countries list unless the Secretary or Administrator first completes a background review with respect to that individual.” 2 As the SCL is not publicly available information, the specific countries and the exact number within each tier cannot be officially confirmed. However, it is currently understood that the list includes a total of 25 countries. Among these, six countries (North Korea, Iran, Syria, Libya, Sudan, and Cuba) are designated as State Sponsors of Terrorism, and two countries (China and Russia) are separately designated as Countries of Concern, while countries such as South Korea, Taiwan, and Israel are understood to be classified as Other Designated Countries. 3 Regarding the controversy over South Korea's addition to the sensitive countries list, Acting U.S. Ambassador to South Korea Joseph Yun reportedly explained that the designation stemmed from incidents last year where some among approximately 2,000 South Korean nationals (including students, researchers, and public officials) visiting multiple DOE-affiliated laboratories inappropriately handled sensitive information, including at facilities dealing with export-sensitive items. He further stated that the measure stems from technical and procedural issues related to handling sensitive information and clarified that it is not expected to significantly impact the overall ROK-U.S. alliance. 4 The institutional origins of the sensitive country designation lie in the Export Control Reform Act (ECRA) and the Export Administration Regulations (EAR). This framework originates from regulations restricting exports when strategic materials or dual-use technologies usable for military applications are judged to pose a risk of diversion overseas. 5 In the past, after South Korea's request to be removed from the sensitive country designation was accepted in December 1993, the designation was lifted in July 1994. However, even after the removal request was accepted, it took approximately 7 months until the actual removal occurred.

2025.04.25