What do I need to pay attention to when laying off employees in Korea?
As a corporate HR, you may be faced with the question: if a company encounters operational difficulties or market changes in Korea and needs to conduct layoffs, how should you proceed in order to avoid violations of the law and disputes? This is not a simple question, as Korean labor laws have strict restrictions and requirements on layoffs, and Korean workers and labor unions have a strong sense of rights and action. If not handled carefully, layoffs may cause great losses and risks to the company. Therefore, this article will introduce you to the four aspects you need to pay attention to when conducting layoffs in Korea: legal requirements, process steps, precautions and countermeasures, and illustrate them with some actual cases.
Legal Requirements
According to Articles 23 and 24 of the Korean Labor Standards Act, a company cannot dismiss an employee without just cause. However, employees may be laid off due to business difficulties and other circumstances. However, the following four conditions must also be met:
There is an urgent situation in management, such as, for example, when a business goes bankrupt, or when a business is transferred, merged, or separated to avoid deterioration of the situation.
Every effort has been made to avoid layoffs, such as rationalizing management policies or business methods, prohibiting the hiring of new employees, and flexibly using all possible means, including a voluntary retirement system or a transfer system, to avoid layoffs.
The criteria for dismissal are reasonable and fair, e.g., the target of dismissal is selected on the basis of reasonable and fair criteria, and honest consultations are held with labor unions or workers’ representatives.
Honest consultation with workers, e.g., the employer has honestly consulted with the union or workers’ representatives and respected their opinions.
If the above conditions are not met, the dismissed employee may file a lawsuit in court to have the dismissal recognized as invalid and to seek reinstatement or compensation for damages.
For example, in March 2023, Korean Air, South Korea’s largest airline, announced that it would lay off about 10% of its workforce, or about 3,000 people. Korean Air stated that the layoffs were to ensure the survival and growth of the business under the business downturn caused by the epidemic. Korean Air also said that it had taken various measures to reduce labor costs before the layoffs, such as lowering salaries, shortening working hours, and halting recruitment. Korean Air also stated that it had followed fair and reasonable criteria in selecting targets for layoffs and had conducted thorough consultations with labor unions. Korean Air also stated that it gave reasonable explanations and clarifications when notifying laid-off employees and provided up to 24 months of severance pay and other benefits.
Process Steps
The Korean layoff process generally includes the following steps:
Formulate a layoff plan, including the reason, scale, scope, standard, and time of layoff, and collect relevant evidence and information.
Notify labor unions or workers’ representatives of the layoff plan and conduct honest negotiations with them. If there is a collective agreement or employment regulations, etc. that stipulate the layoff procedures and conditions, comply with the corresponding provisions.
Notify the laid-off employees themselves and give reasonable explanations and clarifications. If necessary, a certain amount of severance pay or other compensatory measures may be provided.
Conduct separation procedures and make payments of wages, severance pay, and other amounts due. Under the Employee Retirement Income Security Act (ERISA), regular full-time employees in Korea are entitled to severance pay within 14 days of dismissal. Full-time is generally defined as working more than 15 hours per week or more than 60 hours per month.
Handling related disputes and litigation. If a dismissed employee disagrees with the dismissal decision, he or she may apply for mediation or arbitration with the Labor Commission or file a lawsuit directly with the court.
For example, in December 2022, Hyundai Motor Group, South Korea’s largest automaker, announced that it would lay off about 1,000 management-level employees between January and June 2023.1 The company’s management-level employees will be laid off in order to improve the quality of their work, as well as to improve the quality of their work. Hyundai Motor Group stated that this was in order to improve corporate competitiveness and efficiency in response to changes in the global automobile market. Hyundai Motor Group also said that it took into account the long-term strategy and future direction of the company in formulating the layoff plan, and that it had fully communicated and consulted with labor unions. Hyundai Motor Group also indicated that it gave reasonable explanations and clarifications when notifying the laid-off employees, and provided certain severance payments and other benefits. The Hyundai Motor Group also indicated that it paid wages, severance pay and other amounts due at the time of the separation procedures, and provided re-employment support to the laid-off employees.
Points to Note
When conducting a layoff in Korea, there are several things to keep in mind:
There must be sufficient reasons and evidence to support the layoff decision. Layoffs cannot be made on the basis of discriminatory factors such as gender, age, race, religion, or political views.
The position and role of trade unions or workers’ representatives have to be respected. Layoffs cannot be made without their consent or knowledge.
To comply with relevant laws and regulations. It is not possible to violate laws such as the Labor Standards Act, the Employee Retirement Income Security Act, and the Labor Relations Adjustment Act, as well as provisions such as collective agreements or employment regulations.
Payment of severance pay or other compensation must be made in a reasonable and lawful manner. Severance pay or other payments due cannot be defaulted or withheld.
Personnel management and labor relations after layoffs must be handled appropriately. The impact of layoffs on retained employees must not be ignored, and communication and motivation must be enhanced to maintain good labor relations.
For example, in October 2022, Coupang, the largest e-commerce platform in South Korea, announced that it would lay off approximately 800 employees.Coupang stated that this was in order to optimize its organizational structure and business processes in order to achieve faster growth and innovation.Coupang also stated that it had carried out a thorough analysis and assessment, and that it had fully communicated and negotiated with the labor unions before laying off its employees. Coupang also indicated that it followed fair and reasonable criteria in selecting the target employees for layoffs and protected employees’ rights and employees’ entitlements as much as possible.Coupang also indicated that it gave reasonable explanations and clarifications when notifying the laid-off employees and provided certain severance payments and re-employment support.Coupang also indicated that it paid the wages payable at the time of severance procedures, severance payments and other payments were made at the time of the separation process, and that the laid-off employees were provided with vocational training, employment guidance, and re-employment support.
Countermeasures
In addition to paying attention to the above matters, there are some countermeasures that companies can take to mitigate the negative consequences of layoffs and promote economic recovery and job growth. The following are some possible measures:
Open up new markets, products, services, etc. to increase revenue sources. For example, companies can take advantage of Korea’s trade and investment cooperation with China and other countries to expand overseas markets; they can develop new products and services based on consumer needs and preferences; and they can utilize technologies such as the Internet, big data, and artificial intelligence to create new business models and value.
Optimize production processes, improve efficiency, reduce costs, etc., to improve profitability. For example, companies can introduce advanced equipment and technology to improve production quality and speed; companies can implement methods such as lean management and six sigma management to reduce waste and defects; and companies can use outsourcing, sharing, and cooperation to reduce operating costs and risks.
Implementing a flexible employment system, offering a variety of work styles, and increasing employee engagement improves employee satisfaction and loyalty. For example, companies can adjust working hours and positions according to market demand and employee capabilities; they can offer a variety of work styles, such as telecommuting, part-time, and temporary; and they can set up performance appraisal and incentive mechanisms to encourage employee innovation and progress.
Effective communication and negotiation with labor unions or employee representatives to seek reasonable layoff plans and compensation measures to reduce disputes and risks. For example, enterprises can explain the necessity and reasonableness of layoffs to trade unions or employee representatives in a timely manner and listen to their opinions and suggestions; enterprises can sign collective agreements or employment regulations with trade unions or employee representatives to clarify the procedures and conditions of layoffs; and enterprises can provide certain services such as vocational training, employment guidance, and support for reemployment for employees who have been laid off.
