27th April 2020
Mark Benton - Ahnse Law Offices
Korea is generally considered to have dealt with COVID 19 very well (so far). There has been no lockdown as such and life has carried on relatively normally. However, the disease has obviously had and will continue to have far reaching consequences. Absent a vaccine, it is not yet known for how long the crisis will continue. Some models are less optimistic and have suggested that it will have effects to a greater or lesser degree for a significant amount of time to come.
As COVID 19 affects a business, its owners and managers will need to consider their commercial and legal options. One effect of the pandemic may be to negatively impact a business’ cash flow. Businesses will therefore look at ways to cut their costs. One major cost is for employees. MSI's South Korea law member Ahnse Law Offices considers what options there may be in this regard.
The main law governing the relationship between employers and employees in Korea is the Labour Standards Act (“LSA”) and its Enforcement Decree. There are other enactments relating to part time employees and health and safety standards.
It is also notable that employers who employ ten or more people must issue and have in place “Rules of Employment” (“ROE”). These are expansive and detailed specific rules affecting the particular workplace – a handbook so to speak.
Generally, from a legal point of view, Korea would be considered as employee friendly. However, there is a price to be paid. Korea has a long hours working culture. It is also generally much more hierarchical than in the West though this latter consideration is more a product of the culture than the law.
As Dostoevsky argued in The Brothers Karamazov, we are all connected: a negative consequence for one, will inevitably have consequences for all. For example, the employee who is made redundant will have less money to purchase the goods or services of a business. A ripple effect.
There are a number of prophylactic measures a business can take without resorting to making staff redundant even if this is possible at all. These include:
In general terms, it is possible to reduce an employee’s work hours. However, it is necessary to obtain the employee’s consent. The ROE would also require amendment. Likewise, it is possible to reduce salary or delay salary payments. However, for salary incurred but not paid and salary to be incurred the consent of the employee is required; and likewise there would need to be a change to the ROE.
As for paid vacations, Article 61 of the Labour Standards Act provides that an employer can “encourage” but not to require an employee to take annual leave on particular dates. Obviously this needs to be handled with a degree of tact. It is however possible for the employer and the employee to agree that leave be taken on designated dates by consent.
Likewise, for unpaid leave, an employee cannot be required to take such but it can be done by mutual consent. The issue of unpaid leave would therefore need to be handled with a degree of diplomacy.
Suspension of the Business
It is possible for a business to temporarily cease its activities i.e. to suspend its business. In the case of a suspension i.e. without the employees’ consent then the business must pay not less than 70% of average wages – the suspension allowance.
If the company’s situation is so dire that it is unable to continue to pay the suspension allowance, it may be permitted to pay less provided there is agreement from the Labour Relations Commission.
Of course, it may be possible to avoid paying a suspension allowance with the employees’ consent but this would obviously need to be handled very carefully.
Theoretically, it is possible to terminate an employee’s contract for “managerial reasons”; however, Korea is arguably much more restrictive in this regard than other jurisdictions. An employer would need to satisfy at least the following requirements pursuant to Article 24 LSA:-
Whilst may not be possible, or at the very least extremely difficult to lawfully make employees redundant during this period unless of course there are long standing pre-existing circumstances, a viable alternative may to offer the employee and Early Retirement Package.
Safety in the Work Place
An employer has a general duty to provide a safe place of work for its employees. There are obvious prophylactic measures an employer can take to mitigate the effects of COVID 19. These include:
The Ministry of Employment and Labour has issued a series of guidelines to employers to control and mitigate the spread of COVID 19. These guidelines do not have the force of law; however, if an employer does not take reasonable steps to follow them, then they do so at their own peril as it could be argued that they have failed in their duty to provide a safe work place.
It might be possible to argue force majeure. In general terms, the Korean courts have construed this strictly. There were previous cases during the SARS and MERS crises; the courts did not rule in favour. COVID 19 has had a much more significant impact and the courts may now take a different view.
These are obviously strange and difficult times. It is an oft used phrase but knowledge is power. It might not be possible to prevent the loss of revenue; however, it is possible to be prepared, have a plan and take well informed strategic business decisions.
Ahnse is a Seoul based international law firm. We advise government ministries, multinationals, corporations, SMEs and individuals on a broad range of legal issues. We aim to provide our clients with clear, strategic and well-priced commercial and legal solutions.
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