Court: "Severance Pay for Mu-gi Contract Workers Must Not Differ from Regular Employees"

A court ruling has determined that companies must apply the same conditions to indefinite-term contract workers as to regular employees when paying severance pay, unless there are separate applicable regulations in the employment rules.

According to the legal community on the 28th, the Seoul Central District Court Civil Division 41 (Presiding Judge Jeong Hoe-il) recently ruled partially in favor of the plaintiffs in a severance pay claim lawsuit worth 640 million won filed by Mr. A and about 40 other indefinite-term contract workers of Korea Asset Management Corporation (KAMCO) against the company.

Seoul Central District Court. / Photo by Mun Ho-nam munonam@

At the end of 2000, KAMCO changed its severance pay progressive system to a severance pay rounding-down system, which was disadvantageous to workers. This was in response to the government's recommendation to abolish the progressive severance pay system in public enterprises. At that time, KAMCO prepared a supplementary provision stating, "If an employee who was employed at the time of the transition to the rounding-down system has worked for 20 years or more based on the date of hire and retires, severance pay shall be set at twice the basic payment rate; however, this condition does not apply to contract employees," and reached an agreement with the labor union.

Mr. A and others, who were non-regular indefinite-term contract workers at the time, changed their status to regular employees in 2007. After working for more than 20 years, in 2018, they received severance pay calculated only at the basic payment rate and filed a lawsuit demanding the additional severance pay according to the supplementary provision. KAMCO countered by stating, "Mr. A and others, who were contract workers at the time of the transition to the rounding-down system, are not eligible for additional severance pay according to the labor-management agreement. Moreover, since they resigned from their indefinite-term contract positions in 2007 and were newly hired as regular employees, they cannot be considered to have worked for more than 20 years."

The court ruled in favor of Mr. A and others, stating, "The term 'employees in service' in the severance pay supplementary provision includes contract employees." The court explained, "The severance pay regulations in the employment rules should be uniformly applied to all workers at the workplace unless there are special circumstances. KAMCO did not have employment rules that separately stipulated the working conditions for contract employees." The court further pointed out, "Although the labor union's agreement with the company includes conditions for severance pay, this agreement cannot be regarded as a change to the employment rules that apply to all KAMCO employees."

Meanwhile, the court did not accept KAMCO's claim that Mr. A and others were not employees with more than 20 years of service. The court stated, "The defendant unilaterally decided on the policy of 'termination of existing employment relationships' for the transition to regular employment and informed the prospective transferees that 'if resignation letters are not submitted within the deadline, it will be considered as non-consent.' It cannot be considered that Mr. A and others voluntarily submitted resignation letters as prospective regular employees." The court added, "Even if the labor union concluded an agreement with the company on the 'conversion of contract employees to regular employees,' it cannot be assumed that the union has the authority to consent to the termination of individual employment contracts."