Quick Hits

• A Supreme Court of Korea opinion provides employers with useful insights into just cause for dismissing an employee based on poor performance.
• The court found that a former employee, who had been with the employer for more than twenty-five years, had received poor performance reviews for more than ten years before being dismissed, and had failed to meet the requirements of a performance improvement plan seven out of eight times.
• Employers in South Korea must have just cause to dismiss an employee, and therefore may want to err on the side of caution when considering unilateral terminations of employment based on poor performance.

The Labor Standards Act of Korea mandates that there be just cause for dismissing an employee. This means that employers may not dismiss employees “at will,” which is often the case in countries like the United States. Courts in South Korea have defined “just cause” as a cause that is attributable to the employee that renders continued employment impossible from a societal perspective.

Many court cases in South Korea have attempted to determine what it means for an employment relationship to be deemed “impossible to continue from a societal perspective.” Unambiguous factors establishing just cause include conviction of a serious crime, stealing, and falsifying a resume. Where performance is the cause, however, the proof requirements are less clear.

In general practice, Korean courts do not find inadequate performance, in and of itself, to be a sufficient cause for an employee’s dismissal. Yet, they have established that poor performance may constitute just cause for termination of employment.

Overall, the legal standard for performance-based dismissal in South Korea remains difficult to meet. The employer wishing to unilaterally dismiss an employee—whether the employment is permanent or temporary—for poor performance will need to exert substantial effort and spend significant time to sufficiently satisfy the standard.

When making such determinations, Korean courts look to whether the employer can demonstrate the following factors:

1. The employee at issue has, in fact, performed poorly when compared to other employees, and the evaluation used in the decision to dismiss the employee was fair and objective.

Elements include the following:

• well-established performance evaluation criteria that is transparent and accessible; and
• the fairness of the performance review process. (Were multiple parties involved in the evaluation process? Was the employee given the opportunity to provide feedback?)

2. The employer has made substantial efforts to coach and guide the underperforming employee. Options include:

• adjusting targets so they become realistic goals for the employee to achieve; and
• reassigning the employee to a different position—with appropriate training. (This involves receiving feedback from the employee on placement and a careful assessment of the employee’s strengths and weaknesses.)

The courts examine whether the employer has fully explored these options, as opposed to, for example, simply reassigning the employee without consultation or temporary adjustment of targets. The employer must make a consistent effort to explore alternatives to dismissal. Commonly, employers utilize performance improvement plans to meet this standard.

Performance Improvement Plans

These plans are also subject to scrutiny by the courts. Employees must be given several warnings with feedback as part of the performance improvement plan. Employers are expected to provide sufficient time for an employee to improve performance—typically, nine to twelve months. An employer can dismiss an underperforming employee only if the employer can successfully demonstrate that, despite its efforts, the employee has failed to show any sign of improvement.

The Supreme Court of Korea’s Analysis

The Supreme Court of Korea recognized that no bright-line standards and criteria existed to establish just cause for performance-based employment terminations. Nevertheless, the court determined that the employer had met the requirements for a just-cause dismissal.

The court cited several reasons for its decision.

• Length of employment/level of expertise: The employee had worked for the company for twenty-five years and held a high-level managerial position. Based on this factor, the court ruled that a certain level of performance and expertise could be expected.
• Evaluations: The employee’s performance had been evaluated for more than ten years, from 2007 through 2017. Out of the five grades possible—S, A, B, C, and D, in descending order, from best to worst—the employee received Grade D every year. The court found that this showed that the employee had consistently performed poorly compared to other employees for a long period of time.
• Performance improvement plan: The employee had been provided with a performance improvement plan for three years. Compared to all other employees who were placed on similar plans, only this employee had failed to satisfy the requirements seven out of eight times. The court found that the employer had demonstrably given sufficient time and opportunity for the employee to improve work performance.

Key Takeaways

While this ruling may indicate that courts in South Korea are becoming more flexible regarding unilateral performance-based terminations of employment, it also demonstrates and reaffirms the high standards for such terminations of employment. Employers may want to err on the side of caution when considering unilateral terminations of employment based on poor performance because of the multiple requirements that must be met.