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Jun 20, 2011

Independent Contractors and Obligations under Korea LSA Speech to Amcham Korea

During a recent speech the head of the Korean Labor & Employment Law Team and I gave to the American Chamber of Commerce in Korea a few interesting topics came up that seemed to be of particular interest to participants.

 
For the Power Point of the presentation click HERE.

 
Factors Courts use to Determine if an Individual is an Employee and Thus Obligated to Provide Severance and Employment Security etc. Under the Korea Labor Standards Act (LSA).

 
Thesefactors are used by the Korean Supreme Court to determine if one is an “employee” under the Korean LSA. The factors are not weighted equally by courts.

Please note that these factors are not weighted equally by courts and all factors are not required to be met for an independent contractor to be deemed an employee under the LSA. An answer in the affirmative to anyone one of the factors increases the risk to the employer.
  • Does company have decision power over the content of work of the individual?
  • Are company work rules applied to the individual?  
  • Does company have considerable control over the work processes of the individual?  
  • Does company set the time and date and other specifics of work?  
  • Does company own the work assets?
  • Can individual use a third party to replace the work of the individual?
  • Does individual have business risks associated with work with company?
  • Are earnings based on work - not success?
  • Does individual near exclusively depend on the work from the company?
  • Is the work with the company continuous,thus, not temporary?  
  • Is the individual deemed an employee under the Social Security System?
The court may also consider the relevant social and economic situation between the employer and the independent contractor.

 
After a very lively discussion on these factors and the state of independent contractors under Korean Law, we briefly explained the obligations of employers to employees. The two most noteworthy obligations discussed were:

 
Obligations to Employees Under the Labor Standards Act
Employment Security
A justifiable reason can be either a fault attributable to the employee or an “urgent managerial necessity.”  For layoffs based on urgent managerial necessity, an employer must:
  • Implement a “rational and fair” criteria in choosing the persons to layoff;
  • Give 50 days notice to the union or representative prior to layoff;
  • Give 30 days notice (or payment in lieu of notice);
  • Provide three years of preferential rehiring;
  • Provide written and specific notice of what the “urgent managerial necessity” is. (the near impossible standard for the employer to meet –the “bankruptcy avoidance test” has been changed in recent years to the more easily capable of meeting “rational business” test.)
For dismissals based on cause, multiple notices should be given to the employee unless the violation is a serious violation of law.

 
Retirement Benefits
The LSA states that an employer should provide an employee with 30 days of compensation for each year of service to the company. The rate for this compensation should be based on the average of the last three months of employment. This payment should be made within 14 days of retirement.

 
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SeanHayes@ipglegal.com