Q. Do officers, or executives, of a company fall under the definition of “workers” under the Labor Standards Act? What are the exact procedures for dismissal of officers and the instructions for companies to bear in mind when they dismiss an officer?
A. A. Article 2(1)1 of the Labor Standards Act (the “LSA”) defines a worker as a “person, regardless of the kind of occupation, who offers labor to a business or workplace for the purpose of earning wages.” If an officer falls under such definition of a worker, the protective provisions under the LSA are applied.
Labor related laws including the LSA do not specifically define the term “officer.” In practice, the term “officers” include the persons who are registered in the corporate registry as directors or statutory auditors as well as the members of a company’s management who are not registered as directors or statutory auditors but are entrusted to deal with the company’s business. Since officers of a company are entrusted by the company to deal with its businesses, such officers, in principle, are not deemed to be in an employment relationship in which labor is offered under direction and supervision to receive wages in return.
However, the Supreme Court has ruled that whether a person is a worker covered by the LSA should be determined by examining the substance of the relevant contract regardless of its form. Therefore, (i) if a person’s title or position as a director or statutory auditor of a company is only nominal and such person, in practice, goes to work every day and provides labor in return for wages under the direction and supervision of the employer or representative director who has authorities to execute businesses, or (ii) if a person offers labor under direction and supervision of a representative director, etc. and receives wages in return in addition to dealing with business operations entrusted by the employer, such person could be then deemed to be a worker under the LSA.
The officer who is not within the definition of a worker under the LSA may be dismissed without justifiable causes through (i) a resolution adopted at a general meeting of shareholders in accordance with Article 385(1) of the Commercial Act (in the case of registered officers) or (ii) termination, at any time, of the executory contract of a mandate in accordance with Article 689(1) of the Civil Act (in the case of unregistered officers). Further, unlike dismissal of a worker, a thirty days’ prior notice is not required for dismissal of an officer. However, if a company dismisses an officer without a justifiable cause, the company may be liable for damages.
As long as an officer is not a worker under the LSA, the company is not obligated to pay severance benefits unless stipulated otherwise by the company’s article of incorporation, rules for payment of severance benefits for officers, etc. Especially, registered officers will not be entitled to claim for severance benefits even if the relevant contract provides for the payment thereof if (i) the amount, method, and time of severance benefits payment are not determined by a resolution from a general meeting of shareholders or (ii) the rules for payment of severance benefits for officers that specify such matters are not adopted at a general meeting of shareholders.
As such, an officer may serve overlapping roles as both an employer and worker of a company and in many court cases, unregistered officers were considered as workers. Companies should be cautious in dismissing unregistered officers without a justifiable cause because they are likely to be deemed as workers defined under the LSA.
By Kim Young-min
Attorney and partner of law firm Yoon & Yang LLC
Ask a Lawyer is a regular column written by attorneys at Yoon & Yang LLC on various legal aspects of the Korean life or business. The content provided here is general legal information, not legal advice on a specific situation. -- Ed.