Labor Law Of Korea: Paid Annual Leave – Employment and HR

Irina Baranova


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The Supreme Court of Korea has ruled that the maximum paid
annual leave granted to one-year fixed-term workers shall be 11
days, not 26 days.

(Supreme Court Decision No. 2021Da227100 rendered on October
14, 2021)

On October 14, 2021, the Supreme Court ruled that the paid
annual leave for one-year fixed-term workers is 11 days. As this
decision conflicts with the previous guidelines of the Ministry of
Employment and Labor (“MOEL”), stating, “If a
fixed-term worker’s one-year employment contract expires,
allowances must be provided for up to 26 days of unused annual
leave,” the decision is having an enormous impact on the
domestic labor sector.

[Summary of the case]

The Labor Standards Act (“LSA”) stipulates,
“Every employer shall grant any employee who has worked not
less than 80 percent of one year a paid leave of 15 days”
(Article 60 (1)) and, “Every employer shall grant any employee
who has continuously worked for less than one year or who has
worked less than 80 percent of one year one paid-leave day for each
month during which he or she has continuously worked,”
(Article 60 (2)). However, on November 28, 2017, the LSA was
amended to remove paragraph 3 of the same Article, stating,
“In cases where a paid leave is granted for the first one-year
of work, the worker shall be entitled to 15 days including the
leave set forth in paragraph 2, and in cases where the worker has
already used the leave set forth in paragraph 2, the number of days
used shall be subtracted from 15 days.”

In such circumstances, the Employment and Labor Administration
issued a guideline stating about the paid annual leave for
fixed-term workers with one-year contracts, “In the event a
one-year employment contract for a fixed-term worker expires,
allowances must be provided for unused paid annual leave of up to
26 days.” (“Explanations on the Amended Labor Standards
Act Regarding the Expansion of Annual Leave Guarantees for
Fixed-term Workers Who Have Worked for Less Than One Year,”
published on May 2018)

The worker, in this case, used all of his 15 days of annual
leave while working at the company for one year. After leaving the
company, the worker sent a petition to the Employment and Labor
Administration insisting that he did not receive an annual leave
allowance for 11 days of annual leave from the employer. Afterward,
the employer granted the worker an annual leave allowance for 11
days under the guidance of the Employment and Labor
Administration.

However, the employer filed the lawsuit, arguing that (1) it is
unjust to grant up to 26 days of annual leave to a worker who has
executed a one-year employment contract and that the worker must
return the allowance for 11 days since the employer granted the
annual leave allowance to the worker who had already used up the
entire annual leave under the mistaken guidance of the labor
authorities. In addition, the employer argued that (2) it was
illegal for the government to come up with an interpretation
stating that workers with one-year employment contracts shall be
granted up to 26 days of annual leave or allowances for any unused
leave, create and distribute guidelines based on such
interpretation, and have the labor authorities provide guidance
based on such interpretation.

The court of the first instance found that all of the
employer’s arguments were unjust and dismissed all the claims.
However, the appellate court accepted the employer’s claims
against the worker, and while both the worker and employer appealed
to the Supreme Court, the Supreme Court upheld the appellate
court’s decision without leave to amend.

[Supreme Court’s ruling]

Citing the following reasons, the Supreme Court ruled that a
maximum of 11 days of annual leave shall be granted to workers who
have executed a one-year employment contract.

  1. The November 28, 2017 amendment to the LSA deleted the
    provisions of Article 60 (3), stating, “In cases where a paid
    leave is granted for the first one-year of work, such leave shall
    be 15 days including the leave set forth in paragraph 2, and in
    cases where the worker has already used the leave set forth in
    paragraph 2, the number of days used shall be subtracted from 15
    days.” The ground for the amendment was merely to make workers
    receive up to 11 days of annual leave for the first year of work
    and up to 15 days for the second year of work. The deletion of
    Article 60 (3) cannot provide the basis for applying the provisions
    of Articles 60 (1) and 60 (2) at the same time for a worker who has
    worked for only one year.

  2. Unless otherwise stated, the right to use paid annual leave
    accrues on the day following the completion of one year’s work
    from the previous year. In addition, in cases where the employment
    relationship terminates before that time due to resignation, etc.,
    a claim cannot be made for an annual leave allowance. For a
    one-year fixed-term worker, the employment relationship terminates
    on the day following the completion of the employment, so a claim
    for an annual leave allowance cannot be made.

  3. If the provisions of both Articles 60 (1) and 60 (2) apply to a
    fixed-term worker on a one-year contract, the worker would be
    granted a total of 26 days of annual leave. Given that Article 60
    (4) states, “the total number of days of leave, including
    accrued leave, shall be limited to 25 days,” if a fixed-term
    worker on a one-year contract receives more than 25 days of leave,
    which is the number of days of leave granted to a permanent worker,
    it will result in placing the fixed-term worker in a superior
    position to the permanent worker, and it violates the principle of
    equity.

  4. Given that the right to use annual leave, or the right to claim
    an annual leave allowance, is provided as compensation for the one
    year of work during the previous year, and that the purpose of the
    annual leave system was to provide workers with opportunities for
    mental and physical rest and improve quality of life by relieving
    workers of their work obligations while being paid for a set period
    of time, it is appropriate to interpret that Article 60 (1) of the
    LSA stipulates that a worker who has worked for at least 80 percent
    of the first year of work shall be granted 15 days of paid leave
    for the second year if the worker maintains the employment
    relationship for the following year.

Furthermore, although the Supreme Court ruled that the
government’s interpretation, which considered paragraphs 1 and
2 of Article 60 of the LSA as applying concurrently for fixed-term
workers on a one year and so determined that 26 days of annual
leave or an allowance for any unused portion shall be granted, was
invalid, the Court also ruled that it could not find any intention
or negligence on the part of the government concerning the creation
and distribution of such guidelines by the Employment and Labor
Administration and the issuance of related guidance by the labor
authorities. Thus, the Court ruled that the employer’s claims
against the government seeking damages were without merit.

[Implications]

Although the MOEL previously released guidelines implying that
fixed-term workers who have worked for one year shall be granted up
to 26 days of annual leave, the Supreme Court’s judgment of the
case of 2021Da227100 has resulted in only a maximum of 11 days of
annual leave being granted to such workers, so we expect the MOEL
to change these guidelines soon following this judgment.

Until now, domestic companies have been granting allowances
instead of annual leave for up to 26 days for fixed-term workers
who have worked for one year in accordance with the MOEL’s
guidelines, but due to the Supreme Court’s judgment in the case
of 2021Da227100, it is expected that domestic companies will file
suit against those who have left their companies, seeking to recoup
the relevant annual leave allowances.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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