By Attorney Taejin Kim,
K&P Law Firm, Songdo, Incheon
I. Overview
Often, companies struggle to differentiate between 'executives' and 'workers'. Instances are rife where employees, formally registered as corporate executives, claim to be 'workers', subsequently suing the company or reporting the corporate representative for non-payment. Similarly, company representatives often fail to distinguish between executives and workers concerning non-payment of remuneration, leading to penalization. Therefore, it's crucial for company managers and employees to understand their roles as 'executives' or 'workers'.
1. Executives
Executives maintain a delegated relationship with the company. Registered executives (directors) are appointed by the shareholders' general meeting and can be dismissed without cause through a special resolution. However, if they are dismissed without just cause before the expiration of their tenure, they may claim damages. Remuneration for registered directors is set in accordance with the company's articles of association or shareholders' general meeting resolution.
Often, companies wrongly sign labor contracts for registered executives (including CEOs) and pay remuneration. This can lead to unjust enrichment claims and penalties for business embezzlement. Non-registered executives are appointed by a delegation agreement. According to the Civil Code, the company can terminate the non-registered executive at any time.
2. Workers
Workers are protected by strict dismissal procedures, and non-payment of wages or severance pay can lead to criminal penalties.
3. Distinguishing between executives and Employees
The distinction hinges on whether the individual operates under the company's direction and supervision. The Supreme Court has ruled that if an executive's work nature does not sufficiently indicate they are handling the company's delegated affairs, and they are indeed performing certain labor under the CEO's direction and supervision, they may be considered a 'worker' under the Labor Standards Act.
4. In the Case of Non-Registered executives
For non-registered executives, the company can terminate the delegation agreement at any time.
II. Case Study
This case study is based on the Seoul High Court Sentence 2021na2044662, dated September 21, 2022.
A, an auditor of Company X, a Korean subsidiary of a Taiwanese company, had an employment contract with Company X stating that A's annual salary was 1% of the company's revenue and was governed by the Korean Labor Standards Act.
Y, the CEO of Company X, is a Taiwanese national who rarely travels to Korea. One day, Company X unilaterally notified A of his termination. Consequently, A filed a lawsuit claiming invalid dismissal, stating that he was an employee and the dismissal was invalid as it didn't follow the Labor Standards Act's dismissal procedure.
The court ruled that A, being an executive entrusted with X's day-to-day management and administration, was not subject to the Labor Standards Act. Hence, A's dismissal, despite the employment contract provision for the Act's application, wasn't applicable. Since the contract didn't specify the reasons and procedures for termination, X could terminate the delegation contract with A at any time in accordance with Article 689(1) of the Civil Code.
IV. Key Takeaways
In light of the case study and legal distinctions, it is clear that the classification of an individual as either an 'executive' or 'worker' significantly impacts the terms of their employment, dismissal procedures, and overall relationship with the company.
1. Clear Role Definition
Companies must ensure clarity in role definitions. This clarity can prevent legal complications arising from ambiguities in position categorization. Registered executives, non-registered executives, and workers each have distinct rights, responsibilities, and protections under the law. Misclassification can lead to lawsuits, penalties, and damage to the company's reputation.
2. Understanding Legal Obligations
It's important for executives and workers to understand their legal standing, rights, and obligations. This understanding can help them make informed decisions about their employment contracts, remuneration, and dispute resolution mechanisms.
3. Dismissal Procedures
The ability to dismiss an executive or worker largely depends on their designation. For registered and non-registered executives, companies have more leeway in termination. Conversely, workers are protected by strict dismissal procedures under the Labor Standards Act. Understanding this distinction is critical in managing employment termination effectively.
V. Conclusion
The question, "Can a corporate executive be dismissed at any time?" largely depends on whether the executive is classified as a real executive or a worker. If the executive is a real executive (registered or non-registered), the company has more flexibility in termination. However, if they are classified as a worker, they enjoy more protection against dismissal under the Labor Standards Act.
As such, it's essential for companies and individuals to understand these distinctions and their implications. Legal advice should be sought when necessary, especially in cases of dispute or uncertainty. The role of legal professionals, like those at the K&P Law Firm in Songdo, Incheon, is crucial in guiding companies and individuals through the complexities of these legal scenarios.
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