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Severance Pay: Labor Ministry Guidelines and Judicial Rulings 퇴직금에 관한 행정해설 및 판례 (영문버젼)
Severance Pay: Labor Ministry Guidelines and Judicial Rulings
퇴직금에 관한 행정해설 및 판례
I. Those Eligible for Severance Pay
Whether to pay severance pay to an employee who was appointed as a company director (Nov. 27, 2001 Wage 68200-814)
In the case where an employee was appointed as company director without terminating employment, the matters related to severance pay shall be evaluated as follows:
1) In cases where the director fulfills his duties with the authority of a representative director or execution director commissioned by the company by means of the commercial law and the civil law, and receives a service charge, the director cannot be deemed an employee under the Labor Standards Act. Therefore, his severance pay occurs from the time when he was appointed as director (on the terminated date of employment by the LSA). The extinctive prescription is also calculated from the same date.
2) In cases where, despite the director’s title, he maintains subordinate employment with the employer and is actually in an employee position, the severance pay occurs from the time when the director resigned from the company. The extinctive prescription is also calculated from the same date.
How to calculate severance pay for a person assigned to regular position from daily worker (Nov 14, 2000, Wage 68207-581)
The consecutive year of employment to calculate the severance pay of an employee who joined the company as a daily worker, but was reemployed as a regular employee shall be considered collectively based on the concrete facts as follows:
If a temporary employee quitted his temporary position, the employer accepted it, and he took employment procedures by applying for regular position, his previous labor contract was terminated effectively regardless of new employment. However, if the temporary employee was rehired to regular position while maintaining temporary employment, this is only the transfer to regular position from irregular position and his employment cannot be deemed effectively as terminated status.
When the retired employee was rehired at the identical company, the employer cannot make a special contract not to pay severance pay, which violates a compulsory law and becomes null and void. (Mar 12, 1999, Kungi 68207-584)
When re-hiring a retired employee, the company shall pay severance pay to the employee whose service period has become more than one year after the re-employment. Even though both parties agreed not to pay severance pay, the agreement violates a compulsory law and becomes null and void.
Whether a full-time lecturer at the entrance exam institute is entitled to severance pay (Nov 10, 2006, Seoul District Court 2004 gadan 69638)
If a full-time lecturer registered as individual service provider provided labor service to the employer under substantial employment relations, he/she can receive severance pay. Whether a person belongs to the employee of the Labor Standards Act or not shall be estimated based upon the fact: whether the employee provides labor service to the employer under subordinate relations for the purpose of wages in a business or workplace regardless whatever contract type. Full-time lecturers at the institute attended every day (6 days per week) distinct from other part-time lecturers, received fixed amount of wages, and observed service regulations and personnel regulations such as starting time and finishing time. So, full-time lecturers are employees who provided labor service under subordinate relations.
If a person has continuously maintained daily employment formally as a daily employee, he/she shall be applied to the Labor Standards Act and the employer shall pay severance pay to the daily employee who has served more than one year. (Apr 19, 1996, Seoul District Court 95 kahap 11509)
If a person has been a daily worker formally, but maintained daily employment without cessation, he/she shall be considered a regular employee. It is not true that the continuity of employment shall be estimated not by providing 25days or longer on monthly average, but by providing 4 or 5 days to 15 days every month. As daily employees have provided labor service for 4 or 5 days every month without exception, they shall be considered continuous employment and shall be applied to the Labor Standards Act.
Illegal migrant employees are applied to the regulation of severance pay in the Labor Standards Act (Aug 26, 1997, Supreme Court 97 da 18875)
The term “employee” used in Article 14 of the Labor Standards Act means a person, regardless of being engaged in whatever occupation, who offers work to a business or workplace for the purpose of earning wages. In Article 5 of the Act, an employer shall not take discriminatory treatment in relation to the working conditions on the ground of nationality. Foreign migrant employees are applicable to the Labor Standards Act unless there are special occasions. Accordingly, the rules of severance pay stipulated in the Labor Standards Act apply to illegal migrant employees.
II. Consecutive Year of Employment
The consecutive year of employment to calculate severance pay shall be included into total employment period excluding the period of time when the employer ordinarily hires less than five employees. (Jul 20, 2006, Retirement benefit security team-2582)
The severance pay according to Article 4 and 8 of the Employee Retirement Benefit Security Act applies to all businesses or workplaces in which not less than five employees are ordinarily employed. In cases where the company has maintained five or more in the ordinary number of employees for a long period of time, but the number of employees were reduced to less than five employee for a certain period of time, the consecutive year of employment to calculate severance pay shall include the total employment period excluding the period of time when the employer ordinarily hired less than five employees.
The period of disciplinary ‘suspension from work’ due to the employee’s own reason shall be included into the period of continuous employment, which is the basic data for calculating severance pay, if a person maintains subsidiary employment relations with his employer. (May 11, 2006, Retirement benefit security team-1596)
According to Article 8 (1) of the Employee Retirement Benefit Security Act, an employer shall pay severance pay equivalent to the average wage for thirty day or more for each one year of continuous employment. The period of continuous employment in this Act means “the period from the establishment of labor contract to its termination”. The period in which the employee did not provide labor service, but was under subordinate employment relations with an employer shall be included into the period of continuous employment for calculating severance pay. Accordingly, the period of disciplinary ‘suspension from work’ due to the employee’s own reason shall be included into the period of continuous employment as the basic data for calculating severance pay, if an employee has maintained subsidiary employment relations with his employer.
III. Calculation of Severance Pay
‘Suspension period from work’ due to the employee’s personal reason shall be included to the period for calculating average wages. (Feb 27, 2003, Wages 68207-132)
Average wage to calculate severance pay by Article 19 of the Labor Standards Act means the amount calculated by dividing the total amount of wages paid to a relevant employee during three calendar months immediately before the day on which a cause for calculating his average wages occurred by the total number of calendar days during those three months. When the amount calculated in this method is lower than that of the ordinary wage of the employee concerned, the amount of the ordinary wage shall be deemed his average wages. In cases where the period of calculating average wages includes the period of falling under any of Subparagraph 1 to 8 of Article 2 (1) of Enforcement Decree of the LSA, the period and wages paid for that period shall be deducted respectively from a basis period for the calculation of average wages and the total amount of average wage. However, the period in which the employee did not provide labor service due to his own reasons such as absence shall not be excluded from a basis period for the calculation of average wages. Accordingly, in cases where the employee did not provide labor service during the basis period to calculate severance pay due to his personal reason like absence, the identical period shall be included into a basis period of average wages and calculated for severance pay.
How to include bonuses paid through one year into the amount subject to the calculation of average wages (Feb. 24, 2003, Wages 68207-120)
There are no regulations stipulated in the Labor Laws about the matters concerning payment of bonuses, but bonuses shall be deemed wages as remuneration for work when they are stipulated in the Rules of Employment for payment conditions, amount, and payment period or when they have been paid so habitually to all employees that the employee may have natural expectations to receive bonus as a matter of course. On the other hand, in cases where payment rate of bonuses was established per year-unit and paid for the period exceeding one month, the total amount of bonus paid for a certain month shall not be included into calculation of average wages. The bonuses shall be calculated by dividing the total amount of bonuses paid to a relevant employee during twelve calendar months before the day on which a cause for calculating his average wages occurred by the total number of calendar months, which is 3/12 times the total amount of bonuses paid per year. In cases where the severance pay regulation has been revised justifiably in the middle of the consecutive work period, the calculation of severance pay shall be applied to the severance pay regulation effective at the time of retirement. The calculation shall not be applied differently by dividing the period before or after the revision of the severance pay regulation. (Sep 10, 1996, Supreme Court 95 da 15414)
Prohibition of Discriminating System for Severance Pay
Discriminating severance pay between full-time employee and part-time employee violates the principle of prohibition for different application. (Oct 20, 2000, Seoul District Court 2000 Kahap 8606)Article 34 (2) of the Labor Standards Act prohibits establishment of different severance pay system according to job classification, title, business classification, etc. in one workplace and shall apply one severance pay system. The Company’s different application of severance pay between full-time employee and part-time employee violates the principle of prohibition against discrimination. Even though the company hired full-time employees and part-time employees differently and applied them differently in the hiring procedures, job characteristics, promotion/transfer, etc., the discrimination of severance pay shall not be justified with a reasonable cause.
That the company included the amount equivalent to severance pay into the monthly wage for foreign pilots was the establishment of a different application between foreign employees and native employees. (Mar 27, 1998, Supreme Court 97 da 19725) If the company agreed to include the amount equivalent to severance pay into the monthly wage for foreign pilots, it means that the company will not pay severance pay in time of retirement for foreign pilots. This is a different system of severance pay, prohibited by Article 28 (2) of the previous Labor Standards Act, compared to the native pilots who receive severance pay when quitting job. Therefore, foreign pilots can apply for severance pay by the Rules of Employment applying to majority of employees.
If there are two different applications at severance pay: the Rules of Employment regulating a cumulative severance pay system for native employees and individual employment contracts regulating a singular severance pay system for foreign workers, this violates the regulation to prohibit different application of severance pay. (Nov 28, 1997, Supreme Court 97 da 24511)
In case where employment relation of employees has been inclusively succeeded through business transfer or corporate merger, if a severance pay regulation before succession is inferior to the severance pay regulation after succession, the employer cannot apply the severance pay regulation after succession without obtaining consent by a collective decision-making method of the majority of employees. (Dec 26, 1995, Supreme Court 95 da 41659)
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How to Pay Severance Pay
In case where reason to reduce severance pay occurred after payment of interim severance pay, such as abolition of a cumulative severance pay system, the company shall apply to the reduced severance pay system: it calculates both amounts of previously paid interim severance pay and final severance pay and may pay severance pay after deducting the amount already paid. (Apr 8, 2004, Wage policy team-1173)
According to Article 34 (1) of the Labor Standards Act, the liability of an employer’s severance pay occurs when the employment was terminated. However, by Article 34 (3) of the LSA, an employer may, upon a request of an employee, even before his retirement, pay severance pay calculated on the basis of consecutive years of employment. Interim severance pay does not have different characteristics from normal severance pay. In case where reason to reduce severance pay occurred after payment of interim severance pay, the company shall apply to the reduced severance pay system and calculate previously paid interim severance pay and final amount of severance pay, and then the company may pay severance pay (refund of overcharged severance pay) after deducting the amount it already paid in the interim severance pay. (Supreme court 2001 da 54977, May 16, 2003)
Is it possible to pay interim severance pay for entire employees with the consent obtained from the majority of employees? (Feb 20, 2002, Wages 68200-111)
According to Article 34 (3) of the Labor Standards Act, an employer may, upon a request of an employee, even before his retirement, pay a severance pay calculated on the basis of consecutive years of employment. In this case, the number of consecutive years of employment for the calculation of a severance pay after such advance payment shall be reckoned anew from the moment of the latest adjustment of balances. Although this interim severance pay was established previously for the relevant regulation or criteria of the interim severance pay in the collective bargaining agreement or rules of employment, it shall require individual employees’ concrete demands before its implementation. Accordingly, with consent from more than 50% of total employees, the employer cannot satisfy the requirements needed for interim severance pay.
Even though the company has paid some amount as severance pay in the wages paid every month, it cannot be accepted as payment of severance pay. (Mar 11, 2005, Supreme court 2005 do 467)The severance pay stipulated in Article 34 (1) of the Labor Standards Act occurs on the condition of termination of employment relations, and, in principle, it will not occur during the middle of the labor contract. If the employer agreed with the employee on payment of certain amount of money as name of severance pay inside wages paid every month, this cannot be valid as payment of severance pay stipulated in Article 34 (1) of the Labor Standards Act.
It is null and void due to violation of the Labor Standards Act if an employee made a special contract to give up a right of requesting severance pay or not to make a civil suit. (Aug 23, 2002, Supreme court 2001 da 41568)
Severance pay is the remuneration characteristic of differed wages to be paid in return for continuous employment to the employee who retires after serving a certain period of time. The concrete right to request severance pay occurs on the condition of the fact, termination of continuous employment. It is null and void due to violation of the Labor Standards Act, compulsory regulation, if an employee previously made a special contract that the employee would give up a right of requesting severance pay in the time of retirement or would not make a civil suit.
Labor Attorney, KangNam Labor Law Firm, Seoul, Korea
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