For multinational companies with headquarters overseas but only branches, sales offices, or liaison offices in Korea, employing fewer than five employees is common.

 

In this post, you'll find out whether the Labor Standards Act applies to Korean branches with fewer than five employees, specifically regarding dismissal restrictions, overtime pay, and annual leave provisions.

 

 

 

1. Scope of the Labor Standards Act: Workplaces with Five or More Employees
According to Article 11, Paragraph 1 of the Labor Standards Act, the Act applies to businesses that employ five or more employees, with some exceptions. Only employees working in workplaces with five or more employees can file for remedy with the Labor Relations Commission in unfair dismissal cases.

 

 

 

2. Labor Laws Applicable to Workplaces with Fewer than Five Employees

Even in workplaces with fewer than five employees, certain provisions of the Labor Standards Act still apply. For instance, employers must provide 30 days' notice of dismissal or pay a dismissal notice allowance, grant weekly holidays, and provide retirement benefits.

 

 

Specifically, the following labor-related laws still apply to workplaces with fewer than five employees:

 

Specification of working conditions in Employment Contracts - Labor Standards Act, Article 17; Act on the Protection, etc., of Fixed-Term and Part-Time Employees, Article 17
Notice of dismissal - Labor Standards Act, Article 26
Rest periods, Break time - Labor Standards Act, Article 54
Paid weekly holidays - Labor Standards Act, Article 55
Maternity leave - Labor Standards Act, Article 74
Childcare leave - Act on Equal Employment and Work-Family Balance Assistance, Article 19
Retirement benefits - Act on the Guarantee of Workers' Retirement Benefits, Article 4
Minimum wage effectiveness - Minimum Wage Act, Article 6

 

 

 

3. What if a Foreign Corporation Establishes a Korean Entity with Fewer than Five Employees?
The Ministry of Employment and Labor considers the total number of regular employees, including those in the head office abroad when a foreign corporation operates a branch or sales office in Korea that can be deemed a business establishment.

 

Therefore, if a foreign corporation has a branch, sales office, or liaison office in Korea, and manages labor affairs and accounting directly from the head office overseas, making the Korean entity non-independent, the Labor Standards Act may apply even if there are fewer than five employees. Consequently, unfair dismissal claims can be filed.

 

Ministry of Employment and Labor, Policy Improvement Division - 438, January 28, 2014

Article 11 of the Labor Standards Act stipulates that it applies to any business or workplace employing five or more regular employees. The method for calculating the number of regular employees is specified in Article 7-2 of the Enforcement Decree of the Labor Standards Act. For foreign corporations operating branches or sales offices in Korea, the Labor Standards Act applies, and the number of regular employees is determined according to Article 7-2 of the Enforcement Decree.

 

 

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As reviewed above, even if the number of regular employees in a Korean entity established by a foreign company is fewer than five, it is likely to be considered a business with five or more employees if it is not an independent business entity. This includes employees of the foreign head office in the count.

 

As a result, regulations under the Labor Standards Act, such as restrictions on dismissal (termination), annual leave, and overtime/night/holiday pay, applicable to businesses with five or more employees, may apply.

 

 

 

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