|Relationship between the Civil Law and the Labor Standards Act regarding Termination of Employment
The Civil Law and the Labor Standards Act are often regarded as equivalent to each other when it comes to employment. However, strictly speaking, there are many areas where the Labor Standards Act does not apply and/or has limited application. The Labor Standards Act applies to a limited number of legal provisions for a workplace with less than five persons, but does not apply to workplaces with only relatives and housekeepers living together. Issues that are not stipulated in the Labor Standards Act are subject to the principle of good faith and prohibition of abuse of rights in Article 2 of the Civil Law, as well as some other provisions of the Civil Law. The employment section of the Civil Law has only 9 provisions in total, but is considered the general law in labor law. As there are some differences in the details and application when it comes to termination of employment, it is necessary to distinguish between the Civil Law and the Labor Standards Act. Five of the nine provisions of the Civil Law on employment are related to the termination of employment contracts.
In our capitalist economic system, as the Civil Law is based on the principle of freedom of contract, one party of the contract can freely terminate the contract on the premise of certain requirements or damages. However, if employment contracts allow employers, who are in a socially and economically superior position to employees in the labor contract relationship, to unilaterally dismiss employees, those employees whose ability to maintain their livelihoods is based upon earnings from employment are threatened with unemployment at any time, which places them in an unequal and oppressive relationship For this reason, the Labor Standards Act was enacted under the Constitution in order to improve such unequal relationships and to guarantee human dignity and the right to pursue happiness as a basic right of workers.
II. The need to distinguish the different types of termination of employment
1. Divisions in the Laws
There are three types of termination of employment under the Civil Law. First, if employment is terminated when the contract period expires, it is recognized that renewal of the contract is granted under certain circumstances (Article 662 of the Civil Law). Second, if the contract term is for more than three years or there has been no contract for a period of time, the right of notice of termination shall be granted to each party, and at this time, termination will take effect after a specific period of time (Civil Law Articles 659 and 660). Third, there is recognition of the right of termination under certain circumstances (Articles 657, 658, 661, and 663). A contract under the Civil Law is a contract between the parties, so it is presumed that it can be cancelled if necessary.
However, in the Labor Standards Act, unilateral termination of a labor contract by an employer becomes an unfair dismissal and becomes subject to remedy application for unfair dismissal. Provided, however, that this shall not be the case if the contract period is fixed, the period required for the completion of the work is specified and attained, or if the employee reaches retirement age. In the case of an employment contract with a definite period of time, if the contract is longer than two years, the contract type is changed to a non-fixed contract (Article 4 of the Fixed-term Employment Act).
2. Just cause for termination
The Civil Law allows either party to freely and unilaterally terminate the employment contract as the contract is freely concluded between the parties in accordance with the principle of freedom of contract.
However, the Labor Standards Act stipulates that employers cannot dismiss, suspend, or discipline a worker without justifiable reason (Article 23 of the LSA). According to the Labor Standards Act regarding employment contracts, it is impossible to notify termination of an employment contract unilaterally in a manner that would be acceptable under the Civil Law. This is because The LSA’s aim is to protect employees. However, it is possible to terminate an employment contract for justifiable reason. Justifiable grounds are situations where an employee is liable to such an extent that the employment relationship cannot be continued under social norms, or there is inevitable management necessity. Whether or not the employment relationship can in fact not be continued depends on various factors such as the purpose and nature of the business, the conditions of the workplace, the status of the worker, the motivation behind the employee’s violations and/or actions affecting the company, and previous behavior. The situation must be reviewed and judged comprehensively based upon the above.
III. Termination of an employment contract in the Civil Law
1. Expiration and exception of employment terms
If the parties set a term of employment, the employment shall terminate at the expiration of that period. However, it may be renewed by agreement of the parties before or after the expiration of the term of employment. If, however, after the expiration of the employment period, the employee continues to provide labor without an agreement of renewal and the employer does not take action within a reasonable period of time, the Civil Law interprets that the employee has been rehired under the same conditions (Article 662 of the Civil Law). However, termination of the contract may then be given at any time by the parties, and termination shall take effect one month from receipt of the notice (Articles 662 and 660 of the Civil Law). It is considered by the Civil Law that the shorter-term contract is a more favorable contract between the two parties in terms of the principle of freedom of contract.
2. Notice of dismissal
(1) In cases of long-term employment
The period of employment can be determined by agreement between the parties, but when employment has continued for a very long period of time, there is a problem of restricting the freedom of the parties on the nature of the employment relationship. Therefore, the Civil Law stipulates that when a contract term of employment exceeds 3 years or until the end-of-life of one party or a third party of the parties, each party may give notice of termination at any time after three years (Article 659 of the Civil Law). In that case, termination will take effect three months from the date on which the other party receives notice of termination (Article 659 of the Civil Law). In the case of employment contracts, the maximum term of employment contracts with fixed term is limited to three years. This is to avoid disadvantage to the employee by lengthening the period of employment. In other words, it is a characteristic of the employment contract made between comparably equal parties in the Civil Law that the employment period must be short enough to protect employees.
(2) In cases where there is no agreement on the contract period
In the absence of an agreement on terms of employment, each party may at any time notify termination of the contract (Article 660 of the Civil Law). In this case, termination shall take effect one month from the date on which the other party receives notice of termination (Article 60 of the Civil Law). However, when remuneration is determined by a period of time, the termination will become effective upon the passing of the first period after the notice was received (Article 660 of the Civil Law).
3. Termination of employment
Notice of termination of an employment contract can be made at any time in the following instances. From the time the notification reaches the other party, the termination becomes effective with no notice period: 1) When an employer assigns the employer’s right to a third party without consent of the employee (Article 657 of the Civil Law: Exclusivity of Rights and Duties); 2) When the employer requests the provision of labor not agreed to in the employment contract (Article 658 of the Civil Law: Content of Service and Right of Rescission for Future); 3) In case of unavoidable circumstances, the parties may terminate the contract despite the employment period (Article 661 of the Civil Law: Unavoidable Cause and Right to Rescind Contract for Future); and 4) If the employer receives a bankruptcy determination; even when there is an agreement on the term of employment, the employee or bankruptcy trustee may terminate the contract (Article 663 of the Civil Law: Employer’s Bankruptcy and Notice of Rescission of Contract for Future).
IV. Termination of employment contracts under the Labor Standards Act
Under the Labor Standards Act, the termination of an employer’s unilateral labor relations is strictly restricted. It is not easy to break the employment relationship with employees unless there is a fixed term contract. There must be legitimate reasons, limited by the time of termination, and termination must be carried out adhering to strict dismissal procedures. Unilateral notice of termination of an employment contract by the employer becomes unfair dismissal and is subject to unfair dismissal relief application through the labor committee.
1. Expiration of and exceptions to employment terms
According to Article 4 of the Fixed-term Employment Act, "the employer may utilize the services of a fixed-term employee to the extent that employment does not exceed two years, or to the extent that repeated renewal of the fixed-term employment contract does not exceed two years. However, in exceptional cases, where the period required for the completion of the project is set, the age of the employee is 55 or more, the person is engaged in a professional position and has 25 national qualifications, if his/her earned income per year is higher than top 25%, even if it exceeds 2 years, the termination contract can be canceled by the expiration of the term with the fixed-term worker.
2. Limitations of termination for just cause
Article 23 of the Labor Standards Act stipulates that employers cannot dismiss employees without justifiable grounds. According to the Labor Standards Act, in employment contracts, it is impossible to provide a Civil Law-related unilateral notice of contract cancellation. This is because it (LSA) aims to protect workers. However, if there is justifiable cause, it is possible to terminate a labor contract. The Labor Standards Act provides justifiable grounds for dismissal as specified below. The following cases may constitute “the reasons prescribed in the Labor Ministry Ordinance (Article 14)”:
① The employee took a bribe for allowing an inflow of flawed products from a supplier that has upset the production process of the company;
② The employee forcedmade another person to drive a business vehicle without authorization, which resulted in an accident;
③ The employee provided confidential information on the business to a competitor, which adversely affected the business;
④ The employee made up or disseminated ungrounded facts or masterminded unlawful collective actions that caused a considerable disturbance to the business;
⑤ The employee took advantage of his/her job position or committed breach of trust to misappropriate, embezzle, or use company money for private purpose for a long time (e.g., embezzling the proceeds from operation of a company vehicle);
⑥ The employee stole or carried products or material out of the company without authorization;
⑦ The employee, being engaged in personnel management, treasury or accounting, manipulated the records or produced fraudulent statements that caused damage to the business;
⑧ The employee deliberately destroyed company equipment or property, causing considerable disturbance to the business; or
⑨ The employee deliberately committed acts which seriously disturbed the business or caused considerable financial damage to the company.
3. Restrictions on layoffs
According to Article 24 of the Labor Standards Act, if an employer dismisses an employee for managerial reasons, the employer must: ① have a need for urgent management changes; ② make efforts to avoid dismissal; ③ select employees to be dismissed by establishing rational and fair criteria for dismissal, and ④ notify the representative of the employees 50 days in advance to discuss these efforts to avoid dismissal and the selection of the dismissal target. If the above four criteria are met, it will be a legitimate dismissal under Article 23 of the Labor Standards Act. Therefore, there are strict restraints when trying to terminate an employment contract with an employee for reasons attributable to an employer without cause by the employee.
4. Restrictions on dismissal time
The employer shall not dismiss any employee during a period of temporary interruption of work for medical treatment of an occupational injury or disease or within 30 days thereafter, or any female employee during a period of temporary interruption of work before and after childbirth as provided herein or within 30 days thereafter (Article 23 of the LSA). This provision is designed to protect employees from the risk of unemployment during periods when employees lose their ability to work or when they cannot perform effective job searches. If an employee is dismissed in violation of this, the penalty clause is applied and the action is invalidated by law. However, if the employer cannot continue the business or pays an adequate lump sum compensation for the injury or illness on the job, the period of dismissal is not exceptionally limited (Article 23 of the LSA).
5. Restrictions on dismissal procedures
(1) Notice of dismissal
According to Article 26 of the Labor Standards Act, the employer shall give notice at least 30 days before dismissing an employee. If the notice is not given 30 days before the dismissal, ordinary wages of more than thirty days shall be paid to the worker. This provision stipulates that employees should be given 30 days’ advance notice even in cases where there is legitimate reason, and if there is no justifiable reason, the notice of the dismissal cannot be just cause for dismissal.
(2) Written notice of dismissal
Under Article 27 of the Labor Standards Act, if an employer intends to dismiss an employee, the employer shall notify the employee of the reasons for dismissal and the date of such dismissal, in writing. In the absence of this written notice, the dismissal shall have no effect. This regulation mandates that the employer be careful when dismissing employees. This notice is designed to clarify the reason for dismissal and date of dismissal so that any dispute surrounding the dismissal can be easily resolved and the employee can take appropriate action against the dismissal.
There are few benefits to be gained by making comparisons between the Civil Law and the Labor Standards Act. The Civil Law establishes rights and obligations based on the contractual relationship between equal parties at the level of general law, while the Labor Standards Act stipulates enforcement regulations in a special law that the employer must comply with. Therefore, as the Civil Law is more comprehensive and there are limitations on the application of the Labor Standards Act, the Civil Law can be interpreted additionally or applied in a supplementary fashion for cases not covered under the Labor Standards Act.