|Case Study : Dismissal after Signing Employment Contract but before Official Start of Work
The following labor case is regarding a company signing an employment contract with an applicant and terminating employment after negative feedback from an existing employee of the company who knew the applicant.
A multinational company located in the United Kingdom (hereinafter, “the Company”) decided to hire Mr. H as a Korean branch manager (hereinafter, “the Employee”) and signed an employment contract with him on Friday, May 12, 2016. The Employee was supposed to join the Korean branch office in three weeks. However, the Company heard some unfavorable feedback from one Korean branch employee who had once worked with the Employee (due to his harsh leadership in the previous company, this staff employee told the Company that if the Employee was hired, this employee would quit). The Company therefore canceled the employment contract with the Employee on May 17, 2016. The Termination Letter quoted Section 1 of the signed contract, which stated that, “The Company may terminate the employment relationship at any time without prior notice and for no reason at all,” as well as clearly explaining that the dismissal was due to negative feedback about the Employee. In a quick response email, the Employee complained about the termination and threatened to take legal action if there was no acceptable compensation. The Company then suggested one month’s salary as a cordial settlement, to which the Employee replied that he would accept 12 months’ salary as compensation. In the meantime, the Employee had been busy disparaging the Company and speaking about it in a derogatory manner to the Company’s Korean customers.
To deal with this incident, the Company sought legal advice from this labor attorney, whereupon I reviewed the case in light of related laws and court rulings and provided the most suitable legal opinion.
II. Related Laws and Court Rulings
1. Related Laws (the Labor Standards Act)
Article 15 (Labor Contract Contrary to This Act)
(1) A labor contract which establishes working conditions that do not meet the standards provided for in this Act shall be null and void to that extent.
(2) Those conditions invalidated in accordance with the provisions of paragraph (1) shall be governed by the standards provided in this Act.
Article 23 (Restriction on Dismissal, etc.)
(1) No employer shall dismiss, lay off, suspend, or transfer a worker, or reduce wages, or take other punitive measures against a worker without justifiable reason.
Article 28 (Application for Remedy for Unfair Dismissal, and Related Acts)
(1) If an employer dismisses a worker unfairly, the worker may apply to the Labor Relations Commission for remedy.
(2) The application for remedy under paragraph (1) shall be made within three months from the date on which the unfair dismissal, and related acts, took place.
Article 33 (Enforcement Levy)
(1) If an employer, after receiving a remedy order (including a decision on reexamination concerning a remedy order; hereinafter the same shall apply in this Act) from the Labor Relations Commission, fails to comply with the remedy order by the deadline for compliance, an enforcement levy of an amount not exceeding 20 million won shall be imposed on the employer. (Enforcement levy will be charged twice a year for two years, making a maximum of 4 times.)
Article 111 (Penal Provisions)
A person who fails to comply with a remedy order confirmed pursuant to Article 31 (3) or confirmed after the filing of an administrative lawsuit, or a decision rendered after reexamination of a remedy order shall be punished by imprisonment of up to one year or a fine not exceeding ten million won.
2. Related Court Rulings
1. Where an employer canceled the employment contract before the employee started to work
(1) A case where an employer canceled the employment contract after six months, without hiring the employees on the promised date
The employer notified the applicants at the end of November 1997 of the final decision to hire them, and asked them to submit the related employment documents, such as a confidentiality agreement in December 1997. The employer told them that new employees would start working on March 1, 1998. The employer delayed assigning them any jobs, and finally notified the new employees on June 18, 1998 that their employment had been cancelled. The employer’s notice of cancelling the employment amounts to a dismissal, which was rendered null and void as there were no justifiable reasons for cancellation.
(2) A case where the court determined a 50 percent responsibility to the hired applicants on the one hand, and the company on the other regarding wages to be paid during the period of waiting for employment to begin.
The company and the applicants agreed on employment terms, but the company delayed actually calling them into work for a considerable time. The company had not considered accurately how many new employees would be needed for its new work projects, and informed the hired applicants, after a long period of time, that they would not be hired in actuality due the company being unable to begin a new construction project. The hired applicants who were waiting to be called into work suffered damages as they had had to give up looking for other opportunities to get a new job while expecting to begin working for the company. In this case, the company should compensate the hired applicants for the damages due to lost time and missed opportunities.
On the other hand, the hired applicants were informed of the company’s intention to hire them but were not notified of a specific start date. The hired applicants should have continuously inquired for clear information about the formal start date or what they should do in the event of cancelation of their employment, but the hired applicants had neglected to make any such efforts, which was taken into consideration in calculating the amount of compensation to be given. For this reason, the hired applicants were held partly responsible for their lost opportunities, and should also be willing to take 50% less in calculated compensation. The company was responsible for providing the remaining 50% of calculated compensation.
(3) A case where the Court ruled that the company should pay the entire amount of wages for the period of waiting from the agreed-on start date to the date their employment contracts were canceled.
In this case, the employees were informed in November 1997 that they would be hired by the company, and they were supposed to start working on April 6, 1998. But the company delayed their start date without explaining the reason. Due to the delay, the employees took legal action. The Court concluded that the company had to pay their salaries from the date the decision was made to hire them to the date their employment was canceled (June 30, 1999).
2. A case where a new employee was dismissed due to falsification of information on previous misconduct
Supreme Court ruling on June 23, 2000, 98Da54940: Where an employee is found to have falsified or concealed his education and experience, the company might choose not to hire him/her (if discovered at the point of recruitment) or might choose not to provide the same working conditions (if discovered either at the point of recruitment or during the course of his/her service to the company). This assumption justifies taking appropriate disciplinary dismissal action.
3. Court rulings related to the employment status of a Korean branch manager:
(1) Executive officials are not employees as defined in the Labor Standards Act (LSA).
Executive officials, including directors, are mandated by their employer to deal with a certain scope of business management. In general, they are not in an employment relationship t