Understanding “Recommended Resignation” in Korea from a Foreign Company’s Perspective
In South Korea, companies often opt for "recommended resignation" instead of direct termination. This practice can be unfamiliar to foreign companies operating in Korea, as it differs significantly from employment termination procedures in many other countries. Understanding the legal framework and cultural context behind recommended resignation is essential for foreign employers managing workforce adjustments in Korea.
Key Differences Between Recommended Resignation and Termination
- Legal Definition
- Recommended Resignation: This refers to a situation where an employer suggests that an employee voluntarily resign. The employee’s consent is required, and the resignation cannot be enforced unilaterally.
- Termination (Dismissal): The employer ends the employment relationship without the employee’s agreement. Korean labor law strictly regulates termination, requiring justifiable reasons and proper procedures.
- Legal and Administrative Implications
- Termination Requires Strong Justification: Employers must prove a legitimate reason, such as serious misconduct or severe underperformance. Even in cases of business restructuring, layoffs must meet stringent legal criteria.
- Recommended Resignation is Simpler: Because it is based on mutual agreement, it bypasses many of the legal hurdles associated with termination.
- Avoiding Legal Disputes: Wrongful termination claims can lead to lawsuits or labor disputes, so many companies prefer to negotiate a resignation package instead.
Why Termination is Challenging in Korea
Korean labor law strongly favors employee protection. According to the Labor Standards Act (Article 23), an employer cannot terminate an employee without a justifiable cause. Additionally, Article 27 requires employers to provide written notice specifying the reason and timing of termination.
- High Legal Burden for Termination
- Proving Just Cause: Employers must demonstrate that an employee engaged in serious misconduct (e.g., fraud, harassment, or violence). Poor performance alone is usually not sufficient.
- Restructuring-Related Layoffs: Under Article 24, layoffs due to business needs require employers to:
- Prove an urgent managerial necessity
- Show efforts to avoid layoffs (e.g., internal reassignment or cost-cutting measures)
- Follow fair and objective selection criteria
Failure to meet these requirements may result in termination being ruled as unfair dismissal.
- Risk of Legal Disputes
If an employee believes they were unfairly dismissed, they can file an unfair dismissal complaint (Article 28) with the labor office. If the case is ruled in favor of the employee, the company may be required to reinstate them or provide financial compensation.
How Foreign Companies Should Approach Recommended Resignation
- Negotiation Over Enforcement
Unlike in some countries where at-will employment allows employers to terminate employees freely, Korean labor law mandates negotiation for workforce reductions. Foreign companies should be prepared to engage in discussions rather than issuing unilateral termination notices.
- Offering Favorable Exit Packages
Since recommended resignation is voluntary, companies can encourage employees to accept by offering:
- Severance pay beyond legal requirements
- Additional compensation or incentives
- Positive reference letters
Providing attractive terms can facilitate a smooth transition while minimizing disputes.
- Ensuring Proper Documentation
To avoid potential disputes, it is crucial to have:
- A clear resignation agreement signed by the employee
- Proper documentation of discussions and agreements
- Legal review of severance and resignation terms
Conclusion: A Strategic Approach is Essential
Foreign companies operating in Korea must understand that termination laws are highly employee-centric. Instead of relying on unilateral terminations, companies should adopt a strategic approach, leveraging negotiation and voluntary agreements to manage workforce changes effectively.
Unlike in movies where a boss dramatically declares, “You’re fired!”, such direct dismissals are nearly impossible in Korea. Termination requires due process, making it crucial for companies to handle employment transitions carefully. With proper planning and compliance, recommended resignation can be a mutually beneficial solution for both employers and employees.