Must Guarantee Employment Succession

A legal requirement to pre-commit that, when a company is acquired, merged, or transfers its business, the new employer will fully succeed to the existing workers' employment relationships.

Must Guarantee Employment Succession

Overview

Employment succession commitment (고용승계 확약) refers to clearly stating in writing the intention that, in the course of a transfer of management control or business organization such as a merger, division, business transfer, or share transfer/acquisition, the new employer (transferee or successor company) will take over the existing workers' employment relationships as they are. Since an employment relationship is not a mere claim or obligation but a status-based and continuing legal relationship on which the livelihood of workers and their families depends, if employment succession is not 'committed to' between the parties to the transaction, the risk of unforeseen dismissal or deterioration of treatment is shifted to the workers. Therefore, in practice, it is required as a matter of principle to stipulate an employment succession clause at the stage of concluding an M&A or business transfer agreement and to go through consultation with workers' representatives and individual worker consent procedures.

Key Details

1. Legal Nature of Employment Succession

Korean case law (Supreme Court Decision 93Da33173, etc., rendered June 28, 1994) holds that when a business is transferred, the employment relationships between the transferor and the workers are, in principle, comprehensively succeeded to by the transferee unless there is a contrary agreement. In other words, because the employment relationship is an element constituting the organizational and organic unity of the business, it is established legal doctrine that it is automatically succeeded along with business assets, goodwill, and customer relationships. In practice, however, disputes frequently arise over whether individual workers consented, the existence of a contrary agreement, and the scope of succession; if written commitment is omitted in reliance only on 'automatic succession,' the dispute grows larger.

2. Legal Basis

Commercial Act Article 41 (Non-Compete Obligation of Business Transferor): Governs the concept and effect of business transfer and serves as the starting point of the employment succession doctrine in case law.
Labor Standards Act Article 24 (Dismissal for Managerial Reasons): If workforce adjustment is needed after succession, the requirements for redundancy dismissal must separately be met.
Labor Standards Act Article 23 (Restrictions on Dismissal, etc.): Prohibits dismissal without just cause.
Act on the Promotion of Workers' Participation and Cooperation: Basis for consultation and consent procedures with workers' representatives.
Commercial Act Articles 530-2 et seq. (Company Division): Addresses employment relationship succession issues in division.

3. Key Clauses to Be Included in the Commitment

1. Scope of Workers Subject to Succession: Specify whether regular employees, contract workers, dispatched workers, service workers, etc. are included.

2. Principle of Succession of Working Conditions: Guarantee continuity of wages, job grade, continuous service period, and severance pay calculation period.

3. Effect of Existing Collective Agreement and Rules of Employment: Whether they remain in effect after succession, and consultation procedures for changes.

4. Employment Security Period: Prohibit dismissal for a certain period after succession (e.g., one to two years) and strengthen redundancy dismissal requirements.

5. Damages and Sanctions for Breach: The transferor's liability and scope of compensation in case of breach of the commitment.

6. Individual Worker Consent Form: Written consent and measures in case of refusal.

4. Legal Risks of Not Making the Commitment

If a business transfer is forced through without a commitment, the following may occur: ① litigation over whether the employment relationships are succeeded, ② applications for remedy against unfair dismissal (Labor Relations Commission), ③ social costs from loss of workers' livelihoods, and ④ industrial action or strikes by the union. In particular, as the determination of the 'actual employer' has recently expanded in platform, outsourcing, and subcontracting structures, there is a growing risk that, in workforce reorganization disguised as a subcontract, the absence of an employment succession commitment will be recognized as an unfair labor practice.

5. Trends in Case Law

The Supreme Court has recognized succession of employment relationships in business transfers as the principle, while allowing exceptions such as ① where the transferor obtained resignations from workers and went through dismissal procedures, and ② where workers explicitly refused succession. In addition, unilaterally changing working conditions to the workers' disadvantage after succession may be invalid as a violation of the procedure for disadvantageous changes to the rules of employment (consent of a majority of workers).

Recent Trends (2024-2025)

Increase in Business Reorganization and Restructuring: Amid economic recession and industrial transformation, business unit sales and spin-offs have continued in the semiconductor, display, and financial sectors, and employment succession commitment clauses have become mandatory items in contracts.
Stronger Prior Intervention by Labor Unions: Unions such as the Korean Metal Workers' Union and the Korean Financial Industry Union have demanded special agreements on employment security from the stage of M&A announcements, and there are increasing cases of refusing member consent procedures for transactions without commitments.
Government and Legislative Discussions: In discussions on amending the Corporate Restructuring Promotion Act, measures such as establishing a special committee for worker employment stability and imposing surcharges for violations of employment succession are under review.
Demands by Overseas Investors: As global private equity funds and strategic investors strengthen HR due diligence (HR DD) on labor issues of target companies in line with ESG standards, employment succession commitments are increasingly specified as closing conditions.
Platform and MSP Transition: As attempts to avoid employment succession increase in the process of converting to outsourcing or subcontracting, the Ministry of Employment and Labor is refining the criteria for determining 'substantive control' and strictly reviewing whether worker dispatch is involved.