|Corona Virus Infections and Shut-down Allowances
The spread of coronavirus infections has severely hampered business activity. All areas where an infected person has been are temporarily closed and infected individuals are quarantined. The Seoul Lotte Department Store was closed for a period of time, and the Gwangju Post Office was temporarily closed and then reopened. There are reports that Samsung Electronics in Gumi, North Gyungsang province might be temporarily closed. When a workplace is shut down and closed, it is difficult for the workers to survive, so the Labor Standards Act guarantees a wage of 70% on average as a shut-down allowance in case of closure for reasons attributable to the employer. It is possible to reduce a shut-down allowance if there is a huge disruption to the operation of the business to the point where the employer cannot continue to operate. In addition, the Civil Act states that if a worker is suspended due to the intention or negligence of an employer, the full wage shall be paid (Article 538), but if the business is closed through no fault of the employer, the shut-down allowance shall not be paid (Article 537). Payments can be divided into: (i) 100% pay, (ii) payment of shut-down allowances, (iii) reduction of shut-down allowances, and (iv) unpaid leave.
Here, I would like to explain the legal stipulations of shut-down allowances in accordance with the spread of coronavirus infections and to examine related cases in detail.
II. Spread of Coronavirus Infection and Companies’ Countermeasures
1. The spread of coronavirus infections
Coronavirus infection is a respiratory infection caused by a new type of coronavirus that has spread worldwide since first being discovered in Wuhan, China in December 2019. It is spread when it penetrates an infected person's saliva, respiratory tract, or the mucous membranes of the eyes, nose, or mouth. After infection, the incubation period is 2-14 days (estimated), followed by a fever (above 37.5 degrees), respiratory symptoms such as coughing and difficulty breathing, and pneumonia. On January 31, 2020, the Ministry of Employment and Labor applied “Class 1 Infectious Disease Syndrome” to coronaviruses in its Workplace Guidelines for the Prevention from Spread of Coronavirus Infections. According to Article 2 (Definition) of the Infectious Disease Control and Prevention Act (IDPA), “Class 1 Infectious Diseases” have a high mortality rate or a high risk of group outbreaks, so they should be reported immediately and require high-level quarantine, such as special isolation wards. Therefore, infected patients with first-degree infection should be hospitalized by an infectious disease management institution (Article 41 of the IDPA). Since no vaccines or treatments have been developed to date, hospitals are providing antiviral drugs or antibiotics to prevent secondary infections.
2. Companies’ countermeasures
(1) In case of individual infection: If an employee is infected during his personal activities, he/she will be quarantined and treated according to the relative infectious disease prevention method, and in case of suspension, there will be certain financial support in the government (Article 41 of the IDPA). In similar cases to this, it has been held as a principle that any absence would be considered unpaid leave because it was attributed to personal fault. However, if an employee is infected during a business trip, this is considered to be a work-related illness under the Industrial Accident Compensation Insurance Act (Article 34 of the Enforcement Decree of the Act).
(2) Shut-downs due to the presence of an infected person: If an infected person caught the infection at the workplace and the workplace is closed in order to prevent spread of the disease, this may not be regarded as attributable to the employer, and may be an exception to the payment of shut-down allowances.
(3) Closed to prevent infection: If an employer shuts down a workplace to prevent the spread of an infectious disease according to the law and the government's instructions, this may be considered an exception to the shut-down allowance. However, in the event of shut-down in order to prevent infection, shut-down allowance shall be paid.
(4) In case of shut-downs due to the lack of raw materials caused by the coronavirus: Shut-down allowances shall be paid. However, in case of a long-term shut-down, which causes enormous disruption to business operations, shut-down allowances may not be paid with the approval of the Labor Relations Commission (Article 46 of the LSA - Paragraph 2).
III. Legal Standards of Shut-down Allowances
According to the Labor Standards Act, when a worker is suspended for reasons attributable to the employer, the employer shall be required to pay at least 70% of the average wage (or 100% of the ordinary wage) (Article 46 (1)). However, if it is impossible to continue the business for unavoidable reasons, an amount that is less than the legal shut-down allowance may be paid if this is approved by the Labor Commission (Article 46 (1)). In order to guarantee the effectiveness of the shut-down compensation system, an employer who violates the provisions of shut-down compensation shall be sentenced to imprisonment of not more than three years or fined not more than KRW 30 million (Article 109).
Shut-down allowances are intended to guarantee workers' right to live by providing certain allowances when they are unable to work for reasons not attributable to them. On the other hand, if an employer is forced, for unavoidable reasons, to pay legal shut-down allowances until the business can no longer continue, this will cause excessive burden on the employer and will severely hinder operations, which may result in the insolvency of the company. This is why an exemption for shut-down compensation is stipulated.
‘Shut-down’ refers to a situation in which a worker is unable to provide work against his/her will despite being willing to provide the work under the employment contract. Civil Act provisions relating to the shut-down of a business provide exemption of employer fault in case of a force majeure beyond the employer's responsibility. However, if an employee fails to receive work due to the employer's fault, it is possible to claim the full amount of wages, and not just the shut-down allowance. In cases like this, the Civil Act provisions have difficulty in proving the employer's intention or negligence, so the Labor Standards Act provides a shut-down allowance system to guarantee the minimum life standards of workers without relying on the Civil Act’s risk-bearing principle.
2. Requirements for shut-down allowance
As a requirement for shut-down, first, there must be fault attributable to the employer. Employer's fault is any reason that may arise within the employer's managerial influence.
Second, the business should not be closed due to force majeure. Force majeure means that the reason for the shut-down of a business should occur from outside and the employer could do nothing to control it. Typical examples would be natural disasters, war, and large regional blackouts.
Third, it is assumed that shut-down (full or partial closure) has taken place.
3. Amount of Suspension Allowances
(1) Full payment of wages
In case of a shut-down due to an employer's intention or negligence, the full wage shall be paid. This includes suspension without legitimate reason, forced leave, and unfair dismissal. In accordance with Article 538 (1) of the Civil Act, the employer shall pay 100% of wages, not shut-down allowances, when workers are suspended due to illegal activity by the employer. However, an interim benefit obtained during the same period may be deducted pursuant to paragraph 2 of Article 538 of the Civil Act.
(2) Shut-down Allowances
In case of shut-down due to an employer's fault, an allowance shall be paid of at least 70% of the average wage. In principle, employer's fault is a management obstacle that occurs within the scope of the employer's power and will include situations such as being closed due to shortage of funds, shortage of raw materials, decrease in order volume, reduction of market and output, shortage of raw materials in subcontracted factories due to the parent company's poor management, or shortage of operations due to insufficient funds. A partial shut-down allowance shall be paid when only part of the workplace is closed or when working hours are reduced.
(3) Reduction of shut-down allowances
In order to reduce shut-down allowances, an employer may have urgent cause to not continue business operations for unavoidable reasons, and will need to get approval from the Labor Relations Commission (Article 46 (2) of the LSA). This means that if a company expects to go bankrupt, even if the employer is at fault, it may pay less than the legal shut-down allowance if so approved by the Labor Relations Commission.
Conditions for the reduction of shut-down allowance require (i) as a substantial requirement, the inability to continue business operations for unavoidable reasons and (ii) as a procedural requirement, the approval of the Labor Relations Commission. Even if it is impossible to operate the business for unavoidable reasons, it is not possible to exempt or reduce shut-down allowances without obtaining approval from the Labor Commission.
Shut-down allowances can be paid at less than 70% of the average wage, and can even be reduced in full.
(4) Unpaid leave
Employer's fault under Article 46 of the Labor Standards Act refers to managerial obstacles that occur within the scope of the employer's power and includes situations such as financial shortages, shortage of raw materials, and market recession. If it is impossible to continue the business due to force majeure circumstances, this cannot be regarded as the fault of the employer. Force majeure such as natural disasters cannot be seen as employer's fault because it is impossible for the employer to manage and control such occurrences. There is no obligation to pay shut-down allowances, regardless of whether the Labor Relations Commission has approved them.
V. Application Cases for Shut-down Allowances
1. Full payment
(1) If an employee's (unfair) dismissal was invalidated or canceled, the employee’s status as a worker would still be in existence, and it would be considered that the worker's failure to provide work was attributable to the employer. Article 538 (1) of the Civil Act may request the payment of all wages available for the dismissed period.
(2) If suspension of vehicle driving (discontinuance) measures against a worker was found to be unreasonable, in which case the employee was not able to provide work due to the employer's fault, the employer shall pay a shut-down allowance as prescribed by Article 46 of the Labor Standards Act. If, however, the employee is deemed unable to provide work due to intention or negligence of the employer, a claim for the full amount of wages under Article 538 (1) of the Civil Act shall also occur.
2. Payment of Shut-down Allowances
(1) If a contractor was given an order to suspend the operation by the government, if subcontractors also had to shut down their operations (which cannot be translated as force majeure), the subcontractors should pay shut-down allowances to their workers.
(2) If a contractor's removal of hazardous chemicals restricts access to a subcontractor’s workers and if they fail to provide work, this is hardly considered to be force majeure beyond the scope of the employer.
3. Reduction of Suspension Allowances
(1) The Bupyeong plant closed for more than three months due to a sharp drop in sales after an incident with contaminated dumplings, and the inventory increased during this period. As a result, managerial difficulties can be understood as about 80 workers were dismissed for business reasons. Unless consumer confidence was restored in the near future, normal operation would be difficult. Therefore, it is possible to reduce the shut-down allowance if it is impossible to continue the business for unavoidable reasons (Incheon LRC 2004 Shut-down 1).
(2) Due to bankruptcy, deficits accumulated even after the company liquidation procedure began, and there was no alternative for normalization as attempts to sell the company were unsuccessful. In this case, unavoidable shut-down is a valid reason for the reduction of shut-down allowances ((Incheon LRC 2000 Shut-down 1).
(3) A situation in which a company goes to the brink of bankruptcy due to an unforeseen fire is considered an unavoidable reason for the employer (NLRC 89 Shutdown 1)).
4. Unpaid leave
(1) An employer is not obliged to pay any shut-down allowance for a period of suspension due to interruption of work by a third party.
(2) Absence or leave of absence due to natural disaster or other similar instances, and disciplinary actions such as suspension from work, temporary suspension of work, illness, etc., shall not be regarded as a case of employer fault and shall not be reason for payment of a shut-down allowance.
The leave allowance system guarantees workers' right to survival by providing shut-down allowances in cases where the worker does not provide labor due to fault on the employer's part. At present, the spread of coronavirus infection is causing hard times for both companies and workers. If a company pays shut-down allowances without any income, it will be difficult to continue to operate in the future. On the other hand, if an employee cannot earn money due to a lack of a shut-down allowance, survival of the worker would also be a serious problem. When faced with a force majeure situation such as this, urgent measures are needed to guarantee employment through the payment of employment insurance funds.