Agreements in South-Korea

In South Korea, employment agreements are the cornerstone of the employer-employee relationship, meticulously governed by the Labor Standards Act and other relevant legislation. These contracts are crucial for establishing clear terms and conditions of employment, safeguarding the rights and responsibilities of both parties. For foreign companies operating or expanding into the South Korean market, a comprehensive understanding of these legal frameworks is essential to ensure compliance and foster a stable, productive workforce.

A well-drafted employment agreement aligns with South Korean labor laws, preventing potential disputes and ensuring smooth operational flow. It outlines critical aspects such as wages, working hours, and termination procedures, providing a transparent basis for the employment relationship.

Types of Employment Agreements

South Korean labor law primarily distinguishes between two main types of employment contracts based on their duration: indefinite-term and fixed-term contracts. Understanding the characteristics and implications of each is vital for compliant hiring practices.

Contract Type	Description	Key Characteristics
Indefinite-Term (Permanent/Open-Ended)	Continues until terminated by either party in accordance with legal procedures.	No predetermined end date. Provides greater job security and is considered the standard employment type in professional settings.
Fixed-Term (Temporary/Limited)	Has a specified end date or duration.	Limited to a maximum duration of two years, with some exceptions (e.g., project-based work, temporary absence). If an employee continues working beyond two years on a fixed-term contract without a valid exception, they are generally automatically deemed an indefinite-term employee.

Beyond these primary types, South Korean labor law also recognizes "dispatched workers," who are employed by temporary work agencies but supervised by an end-employer.

Essential Clauses Required in Employment Contracts

South Korean law mandates the inclusion of specific terms in all employment contracts to ensure transparency and protect employee rights. These essential clauses must be clearly stated in writing.

Clause Category	Required Details
Wages	Wage structure, calculation method, payment method, and payment date. Includes details on bonuses and benefits.
Working Hours	Scheduled working hours, break times, and holidays. Includes overtime conditions. Standard workweek is 40 hours, 8 hours per day, with a maximum of 12 additional overtime hours per week.
Work Location & Duties	Clear definition of the place of work and the tasks the employee is expected to perform, including job title.
Start Date & Contract Term	The commencement date of employment and the duration of the contract (if fixed-term).
Paid Leave	Entitlements for annual paid leave.
Termination Policies	Details on termination procedures and notice periods.
Rules of Employment	Reference to the company's rules of employment, if applicable (mandatory for companies with 10 or more employees).

It is crucial that the contract complies with Korean labor laws and does not include provisions less favorable than the statutory minimum requirements.

Probationary Period Regulations and Practices

Employers in South Korea frequently utilize a probationary period to assess a new employee's suitability for a role. While not legally mandatory, it is a common practice and should be clearly outlined in the employment contract to be valid.

Aspect	Details
Typical Duration	Generally set for three months. Some contracts may extend up to six months.
Legal Status	During probation, the employment relationship exists, and the Labor Standards Act applies. Probationary employees are entitled to minimum wage, insurance, and all statutory benefits.
Wage During Probation	Employees may be paid up to 90% of the standard wage for the first three months.
Termination During Probation	While employers do not need to provide the standard 30-day notice period during the initial months (typically the first three) of probation, termination still requires a valid reason and cannot be arbitrary. The standard for just cause may be slightly less stringent than for a tenured employee but must still be reasonable.
Extension	Extension of the probationary period beyond the initial term is generally not permissible unless specific, justifiable reasons are agreed upon by both parties and outlined in the contract. Consent of the employee is required for legal extension.

Confidentiality and Non-Compete Clauses

Confidentiality and non-compete clauses are common in South Korean employment agreements, particularly for roles involving sensitive information or specialized skills. Their enforceability is subject to strict scrutiny by courts.

• Confidentiality Clauses (Non-Disclosure Agreements): Clauses protecting company confidential information and trade secrets are generally enforceable, provided they are reasonable in scope and duration. Employers should carefully define what constitutes "confidential information." South Korean law protects confidential information through the Unfair Competition Prevention and Trade Secret Protection Act.
• Non-Compete Clauses: Post-termination non-compete agreements are enforceable in South Korea, but courts apply strict criteria to determine their validity to ensure they do not excessively restrict an employee's freedom of occupation. For a non-compete clause to be enforceable, it must meet several criteria:
  • Legitimate Business Interest: The employer must demonstrate a valid interest to protect (e.g., trade secrets, confidential information, key customer relationships).
  • Reasonable Scope: Restrictions on the employee must be reasonable in terms of geographical area, duration, and the scope of prohibited activities. Courts have, for instance, upheld non-compete clauses for a specific region and duration (e.g., one year).
  • Consideration: There should ideally be compensation provided to the employee for adhering to the non-compete restriction. General remuneration like regular salary is not readily recognized as sufficient consideration; specific compensation for the non-compete is often required for enforceability.
  • Not Against Public Interest: The clause should not unduly restrict the employee's ability to earn a living or harm fair competition.
  • Employee's Access and Position: The employee's access to confidential information, their position, rank, and responsibilities are considered.

It is advisable to consult local counsel for the enforceability of such provisions due to their complex nature. Non-solicitation clauses (prohibiting former employees from soliciting other employees or customers) are also generally permissible.

Contract Modification and Termination Requirements

Any modification to the terms of an employment contract in South Korea must generally be agreed upon by both the employer and the employee. Unilateral changes by the employer are typically not permitted unless explicitly allowed by law, a collective bargaining agreement, or if the change is part of a socially reasonable revision to the Rules of Employment that does not disadvantage employees.

Termination of an employment contract, particularly indefinite-term contracts, is heavily regulated in South Korea.

• Just Cause for Termination: Employers with five or more employees cannot terminate an employment contract without "just cause." This means there must be significant, reasonable grounds for dismissal, such as repeated or gross misconduct, incompetence (with documented evidence), or financial necessity (company restructuring or closure), that would unduly burden the employer's operations. Isolated instances of negligence are unlikely to constitute just cause. Unfair reasons for termination, such as discrimination, are unlawful.
• Notice Period or Payment in Lieu: Unless there is a reason for immediate dismissal (e.g., serious misconduct as defined by law), the employer must provide at least 30 days' advance written notice of termination or pay 30 days' ordinary wages in lieu of notice. This notice period requirement is typically waived for employees within their first three months of employment, which often aligns with the probationary period.
• Termination Process: For businesses with 10 or more employees, the Rules of Employment must detail the disciplinary and dismissal process. The termination notice must be in writing and include the reasons for termination and the proposed date. The employer bears the burden of proving just cause.
• Severance Pay: Employees who have worked for one year or more are legally entitled to severance pay upon termination, regardless of whether it's due to resignation, dismissal, or retirement. Severance pay is calculated based on their average wage and length of service, typically equivalent to one month's average wage for each year of continuous service. Severance must be paid within 14 days of the employee's departure.
• Fixed-Term Contract Termination: Fixed-term contracts naturally terminate upon reaching their specified end date. However, termination before the end date requires just cause, similar to indefinite contracts.
• Resignation: Employees resigning should provide their employer with a resignation letter and give decent notice, typically 30 days, as specified in the individual employment contract or Rules of Employment. Severance payments also apply to voluntary resignations if the employee meets the one-year service requirement.
• Mass Layoffs (Dismissal for Managerial Reasons): For dismissals due to management reasons (layoffs), specific criteria must be met, including urgent business necessity, efforts to avoid dismissal, reasonable and fair selection criteria, and at least 50 days' notice with sincere consultations with the trade union or employee representatives.