[Legal Spotlight]① "I Signed, But No Severance Pay?"…The Pitfalls of Foreign-Company Executive Contracts

Notified of "no severance pay" after signing a resignation agreement
Attorney Bang In-tae of Daeryun: "The substance of the employment relationship, not the title, is the key"

"All you have to do is sign. We will pay you a consolation payment."

Mr. A, who spent 26 years at one company and rose to the position of representative director, recently received a sudden demand to resign from the overseas headquarters. The company then said it would pay a consolation payment if he signed the resignation agreement, but once the signing was complete, it took the position that "a representative director is not a worker, so we cannot pay severance pay."

This is a case recently disclosed by Attorney Bang In-tae of Daeryun Law Firm. The case was a dispute in which Mr. A, who had been the representative director of the Korean branch of a European company, demanded severance pay from the overseas headquarters, and it was ultimately concluded with the full payment of 350 million won without litigation.

According to Attorney Bang, global companies frequently use what is called an "Executive Resignation Agreement" when restructuring their Korean branches or carrying out a change of representative. It is a method that contains a provision not to raise legal objections in the future in exchange for paying a consolation payment.

The problem is that there are not a few cases in which the overseas headquarters judges the person to be an employer merely because they are a registered officer and considers that there is no obligation to pay severance pay. However, Korean labor law regards the actual form of work as more important than the title or the form of the contract.

The Supreme Court has also maintained the position in past rulings that "regardless of the designation, if a person provided labor in a subordinate manner under the direction and supervision of the employer, they must be regarded as a worker."

In fact, in Mr. A's case, it is reported that he performed his duties under the specific instructions of the overseas headquarters and could not independently exercise the branch's personnel and financial authority. The explanation is that he was, in effect, closer to an employed worker under the control of headquarters than a management executive.

On this basis, Attorney Bang's side demanded payment of severance pay, arguing, "Since the Labor Standards Act is a mandatory statute, an agreement to waive severance pay that is less favorable than the law is void," and reached a settlement after about two months of negotiation.

Attorney Bang emphasized, "Signing a resignation agreement does not mean that the company's responsibility disappears," stressing, "The key is not the title but the substantive employment relationship." He pointed out, "If someone was an officer in name only but actually moved under the instructions of the overseas headquarters, the Korean courts are highly likely to judge them to be a worker," adding, "Overlooking Korean labor law while trusting only global standards can lead to disputes worth hundreds of millions of won."

He also advised foreign-affiliated companies, "In the process of establishing a branch or appointing/replacing officers, they must closely review in advance the work-instruction system, the structure of personnel and financial authority, and the method of determining remuneration," adding, "Personnel actions carried out without an accurate understanding of Korean labor law can return as a major legal burden."

Reporter Jung Ye-jin yejin0311@inews24.com

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