Items to be Considered When Writing an Employment Contract
Bongsoo Jung, a Korean labor attorney
I. Introduction
Recently, an important court ruling was made on the validity of an employment contract. A certain company unfavorably changed its employment rules to reduce bonuses, although with the consent of a majority of workers. However, according to the principle of preferential conditions, it was judged that the company could not reduce the bonus of opposing workers unless their employment contracts were also changed. Therefore, it is necessary to revise the written employment contract when working conditions are changed unfavorably.
When an employer hires someone, the first thing that must be done is to create an employment contract, which outlines the responsibilities of both parties to the contract—the worker provides work to the employer and the employer pays wages in return (Article 2 of the Labor Standards Act, or “LSA”). Preparing a written employment contract is to clarify working conditions between workers and employers, and to prevent disputes. The employer is obligated to prepare one, and failure to do so can result in a fine of not more than 5 million won for each worker who does not have a written contract. In labor disputes, the burden of proof is on the employer. I will outline the essential items in an employment contract, with these items examined through standard employment contracts for each employment type.
II. Required Information to be Stipulated in a Written Employment Contract
1. Items required to protect workers
Article 17 of the Labor Standards Act requires employers to specify certain items in employment contracts and hand them out to new hires to sign. It should be issued again when changes are made. Such items include (1) wages, (2) contractual working hours, (3) holidays under Article 55, (4) annual paid leave under Article 60, and (4) matters concerning the place of employment and the work expected. When entering into an employment contract with a worker under the age of 18, a parental consent form must be attached (Article 66 of the LSA).
When entering into an employment contract with a fixed-term or part-time worker, the following essential items must be specified in writing: (1) Matters concerning the period of the work contract, (2) Matters on working hours and breaks, (3) Matters on the composition of wages and methods of calculation and payment, (4) Matters on holidays and leave, and (5) the place of employment and the work expected. In particular, (6) working days and working hours per working day are only required for part-time workers (Article 17 of the Fixed-Term and Part-time Employment Act).
2. Items to protect employers
Employment contracts should be drawn up based on mutual agreement between labor and management and on equal terms, but in reality, since the employer selects and hires the most desirable worker from a number of applicants, the employment contract is concluded with the working conditions dictated by the employer. Since the employer decides the details of the contract from a superior position, the Labor Standards Act places restrictions on contract details.
Despite these restrictions, employers can take steps to protect themselves and take actions, such as dismissal, with unqualified or poor workers. First, workers unsuitable for the job can be dismissed within the probation period, which is usually set at 3 months, but can be extended if necessary. Workers on probation may be dismissed without prior notice, unless the probationary period exceeds three months, then a notice of dismissal must be made 30 days before dismissal. Second, if it is difficult to evaluate whether a worker is eligible for work through the probation period, a one-year fixed-term working condition can be set together with the probation period. Third, it is necessary to obtain a pledge to comply with the service regulations (security), and prepare grounds for disciplinary action for workers who violate them. Fourth is related to employees’ personal information, which, in general, employers can use in personnel management, but only upon gaining the employee’s consent for areas not already permitted by law. Essentially, a letter of consent signed by the employee is necessary before using that employee’s personal information.
III. Employment Contract Forms and Related Explanations
With the five standard employment contracts proposed by the Ministry of Employment and Labor, I would like to review each characteristic in detail.
1. Indefinite term employment contract
1. Work commencement date: ______Month / Day / Year
2. Working place:
3. Details of work:
4. Contractual working hours: from_____to ____ (break time: from________to_____)
5. Working days/holidays: ______working days every week / weekly holidays: every___day
6. Wage
-Monthly (day, hour) wage: KRW______________
-Other benefits (subsidies, etc.): Yes (), No ()
· KRW __________, KRW __________
-Wage payment date: ________ day of every month (every week or every day) (if payment date falls on a holiday, payment will be made one day prior to the holiday)
-Payment method: Issued directly to the worker (), direct deposit to the employee's bank account ()
7. Annual paid leave
-Annual paid leave is granted in accordance with the Labor Standards Act.
8. Subscribed social insurances (check the relevant boxes)
□ Employment insurance □ Industrial accident compensation insurance □ National pension □ Health insurance
9. Duty to faithfully perform employment contracts, employment rules, etc.
-Employers and workers must each observe and faithfully implement employment contracts, employment rules, and collective agreements.
10. Other: Matters not specified in this contract are subject to the rules of employment and labor laws.
(1) Work commencement date: The date on which the employment contract is concluded and the date of commencement of work may be different. The period between the date the employment contract is concluded and the date of commencement of work is called the successful candidate period. Once the employment contract has been concluded, the employer cannot terminate it without justifiable reason. Therefore, it is advisable to set a probation period if at all possible to verify whether a new hire is indeed able to do the work. The probationary period can be from 1 to 6 months, and whether or not the worker is to be employed longer is determined within that period. When dismissing a worker on probation, an objective evaluation should be used, and there should be at least two evaluators. A probationary employee’s competence should be assessed not through a one-time apprenticeship evaluation, but through additional intermediate apprenticeship evaluations.
(2) Work place and (3) Job description: The head office, the workplace of the relevant worker, and the job description (such as personnel and general affairs) must be clarified. If needed, state that the workplace and job description may change if necessary.
(4) Contractual working hours refer to the hours set by an employer within the legal working hours. The limit is generally 40 hours per week and 8 hours per day, while overtime is limited to a maximum of 12 hours per week in excess of the legal working hours (Article 53 of the LSA). These limitations are intended to ensure workers have the right to pursue health and happiness.
(5) Working days and holidays: Working days are generally set from Monday to Friday, but can differ depending on the type of business. For weekly holidays, a paid holiday of at least one day a week must be given to each worker who has completed the contractual working days for one week (Article 54 of the LSA). Therefore, one or more paid holidays can be given on the day(s) specified by the employer.
(6) Wage: Wages must be at least equal to the minimum wage. The wage specified in the employment contract is ordinary wage, which is the basis for calculating various additional wages. Wages must be paid in full to workers directly in currency. Here, deposits to the worker’s bank accounts are also considered direct payment in currency. In addition, wages must be paid at least once a month on a fixed date (Article 43 of the LSA). The inclusive wage system refers to a wage system that does not calculate basic wages in advance for a given working time, but rather stipulates that daily or monthly wages shall include the total amount of statutory working hours plus additional working hours. Since the LSA stipulates that basic wages and contractual working hours shall be defined in the employment contract, the inclusive wage system is effectively in violation of that Act.
(7) Annual paid leave: It is stipulated that annual leave is used in accordance with the employment rules and the Labor Standards Act.
(8) Whether or not social insurances are subscribed to: In principle, the employed workers are automatically subscribed to the four social insurances. However, exceptions exist: those aged 60 or over do not need to subscribe to the national pension while those 65 or over do not need to subscribe to employment insurance. In addition, those under the age of 18 do not contribute to the national pension. For foreign workers, subscription to employment insurance is voluntary. Part-time workers with remarkably few working hours (those with an average of less than 15 hours in 4 weeks) are covered only by industrial accident insurance, but not the other three.
9. Other items to be entered: It is desirable to stipulate that items not listed in the employment contract are subject to the rules of employment.
2. Fixed-term employment contract
1. Employment contract period: From ____ (year/month/day) to _____(year/month/day)
This is the same as the general standard employment contract, but includes a contracted period of employment.
3. Employment contract for minors
8. Certificate of family relations and parental consent form
-Whether a certificate of family relations has been submitted:¬¬¬_________
-Whether parental or guardian consent is provided:__________
Under the Labor Standards Act, minors are those under the age of 18, while under the Civil Act, minors are those under the age of 19. Juristic acts of minors require parental consent. Therefore, employment contracts for minors must be accompanied by written parental consent. The parents/guardians retain the right to terminate the employment contract of the minor under their care (Articles 66 and 67 of the LSA). Except for these two differences, juristic acts under labor law are the same as those for workers who have reached the age of majority.
4. Employment contract for daily workers
1. Employment contract period: From________(year/month/day) to_____(year/month/day)
※ If the employment contract period is not specified, only the “work commencement date” is entered.
6. Wage
-Monthly (daily, hourly) wage: KRW_____ (circle the relevant time unit)
-Other allowances (overtime, night, holiday work, etc.): KRW _____ (describe in detail)
․Overtime allowance: KRW ______ (_____hours per month)
․Night work allowance: KRW _______ (_____hours per month)
․Holiday work allowance: KRW _______ (_____hours per month)
-Wage payment date: ______(day) of every month/week or every day (if the payment date falls on a holiday, payment will be made one day prior to the holiday)
-Payment method: Direct payment to the worker (), deposit to the worker's bank account ()
Daily workers are employed on a daily basis or work for a remarkably short period. Therefore, the date of commencement of the employment contract or the duration of the employment contract must be specified.
In terms of wages, hourly wage, daily wage, monthly wage, etc. must be specified, as must additional allowances for overtime, night work, and holiday work.
5. Employment contract for part-time workers
4. Working days and working hours per working day
Mon Tues Wed Thurs Fri Sat
Working hours ___HRS ___HRS ___HRS ___HRS ___HRS ___HRS
Start ___H/M ___H/M ___H/M ___H/M ___H/M ___H/M
Finish ___H/M ___H/M ___H/M ___H/M ___H/M ___H/M
Break __H/M ~ __H/M __H/M ~ __H/M __H/M ~ __H/M __H/M ~ __H/M __H/M ~ __H/M __H/M ~ __H/M
ㅇ Holiday: Every _____ (day of the week)
5. Wage
-Hourly (daily, monthly) wage: KRW _____ circle the relevant time unit)
-Additional wage rate for overtime:___%
-Wage payment date: _____(cardinal day) of every month (or every week/day) (if payment date falls on a holiday, payment will be made one day prior to the holiday)
-Payment method: Direct payment to the worker (), or deposit to the employee's bank account ()
(1) This contract type stipulates “working days and working hours per working day” to be included in the written description for part-time workers.
(2) The contractual working hours of part-time workers must be specified. This shall be within the limit of 12 hours, in addition to the one-week contractual working hours of part-time workers, even for overtime. That is, extended hours for part-time workers are judged based on contractual working hours rather than legal standard working hours (Article 6 of the Fixed-Term and Part-time Employment Act). If the worker works for more than the time specified in the contract, an additional wage of 50% or more of the ordinary wage will be paid even if the hours remain within the legal working hours.
IV. Details Not to Include in Employment Contracts
The Labor Standards Act specifies invalid details in employment contracts. These include: (1) Working conditions that do not meet the standards of the Labor Standards Act, with such invalid section(s) to be judged as in accordance with the Labor Standards Act (Article 15); (2) If any of the working conditions set forth in an employment contract is found to be inconsistent with actual conditions, the worker concerned shall be entitled to claim damages from the employer resulting from breach of the working conditions (Article 19); (3) Employers shall not prescribe penalties or damages for failure to fulfill the employment contract (Article 20); (4) No employer shall offset wages against an advance or other credits given in advance on the condition of a worker’s labor (Article 21); and (5) No employer shall enter into a contract with a worker, in addition to a labor contract, which stipulates compulsory savings or the management of savings (Article 22).
V. Conclusion
When an employer hires someone, an employment contract must be the first thing given. If the details of the employment contract do not match the rules of employment, the rules of employment shall apply (Article 97 of the LSA). If the employer changes the rules of employment unfavorably to workers, the details of the employment contract shall take precedence in accordance with the principle of preferential working conditions, unless the employment contract is also modified. Therefore, the employer must re-issue the contract with the new working conditions specified. It is important to keep in mind that changes to the rules of employment will not take effect until this is done.
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