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Supreme Court Decision on Transfer of Employment Relationships

2020.12.07

Unfair Dismissal Claims Get Carried Over in Business Transfer Regardless of the Buyer’s Knowledge 
 
Korea’s Supreme Court held on November 5, 2020 that labor relations with ex-employees with pending unfair dismissal claims are carried over to the successor of a business regardless of whether the new owner had knowledge of such claims at the time of the business acquisition.1  This decision sets a new rule concerning stability and continuity of employment during business transfers and essentially expands the purchaser’s liability with respect to unfairly dismissed employees. 
 
The guiding principle has been that employment relations transfer together with the business if business operations before and after the transfer remain the same.  Previously, courts have held that only those employments that remain effective and valid at the time of the business transfer get carried over and employees who were dismissed prior to the business transfer agreement or are contesting dismissal are excluded from the transfer process.2  One exception to this rule was if the purchaser had known at the time of the business acquisition that the dismissal in question was invalid3, in which case the unfairly dismissed employee would be transferred as part of the business.  The Supreme Court’s decision in November 2020 is significant because it ruled that where business operations remain the same, the purchaser acquires unfair dismissal claims of ex-employees regardless of the purchaser’s knowledge. 
 
In this case, the plaintiff acquired the business of a hospital.  The seller had excluded two employees (an ambulance driver and a physical therapy manager) from the scope of the transfer and after completing the business transfer, dismissed one other employee (a nursing assistant).  The seller did not follow the requisite dismissal procedure set forth in the hospital’s collective agreement. 
 
The driver, manager and assistant were all members of a health industry union of a nationwide trade federation, the Korean Confederation of Trade Unions (the “Union”).  The Union filed a claim with the district labor relations commission alleging unfair dismissal and unfair labor practices.  While the commission’s decision was pending, the purchaser commenced the business transfer process.  Despite notice from the Union that the labor dispute were pending, the purchaser completed the business transfer and excluded the dismissed employees from the scope of the business transfer.  The Union thereafter added the purchaser as a party to the dispute. 
 
After the National Labor Relations Commission (the “NLRC”) decided in favor of the dismissed employees on both claims of unfair dismissal and unfair labor practices, the purchaser filed an action against the NLRC.  The court of first instance held in favor of the NLRC, and the purchaser appealed.  The appellate court upheld the lower court’s decision on the issue of unfair dismissal but rejected the unfair labor practices claim, finding insufficient evidence to confirm whether the purchaser had been aware that the employees had been unfairly dismissed at the time of the business transfer. 
 
The Supreme Court affirmed the appellate court’s decision and dismissed the case, holding that the purchaser’s liability with respect to employment relations includes those that were subject to pending unfair dismissal claims or proceedings, regardless of the purchaser’s knowledge of such disputes at the time of the business transfer.  The Supreme Court reasoned that such knowledge exception would effectively allow the selling employer to freely dismiss employees immediately before a business transfer, which goes against the legislative intent of the Labor Standards Act that permits dismissal on limited grounds.4  The court further held that business transfer itself does not constitute a “justifiable cause” necessary for dismissal.5 
 
This Supreme Court decision effectively expands the liability of the purchaser vis-à-vis employment relations in a business transfer so as to include unfairly dismissed employees disputing the validity of their dismissals irrespective of the purchaser’s actual knowledge at the time of the business transfer.6

1.  Supreme Court Decision 2018Du54705 dated November 5, 2020. 
2.  Supreme Court Decision 91Da41750 dated May 25, 1993. 
3.  Supreme Court Decision 96Da33238 dated May 31, 1996. 
4.  See Article 23(1) of the Labor Standards Act (“An employer shall not, without justifiable cause, dismiss, lay off, suspend, or transfer an employee, reduce his/her wages, or take other punitive measures (hereinafter referred to as "unfair dismissal, etc.") against him/her.”). 
5.  See e.g., Supreme Court Decision 93Da33173 dated June 28, 1994. 
6.  See e.g., Supreme Court Decision 96Da33238 dated May 31, 1996.

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