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[Article] Significance of Supreme Court Decision and Summary of Revised Labor Standards Act on System of Measures to Urge Employees to Take Annual Paid Leave

2020.05.29

1. Introduction 
 
The Supreme Court recently rendered a decision on the measures to urge employees to take annual paid leave and allowances for the paid annual leave that has not been taken (the “Annual Paid Leave Allowance”). If an employee showed for work on a day designated as a day of leave and an employer did not express a clear intent to refuse the acceptance of work, the employer shall be subject to an obligation to compensate the Annual Paid Leave Allowance regardless of whether it implemented the system of measures to urge employees to take annual paid leave (Supreme Court decision 2019da279283 dated February 27, 2020). This article will examine the significance of the Supreme Court decision on the system of measures to urge employees to take annual leave and the subsequent courses of actions for corporations. Next, the article will summarize the terms relating to the annual paid leave (the “Annual Paid Leave”) which were introduced by the recent amendment to the Labor Standards Act. 
 
 
2. Overview of System of Measures to Urge Employees to Take Annual Paid Leave 
 
The Labor Standards Act provides, where an employer has taken the measures to urge employees to take their respective annual leave, the relevant employer is not liable to indemnify the employee for his/her failure to take the paid leave (Article 61). These measures of the employer are generally called the system of measures to urge employees to take annual paid leave (the “System of Measures to Urge Employees to Take Annual Paid Leave”). 
 
(a) In case of adopting the System of Measures to Urge Employees to Take Annual Paid Leave, the employer shall notify every employee of the number of days of his/her leave that has not been taken within 10 days as of six months before the end of the one year period from the day the annual paid leave becomes available, and shall urge every employee in writing to determine the period he/she is planning to use for the leave and to notify the employer of the same (Article 61 Paragraph 1 Clause 1). (b) Notwithstanding the demand, if the employee fails to determine and notify the employer of the period which he/she is planning to take all or part of his/her unused leave within ten days from the date he/she receives the demand, the employer shall determine and notify in writing to the employee a period for his/her leave by no later than two months before the available period ends (Article 61 Paragraph 1 Clause 2). 
 
In case where the employee does not use the leave despite these measures of the employer and the annual paid leave expires, the employer is not under an obligation to compensate for the unused leave. Also, this shall be deemed a ground for suspending the statute of limitations and not a breach attributable to the employer. Therefore, the employee may not carry over the unused annual paid leave to use in the next year (Article 61 Paragraph 1 of the Labor Standards Act). 
 
 
3. Recent Supreme Court Decision on System of Measures to Urge Employees to Take Annual Paid Leave 
 
A. Overview 
 
In this case, the company (the “Company”) was using the System of Measures to Urge Employees to Take Annual Paid Leave. On July 6, 2016 which was six months before the date the leave was expected to expire, the Company urged in writing to the employee to determine a period he/she was planning for the annual paid leave and to notify of the same. Therefore, the employee (the “Employee”) submitted in writing a plan to use the annual paid leave on (i) August 4, 2016, (ii) August 24, 2016, (iii) September 21, 2016, (iv) September 28, 2016, (v) October 12, 2015, (vi) October 26, 2016, (vii) November 22, 2016, (viii) November 29, 2016, (ix) December 14, 2016, (x) December 29, 2016, and (xi) December 30, 2016. As of July 6, 2016, the Employee had 21 days of annual paid leave which had not been used, but the Employee determined and notified for a period of 11 days only, not determining or notifying the period as for the remaining 10 days. 
 
The Employee subsequently submitted in writing another plan to the Company to use the annual paid leave on (i) November 25, 2016, (ii) November 28, 2016, (iii) November 29, 2016, (iv) November 30, 2016, (v) December 1, 2016, (vi) December 2, 2016, (vii) December 5, 2016, (viii) December 6, 2016, (ix) December 7, 2016, (x) December 8, 2016, and (xi) December 9, 2016, (xii) December 12, 2016, (xiii) December 13, 2016, (xiv) December 14, 2016, (xv) December 15, 2016, (xvi) December 16, 2016, (xvii) December 19, 2016, (xviii) December 20, 2016, (xix) December 21, 2016, (xx) December 22, 2016, and the Company approved of the plan. 
 
However, at the time of submission of this modified plan, the Employee had a plan for a business trip to the United States from November 30, 2016, and subsequently went on the business trip to the United States from November 30, 2016 to December 5, 2016. The Employee also worked on the dates under (i), (iii), (viii) and (xx) that were referenced immediately above. 
 
B. Summary of Decision 
 
The Supreme Court held that the Company shall pay the Annual Paid Leave Allowance. This was based on finding that the Company did not properly implement the System of Measures to Urge Employees to Take Annual Paid Leave under the Labor Standards Act and that the Employee’s failure to use the leave on the designated dates was not by the voluntary intent. 
 
Specifically, the fact that the Employee had determined and notified on the period of 11 days without notifying as to the remaining 10 days out of the total of 21 days of annual paid leave became an issue. That is, even though the Employee did not determine or notify for 10 of 21 days of annual paid leave, the Company failed to determine the period and notify the Employee in writing within two months from the end of the period available for use. 
 
Also, the Supreme Court emphasized that any non-use of the leave shall be by the voluntary intent of the employee. In case an employee showed for work and did work on the day designated for leave, (i) if the employer was aware of the fact the employee was providing work on the day of leave yet did not clearly express the intent to refuse the acceptance of work or (ii) if the employer instructed the employee to work, it cannot be deemed that the employee voluntarily intended to not use the leave.  In the foregoing instance, the employer would assume the duty to compensate the Annual Paid Leave Allowances for the leave that the employee could not use due to the labor provided. 
 
C. Potential Courses of Actions 
 
1) Review of risks in claiming the existing, unpaid Annual Paid Leave Allowances 
 
The employee may argue that the System of Measures to Urge Employees to Take Annual Paid Leave was not properly implemented and that they did not voluntarily intend to not use the leave to claim the Annual Paid Leave Allowances from the employer. Considering the statute of limitations on the Annual Paid Leave Allowances, companies should examine how the System of Measures to Urge Employees to Take Annual Paid Leave has been implemented in the last three years as follows. 
 
First, whether a company properly refused the acceptance of work should be verified. In view of the intent behind the above Supreme Court decision, (i) it would be interpreted that the company accepted work on the day of leave if the company did not express refusal of the acceptance of work to any employee who showed for work on the designated day of leave. (ii) Given that the employer has the burden of proof on the fact of refusal of the acceptance of work, the company should verify and maintain the relevant materials. (iii) If, during the period the employee designated to use the leave, there were schedules arranged for work, projects or business trips to which the employee must attend, it is likely to be deemed that the company instructed the employee to work. 
 
Second, whether the company complied with the procedures relating to the System of Measures to Urge Employees to Take Annual Paid Leave in good faith should be verified. (i) According to the case precedent which determines the procedural compliance with the System of Measures to Urge Employees to Take Annual Paid Leave in a strict manner, it is likely for a delay on the deadline to give notice by even one day to be deemed a violation of the procedures. (ii) The employer shall compare the remaining number of days of leave and the number of days the employee plans to use the leave for each employee as of the time the employee determined and notified the days he/she plans to use the leave to examine whether there are any days which are not accounted for. (iii) In case there are employees who have not determined and notified to the company the days they plan to use the leave, the company should inspect whether the company determined the period of leave and notified the employees of the same. (iv) In case the employee notified the days he/she plans to use the leave as less than the remaining number of days, the company should inspect whether the company determined the period of use for the remaining days and notified the employee of the same. 
 
2) Next steps on implementation of System of Measures to Urge Employees to Take Annual Paid Leave: on refusal of acceptance of work 
 
The company shall clearly express the refusal of the acceptance of work to prove that the non-use of the leave is by the employee’s voluntary intent. Given that the Labor Standards Act does not separately provide for the specific method of refusal of the acceptance of work, how to refuse the acceptance of work becomes an issue. 
 
The administrative guidance from the Ministry of Employment and Labor provided that putting a “notice of intent to refuse acceptance of work” on the desk of the employee on the day of the annual leave or showing a screen image of “notice of intent to refuse acceptance of work” when turning on the computer for the employee to be made aware of the employer’s intent to refuse the acceptance of work would be deemed the expression of intent to refuse the acceptance of work (Labor Standards Department-351 dated March 22, 2010). On the other hand, the method of notice by email was deemed to not rise to the level of the expression of intent at the level the employee may be made aware because it would not be possible to verify whether the employee was clearly made aware of the terms of the email even if the employee opened the email (Labor Improvement Policy Department-4271 dated March 22, 2010). 
 
In view of the above Supreme Court decision, the company should express the intent to refuse the acceptance of work more actively than by communicating a written notice of intent to refuse the acceptance of work. First, the company should manage for the employee to not show up for work on the day he/she planned to use the annual leave. If it is possible to connect to the entrance system, the company should consider the method of restricting the entry on the day the employee planned to use the annual leave. The company should also consider the method of requiring the employee before showing for work to sign a letter of confirmation that the employee voluntarily showed for work despite the refusal of the acceptance of work or a letter of confirmation to change the date he/she planned to use annual leave. Along these lines, the method of implementing the system of turning off the computer on the day the employee planned to use and the method of restricting the authority to access the internal network or the email system may be points of references in supporting the company’s intent to refuse the acceptance of work. 
 
Further, the company should pay attention to not give instructions for work to the employee who showed for work on the day he/she planned to use the annual leave. The above Supreme Court decision held that “if the company gave the employee instructions for work, it cannot be deemed that the employee did not use the leave by voluntary intent, unless there are special circumstances.” Therefore, for the practical implementation of the System of Measures to Urge Employees to Take Annual Paid Leave, the company should repeatedly emphasize for the department head to be familiar with the relevant terms and not give instructions for work on the day the employee planned to use the annual leave. 
 
3) Next steps on implementation of System of Measures to Urge Employees to Take Annual Paid Leave: regarding written notice 
 
Many companies are carrying out work using electronic systems and there are many cases which use the internal electronic system for the application for, or approval of, the leave. However, the Labor Standards Act stipulates that the System of Measures to Urge Employees to Take Annual Paid Leave should be done in writing. Therefore, whether the implementation of the System of Measures to Urge Employees to Take Annual Paid Leave via electronic system or email is legal may be an issue. 
 
For example, the administrative guidance of the Ministry of Employment and Labor provided that notifying via internal email or uploading an official letter containing the number of days of the leave which have not been used per employee on the company website would unlikely be recognized as valid written notice, unless the terms would be deemed clearer when compared to a written demand given to the relevant individual or notice in writing by the employee (Labor Standards Department-3836 dated July 27, 2004). In view of the intent behind the Supreme Court decision which determined the procedural legality of the System of Measures to Urge Employees to Take Annual Paid Leave in a strict manner, a simple email notice which could not confirm whether the relevant terms actually reached the employee, a simple notice using an internal electronic system (e.g., messages) or a notice on the internal network would carry risks of not being recognized as a lawful written notice. 
 
While this is an example of a written notice of termination, the court recognized a “written” notice via email or electronic system, in view of the actual system adopted by the corporation.1 That is, in a case of implementing the System of Measures to Urge Employees to Take Annual Paid Leave by using the electronic system, it would be advisable to implement the system by also preparing the procedures that would prove that the relevant content of the notice or demand actually reached the employee. The method of having the employee print out the relevant content, sign and submit and the method of having the employee send a reply having read the relevant content and keep the same may be used as points of references. 
 
 
4. Amendment of Labor Standards Act on Annual Leave 
 
A. Change of time of statute of limitation of the employee who has continuously worked for less than one year (Revised Article 60 Paragraph 7 of the Labor Standards Act) 
 
An amendment on the Labor Standards Act was adopted at the general meeting of the National Assembly on March 6, 2020 (the “Revised Labor Standards Act”). The amended provisions relating to the annual leave are as follows. 
 
According to the Labor Standards Act as amended in 2017, the employee who has worked continuously for less than one year is entitled to the one paid leave day for each month during which he/she has continuously worked (up to 11 days per year) (effective as of May 29, 2018). The Labor Standards Act stipulates that the paid leave becomes available for the new employee by month (Article 60 Paragraph 2 of the Labor Standards Act). Therefore, the employee could use one day of paid leave which becomes available each month within the period of one year and the day of paid leave would consecutively expire every month in the following year. This structure made it difficult to manage the annual leave of the new employee. 
 
The Revised Labor Standards Act amended this to provide that the annual leave for the new employee which was to expire each month to now expire at once after one year from the start of employment. Therefore, the new employee in the first year would become entitled to use the annual leave (up to 11 days) accrued from the period of continuous work for less than one year and in the second year the annual leave (up to 15 days) accrued from the initial one year period of work rendered. 
 
B. Establishment of System of Measures to Urge Employees to Take Annual Paid Leave for Employee who Worked less than 80% of One Year (Revised Article 61 Paragraph 1) 
 
Pursuant to Article 60 Paragraph 2 of the Labor Standards Act, any employee who has worked less than 80 percent of one year shall be granted one paid-leave day for each month during which he/she has continuously worked. However, the old Labor Standards Act was interpreted to provide that the employee who has worked less than 80 percent of one year may not be subject to the System of Measures to Urge Employees to Take Annual Paid Leave. In response, the Revised Labor Standards Act would allow the employee who has worked less than 80 percent of one year to be subject to the System of Measures to Urge Employees to Take Annual Paid Leave. 
 
C. Establishment of System of Measures to Urge Employees to Take Annual Paid Leave for Employee who Worked less than One Year (Revised Article 61 Paragraph 2) 
 
The old Labor Standards Act was interpreted to provide that the employee who has continuously worked less than one year may not be subject to the System of Measures to Urge Employees to Take Annual Paid Leave. The Revised Labor Standards Act now allows the employee who has continuously worked less than one year to be subject to the System of Measures to Urge Employees to Take Annual Paid Leave 
 
However, it should be noted that the period for urging the employee to take annual leave is different between nine days of annual leave which incurred earlier and two days of annual leave which subsequently occurred. (i) The employer shall notify the employee in writing of the number of days of leave which were not used and urge the employee in writing to determine the period he/she plans to use the leave and to notify the employer within 10 days from three months prior to the end of the employment period of one year from the start of employment for nine days of annual leave (i.e., if the start of employment was on January 1st between October 1st and October 10th) and within five days from one month prior to the end of the employment period of one year as to two days of annual leave which subsequently incurred (between December 1st and December 5th) (Article 61 Paragraph 2 Clause 1 of the Revised Labor Standards Act). (ii) In case the employee does not notify the period he/she plans to use the leave within 10 days upon receiving the notice, the employer shall determine the period to use the annual leave and notify in writing for each employee by one month before the end of the employment period of one year (or by 10 days as to two days of the annual leave) (Article 61 Paragraph 2 Clause 2 of the Revised Labor Standards Act). Assuming a new employee started work as of January 1st, the procedures and timing for the System of Measures to Urge Employees to Take Annual Paid Leave shall be as follow.

〈Procedures of Measures to Urge Employees to Take Annual Paid Leave for Employee (as of new employee on January 1st〉

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			1st procedures

Determination and notice of period of use
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			2nd procedures (from employer to employee)

Determination and notice of period of use in case of employee’s failure to notify period of use
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			Nine days of annual leave
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			October 1st to October 10th (for ten days before three months)
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			Within ten days
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			Until November 30th (before one month)
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			Two days of annual leave
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			<td style="background: rgb(255, 254, 252); border-width: 0px 1pt 1pt 0px; border-style: none solid solid none; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); padding: 0cm 5.4pt; width: 115.3pt;" valign="top" width="154">
			December 1st to December 5th (for five days before one month)
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			Within ten days
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			<td style="background: rgb(255, 254, 252); border-width: 0px 1pt 1pt 0px; border-style: none solid solid none; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); padding: 0cm 5.4pt; width: 115.3pt;" valign="top" width="154">
			Until December 21st (before ten days)
			</td>
		</tr>
	</tbody>
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(Reference: Ministry of Employment and Labor’s Explanatory Notes on Revised Labor Standards Act, March 2020)

D. Effective Date and Example of Revised Labor Standards Act 
 
This Revised Labor Standards Act shall be effective from March 31, 2020 which is the date of announcement. However, pursuant to the Addenda of the Revised Labor Standards Act, any annual leave days which were accrued prior to the effective date of the law shall follow the earlier provisions (Article 2 of the Addenda). Therefore, (i) the annual leave of the new employee arising after March 31, 2020 shall be subject to the Revised Labor Standards Act and shall expire at once after one year; however, (ii) any leave accrued before March 31, 2020 shall expire pursuant to the old Labor Standards Act one year after the date of the relevant leave accrued. (iii) Also, the System of Measures to Urge Employees to Take Annual Paid Leave for the employees who continuously worked for less than one year and the employees who worked less than 80% of one year shall apply to the annual leave accrued after March 31, 2010. 
 
As an example, let us suppose that a new employee who started work on January 1, 2020 continuously worked in January, February, March, April, July, November and December, thereby working less than 80% of one year.2 
 
(i) In this case, the new employee, by virtue of continuously working in January and February, would become entitled to two days of annul leave, and these two days would constitute the leave accrued before the effective date of the Revised Labor Standards Act so they should be available until January and February of 2021 respectively. 
 
(ii) The new employee, by virtue of continuously working in March, April, July and November, would become entitled to four days of annual leave, and these four days would constitute the leave accrued after the effective date of the Revised Labor Standards Act so they should be available until December 31, 2020 pursuant to the Revised Labor Standards Act. 
 
(iii) The new employee, having worked for less than 80% of one year, should be entitled to the leave for seven days in total by the number of months he/she continuously worked (i.e., January, February, March, April, July, November and December of 2020) (Article 60 Paragraph 2 of the Labor Standards Act). The annual leave shall be available for use from January 1, 2021. 
 
(iv) Pursuant to the Revised Labor Standards Act, the annual leave under the above (ii) and (iii) also became subject to the System of Measures to Urge Employees to Take Annual Paid Leave. 
 
 
5. Conclusion 
 
With the Supreme Court rendering decisions on the System of Measures to Urge Employees to Take Annual Paid Leave and Annual Paid Leave Allowances and the amendment of the provisions on the System of Measures to Urge Employees to Take Annual Paid Leave under the Labor Standards Act, it is expected there will be much confusion in the implementation. In particular, the number of days of annual leave and annual paid leave allowances may be sensitive matters for companies. Therefore, it would be important to examine the current state of compliance and to supplement as necessary to avoid any misunderstanding. One way to lower the risks would be to make a summary of the terms of the Revised Labor Standards Act and a plan to implement the System of Measures to Urge Employees to Take Annual Paid Leave and to make a company-wide announcement of the same.

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1) The “written” under Article 27 of the Labor Standards Act refers to a document containing certain terms. It is distinguished from electronic documents such as emails. However, email was held to be a valid form of notice of termination as an exception if it sufficiently functions as a notice of termination in writing such as clearly communicating the employer’s intent to terminate in view of the form and context of the email, containing in detail the terms regarding the reasons for termination and the dates of termination, and allowing the employee to receive the email to be made known of the terms; provided that it does not violate the legislative intent of the Labor Standards Act (Supreme Court decision 2015du41401 dated September 10, 2015).

2) This example is from the Ministry of Employment and Labor’s explanatory notes on the revised Labor Standards Act (March 2020). 
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