Korean Labor Law Update – 1st Half of 2023

STATUTES AND REGULATIONS

Expanded scope of industrial accident compensation insurance coverage

Effective as of January 12, 2023, industrial accident compensation insurance began covering pregnant employees’ newborn children who suffer from injury, illness, or disability, or who die, due to an industrial accident involving the employee-mother, or from an accident during commuting to or from work, or from handling of or exposure to harmful factors while working.

The industrial accident compensation scheme also covers workers who are not “employees” under the Labor Standards Act but are engaged in certain defined jobs where they provide “employee-like” labor, known as “persons in special types of employment.” This category includes, for example, many delivery people, for-hire designated drivers, home-visit maintenance engineers, and online platform workers. Previously, persons in special types of employment could only be covered by the Industrial Accident Compensation Insurance Act (the “IACIA”) if they worked for a single business. However, the IACIA’s “exclusivity” requirement was revoked effective July 1, 2023, so that such workers can be covered even if they provide services to multiple businesses.

New rules for labor-management council elections

Effective from December 11, 2022, employee members of an employer’s labor-management council no longer need to be nominated by at least 10 employees. However, there is a new requirement to have majority-employee participation in the election of employee members of the labor-management council. A labor-management council must be established by employers with 30 or more employees.

New requirements and penalties related to installing rest facilities

Effective from August 18, 2022, for employers with fifty or more employees, and from August 18, 2023, for employers with twenty or more employees or ten or more employees of whom at least two are in enumerated types of (riskier) work, an administrative fine of up to KRW 15 million may be imposed for failure to install rest facilities when required under the Occupational Safety and Health Act (“OSHA”). A further administrative fine of up to KRW 10 million may also be imposed for failure to comply with the specific rest-facility standards required under OSHA, such as those related to size, location, temperature and lighting. These rest facility requirements generally do not apply to workplaces with exclusively office workers.

Yellow Envelope Act progresses towards a full vote of the National Assembly

The so-called “Yellow Envelope Act” would, if passed into law, require courts to individually determine the liability for damages of employees who participated in an illegal strike. It would also more broadly define “employer” under the Trade Union and Labor Relations Adjustment Act, essentially endorsing the Administrative Court decision described below. That approach would require service recipients to collectively bargain with unions representing the employees of their contractors, if they exert substantial control over those employees’ working conditions.

The opposition party, which holds a majority in the National Assembly, passed a motion to refer the Yellow Envelope Act bill directly to the plenary session for voting on June 24, 2023, by-passing deliberations by the Legislation and Judiciary Committee. Even if it is passed by the National Assembly, however, it can still be vetoed by the President. The enactment of the Yellow Envelope Act into law would likely expand the scope of businesses’ collective bargaining obligations. It would also likely result in a significant reduction in the damages awarded against individual workers involved in illicit strikes, depending on the extent of their participation—there have been recent court decisions with a similar effect, which we discuss below.

CASES

Supreme Court abolished the “social-norms” standard for unilateral changes to company rules

In an en banc decision, the Supreme Court abolished the principle that employment rules may be amended without employees’ consent if it is reasonable under general social norms.

Supreme Court imposes new limits on individual employees’ liability for damages due to illegal strikes

The Court also issued two decisions limiting employees’ liability for compensatory damages resulting from illegal strikes.

1. Supreme Court Decision No. 2018Da41986 (June 15, 2023)

It had been long-established in Korean case law that an employer’s fixed costs incurred while production is halted during an illegal strike are to be presumed recoverable losses suffered by the employer. But in this decision, the Supreme Court held that such presumption can be rebutted if the labor union is able to prove, for example, that the employer’s lost production volume has been recovered by an increase in employees’ productivity after the strike. Courts applying this principle are likely to limit the scope of recoverable losses of fixed costs to (i) additional costs, such as overtime pay, incurred by the employer to recover missed production; and (ii) fixed costs in proportion to the missed production that is not recovered even after the lapse of a considerable period of time. This will likely lead to a significant reduction in damages payable by labor unions that conduct illegal strikes, and employees taking part in such actions.

2. Supreme Court Decision No. 2017Da46274 (June 15, 2023) (the “Individual Liability Decision”) A labor union staged an illegal sit-down strike at a production facility, forcing a production shutdown for about 278 hours. The employer, presuming that the amount of fixed costs incurred during the shutdown period constitutes its recoverable losses, claimed part of that amount as damages payable by the employees who took part in the illegal strike. The Supreme Court held, as a new legal principle, that the civil liability of individuals who took part in the strike must be determined on an individual basis based on a comprehensive assessment of various factors, including the individual’s status, role, level of participation, contribution to the resulting losses, and the circumstances leading to his/her involvement. This effectively takes the exceptional principle, under Korean case law, whereby a person’s liability for damages may be limited based on principles of equity, and applies it even to cases of illegal strikes. This new legal principle allows courts to significantly curtail the damages that can be imposed on individual workers who participated in an illegal strike.

These union-related decisions, particularly the Individual Liability Decision, could have widespread social ramifications including giving momentum to the so-called “Yellow Envelope Act,” a bill to amend to the Trade Union and Labor Relations Adjustment Act currently under review in the National Assembly.

Harsh sentences imposed on CEOs for violations of the Severe Accidents Penalties Act

The Severe Accidents Penalties Act was enacted with the purpose of placing top executives, particularly CEOs, in serious criminal jeopardy for insufficiently overseeing and managing their companies’ health-and-safety compliance. More than a year after the Severe Accidents Penalties Act became effective on January 27, 2022, the first few criminal sentences handed down against CEOs demonstrate that the law has changed the legal landscape as intended, putting CEOs in serious criminal jeopardy for their companies’ health-and-safety violations like never before. We discuss the first three of these decisions here.

1. Uijeongbu District Court, Goyang Branch Decision No. 2022GoDan3254 (April 6, 2023)

An employee of a subcontractor fell to his death at a hospital extension building site. The court sentenced the CEO of the primary contractor to one year and six months’ imprisonment, but suspended the sentence for three years conditioned on good behavior. The court also imposed a criminal fine of KRW 30 million on the prime contractor.

2. Changwon District Court, Masan Branch Decision No. 2022GoHap95 (April 26, 2023)

An employee of a subcontractor was fatally crushed by a falling heatsink while repairing the heatsink at a steelmaking company’s workshop. The court sentenced the CEO of the steelmaking company to one year’s imprisonment (without suspension) and ordered his immediate detention. Additionally, the company was fined KRW 100 million.

3. Incheon District Court Decision No. 2023GoDan651 (June 23, 2023)

In this case, a subcontractor was retained by a construction company (the primary contractor) for a construction project. One of the subcontractor’s employees died after being struck on the head by a steel structure. The court sentenced the CEO of the primary contractor to one year’s imprisonment, suspended for three years conditioned on good behavior.

The trend apparent in these initial rulings is for courts to impose relatively harsh punishments on CEOs when serious accidents occur due to neglect of health and safety duties, particularly targeting CEOs of the primary contractor or service recipient rather than subcontractors, and even including imprisonment with immediate detention and without suspended execution of the sentence. Thus, it is crucial for businesses to exercise caution and prioritize taking appropriate safety measures to prevent industrial accidents.1)

Service-providers’ employees may collectively bargain with service-recipient companies

There are ongoing disputes regarding whether and when independent contractors can unionize and be proper counterparties in collective bargaining, and whether and when companies can be proper collective-bargaining counterparties in relation to workers employed by subcontractors.

In a notable Seoul Administrative Court ruling on January 12, 2023, the Court held that a subcontractor’s employees are entitled to collectively bargain with the service-recipient business because it had the authority to control and determine the terms and conditions of those employees in a practical and concrete manner.

This is a controversial area that is still developing, and will likely be addressed by the Supreme Court in the future.

1) Another case, decided before the Severe Accidents Penalties Act became effective, reflects the same trend of increasingly holding CEOs accountable for serious accidents. This case involved a worker of a contractor at Incheon Port, who died from a fall. The court found that the President of the Incheon Port Authority, which ordered the construction work, was the “employer” obliged to manage and supervise the work and take safety measures. The court sentenced him to one year and six months’ imprisonment and ordered his immediate detention. Incheon District Court Decision No. 2022GoDan1878 (June 7, 2023).

By Yulchon LLC, South Korea, a Transatlantic Law International Affiliated Firm.

For more information on this topic, please contact korealabor@transatlanticlaw.com.

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