Weekly Contributions

Dismissal by a Foreign Parent Company and the Application of Korean Labor Law

Bongsoo Jung, Korean Labor Attorney / KangNam Labor Law Firm

I. Introduction

In September 2007, a Korean-American employee was hired as vice president of a Korean subsidiary (hereinafter “Company A”) established by a U.S.-headquartered company for the development of the Songdo International Business District in Incheon. He worked in Korea for approximately four years. On January 21, 2011, however, the U.S. parent company (hereinafter “Company B”) notified him of his immediate dismissal, stating that there was “not enough work.” Company B offered him compensation corresponding to his period of service and asked him to sign a separation agreement, but the employee refused. Believing that he had in substance worked for Company A in Korea, he filed an application for relief from unfair dismissal against Company A with the Seoul Regional Labor Relations Commission on February 15, 2011 (Case No. Seoul 2011 Buhae 274).

The response from the companies was more complicated than expected. Company A argued that it was not the employee’s employer. It pointed out that Company B in the United States was both the party to the employment contract and the entity paying his salary, that his salary had been paid into a U.S. bank account, and that he had been covered by a U.S. retirement plan (401(k)) and health insurance plan. It further argued that, because Company B held ultimate authority over personnel matters and dismissal, the application naming only the Korean subsidiary, Company A, had been filed against the wrong party.

This case was not simply a dispute over whether there was just cause for dismissal. The identity of the actual employer, whether Korean or U.S. law applied to the employment contract and dismissal, and whether the dispute could be heard by a Korean Labor Relations Commission or court were all intertwined. Under the legal framework in force as of 2026, the issues are most accurately analyzed in three stages: (1) identification of the substantive employer, (2) determination of the governing law of the employment contract, and (3) international jurisdiction and domestic remedial procedures.

The case proceeded as follows:

- January 21, 2011: The employee was notified in writing of his immediate dismissal.

- February 15, 2011: The employee filed an application for relief from unfair dismissal against Company A.

- April 5?8, 2011: The original case was withdrawn and refiled with both Companies A and B named as respondents.

- June 3, 2011: The case was withdrawn after the parties reached a monetary settlement immediately before the adjudication hearing.

II. Each Party’s Position

1. Employer’s Arguments

Companies A and B were separate legal entities, and the Korean subsidiary and the U.S. parent company operated as separate businesses with independent human resources, accounting, and operational systems. Company A therefore argued that it could not be held responsible for the dismissal of an employee of Company B.

The employee had entered into an employment contract with Company B, received his salary from Company B into a U.S. bank account, and was covered by U.S. retirement and health insurance plans. The companies argued that these circumstances demonstrated that the center of the employment relationship was the U.S. parent company.

Although the employee held the title of vice president of Company A and worked in Korea, the companies argued that his primary role was to monitor Company A’s business progress pursuant to Company B’s instructions and report to headquarters. In substance, therefore, they argued that he was an expatriate employee assigned by the parent company to Korea.

In particular, because Company B exercised authority over recruitment, contracting, compensation, final personnel decisions, and dismissal, Company A had no authority to comply with an order granting relief from unfair dismissal. The companies’ core argument was therefore that an application naming only Company A as the respondent should be dismissed on procedural grounds.

2. Employee’s Arguments

The employee argued that he had been hired from the outset to work in Korea for Company A and had continuously worked in Korea for approximately four years. His workplace and the center of his day-to-day work activities were also in Korea. Accordingly, the application of Korean labor law could not be excluded merely because salary payments or social insurance arrangements were formally based in the United States.

The employee argued that if Company B ended the employment relationship on the managerial ground that there was “not enough work,” then, to the extent Korean law applied, the termination should be treated not as a mere contractual termination but as a dismissal, and both the requirement of just cause and the statutory requirements for dismissal for managerial reasons had to be satisfied. The mere offer of compensation did not in itself make the dismissal lawful, and if the employee had not signed the separation agreement, the legal nature of the employer’s unilateral termination had to be examined.

To demonstrate a substantive employer-employee relationship with Company A, the employee presented evidence that: (1) he had received performance evaluations from Company A’s representative; (2) he had previously received notice of non-renewal from Company A’s representative; (3) Company A’s organization chart, staffing records, and operating procedures identified his position and reporting line; (4) he was directed and supervised by Company A’s representative; (5) National Tax Service records identified Company A as the withholding agent; (6) Company A handled his pay statements and expense processing; and (7) he continuously worked at a workplace in Korea designated by Company A.

Under current Article 48 of the Act on Private International Law, even where the parties have chosen foreign law as the governing law, the employee may not be deprived of the protection afforded by the mandatory provisions of the country in which the employee habitually performs work. Accordingly, where Korea is the center of the employee’s work activities, it may be argued that mandatory employee-protection provisions, including protection against dismissal under the Labor Standards Act, apply.

In addition, current Article 43 of the Act on Private International Law allows an employee who habitually performs, or last habitually performed, work in the Republic of Korea to bring an action relating to an employment contract against the employer before a Korean court. The effect of an exclusive foreign-court jurisdiction agreement concluded before a dispute arises is also limited if it would unilaterally deprive the employee of the Korean jurisdiction otherwise available to the employee.

III. Handling of the Case and Conclusions

1. From a Case Against Company A Alone to a Case Against Both Companies A and B

Initially, the employee filed the application for relief only against Company A. However, a review of the companies’ written submissions and related documents revealed a significant risk. Even if Company A had managed the employee’s work in Korea, if Company B held the final authority to dismiss and reinstate him, a question could arise as to whether the Labor Relations Commission could issue an effective remedial order against Company A alone. The employee therefore withdrew the original case and refiled it with both Companies A and B named as respondents.

Once Company B was formally named as a respondent, the dynamics of the case changed. Company B, which had previously kept its distance from the Korean proceedings, began to respond directly. The employee relied on Article 28 of the Act on Private International Law then in force and on a Seoul High Court decision holding that mandatory provisions of Korean labor law could apply even to an employment contract that designated foreign law as its governing law. Ultimately, immediately before the adjudication hearing on June 3, 2011, Company B and the employee agreed to monetary compensation of KRW 180 million, and the case was withdrawn.

One point must be clearly understood. Because the case ended in a settlement, the Labor Relations Commission never issued a decision on the merits. Accordingly, the case itself did not conclusively determine whether Company A or Company B was legally the employer or whether the dismissal was unfair. The practical significance of the case is that, where a foreign parent company and a Korean subsidiary are both involved in an employment relationship, the identity of the employer, the governing law, jurisdiction, and the possibility of effective relief should all be addressed from the outset.

2. Governing Law as of 2026: Article 48 of the Act on Private International Law

At the time of the 2011 case, Article 28 of the Act on Private International Law addressed both the governing law of employment contracts and international jurisdiction. The statutory structure changed, however, when the Act was wholly amended in 2022. Under the current Act, Article 48 governs the law applicable to employment contracts, while Article 43 separately governs international jurisdiction. Accordingly, when older cases or literature cite “Article 28 of the Act on Private International Law,” a document prepared in 2026 should explain that this was the provision in force at the time and should also identify the corresponding current provisions.

The central feature of current Article 48 is the balance between party autonomy and employee protection. A contractual choice of foreign law, such as the law of the State of Georgia, is not automatically invalid merely because it is included in an employment contract. However, such a choice may not deprive the employee of the protection afforded by the mandatory provisions of the country whose law would have applied in the absence of that choice. Where an employee has habitually worked in Korea for an extended period, Korea’s mandatory employee-protection rules may therefore operate as a minimum standard of protection.

The Ministry of Employment and Labor also explains that, in determining the “country in which the employee habitually performs work” in an employment relationship involving foreign elements, the determination should not be based solely on the country from which wages are paid. Rather, it should be made comprehensively in light of such factors as the periods of domestic and overseas work during the entire employment term, the employee’s actual workplace and whether a return to Korea was contemplated, the place where the employment contract was concluded, the entities responsible for working hours, work direction, and wage payments, the substantive recipient of the employee’s services, and the employee’s expectations and understanding regarding the law to be applied.

3. International Jurisdiction as of 2026: Article 43 of the Act on Private International Law

Current Article 43 of the Act on Private International Law permits an employee to bring an action relating to an employment contract against the employer before a Korean court if the employee habitually performs, or last habitually performed, work in the Republic of Korea. It also provides strong protection for Korean jurisdiction when an employer brings an action against an employee and the employee’s habitual residence or habitual place of work is in Korea. Even if an employment contract designates a foreign court as having jurisdiction, the agreement is effective only within the limits prescribed by law, such as where the agreement is made after the dispute has arisen or where it gives the employee a choice of an additional foreign court in addition to the Korean courts.

However, by its terms, Article 43 governs the international jurisdiction of “actions brought before courts.” It is therefore not precise to explain the jurisdiction of Labor Relations Commission remedial proceedings solely by reference to Article 43. In Labor Relations Commission proceedings, it is also necessary to examine whether the Korean Labor Standards Act applies, the substantive connection with the Korean workplace, whether the named respondent is the actual employer, and whether a remedial order can in fact be implemented. In this respect, the 2006 Seoul High Court decision remains an important example showing that Korean labor law and domestic remedial procedures may apply to an employee who habitually worked in Korea even where the employment contract selected foreign law and a foreign court.

4. Justification for Dismissal: Is “Not Enough Work” Sufficient?

Where the Korean Labor Standards Act applies, an employer may not dismiss an employee without just cause. In particular, if the phrase “not enough work” refers to a reduction in force or the elimination of a position for managerial reasons, the requirements of Article 24 of the Labor Standards Act must be examined. The key requirements are an urgent managerial necessity, efforts to avoid dismissal, reasonable and fair criteria for selecting employees to be dismissed, and prior notice to and good-faith consultation with the employee representative. In addition, as a rule, the employer must provide at least 30 days’ advance notice of dismissal or pay at least 30 days’ ordinary wages in lieu of notice, and must notify the employee in writing of the reasons for and effective date of dismissal. An application for relief from unfair dismissal must be filed within three months from the date of dismissal.

Accordingly, in a case such as this one, where the employee was dismissed immediately because there was “not enough work” and was offered compensation, the compensation offer alone does not replace the substantive and procedural requirements for dismissal for managerial reasons. If, however, the employee separately enters into a separation agreement or dispute-settlement agreement based on sufficient information and free will, the validity of that agreement must be assessed separately.

5. Identification of the Employer Must Be Analyzed Separately from the Governing-Law Issue

The most practical lesson from this case is that the questions “Does Korean law apply?” and “Who is the employer?” should not be confused. Even where the mandatory protections of Korean labor law apply, the party against whom a remedial order is sought must be the employer that, in substance, bears obligations under the employment contract and exercises authority over recruitment, direction, evaluation, compensation, discipline, dismissal, and reinstatement. Where the Korean subsidiary manages only day-to-day work while the foreign parent company retains all authority over contracting, final dismissal, and reinstatement, effective relief may be difficult if the foreign parent company is excluded as a party to the proceedings.

Accordingly, when handling a dismissal case involving a foreign-invested company, one should examine not only the employment contract but also recruitment approval documents, payroll records, withholding tax records, organization charts, reporting lines, performance evaluations, rules governing personnel authority, expatriate assignment and cost-sharing agreements between the parent company and subsidiary, the entity that issued the dismissal notice, and the entity that can actually implement a reinstatement order. Separating formal corporate identity from the substantive exercise of employer functions and organizing the evidence accordingly is the starting point for analyzing such a case.

6. Practical Lessons from This Case

1. Even if an employment contract involving a foreign company designates foreign law as the governing law, the mandatory protections afforded by Korean law to an employee who habitually works in Korea are not automatically excluded.

2. Governing law and international jurisdiction are separate issues. Since the full revision of the Act on Private International Law in 2022, these matters have been regulated separately by Articles 48 and 43.

3. Where both a Korean subsidiary and a foreign parent company participate in personnel matters, the substantive employer and the allocation of authority over dismissal and reinstatement should first be identified, and, where necessary, consideration should be given to including all relevant entities as parties to the proceedings.

4. Where Korean law applies, an immediate dismissal for managerial reasons must be separately examined for just cause, compliance with the statutory requirements for dismissal for managerial reasons, advance notice of dismissal, and written notice.

5. The mere existence of an exclusive foreign-court jurisdiction clause does not automatically mean that an employee who has worked in Korea for an extended period is barred from seeking remedies in Korea.