‘Renewal Expectations’ for Korean Contract Workers | Ius Laboris

A ‘fixed-term worker’ (also commonly referred to as a ‘contract worker’) is an employee who has signed an employment contract with a fixed term. There are many reasons for using contract workers, but one of the main reasons is to cope with fluctuating demand for manpower. This is because the amount of work in a business is not always consistent, so it may not be possible to employ all the employees it needs on a full-time, indefinite-term basis.

However, dismissing a contract employee when the employment contract expires is often not easy. There are two main problems that South Korean employers face when a fixed-term contract comes to an end.

First, in some cases where the duration of the employment contract is set out in the contract, the provision setting the duration may not be considered valid and enforceable. This is the case where a court determines that the parties to the contract did not seriously intend for the duration of the contract to be an essential term of the contract. In other words, the term setting the duration of the contract is merely a formality. For example, where an employer has fixed-term employment contracts with all employees, but it is just a form contract and in practice the contracts have been renewed multiple times without exception, the duration of the contract will be treated as only a formality, the same as if there was no set contract period.

Second, in some cases contract workers have a right to expect renewal. The ‘right to expect renewal’ is a concept recognised by South Korean case law. If the employer has set requirements or procedures for renewal of the contract (e.g. company regulations, employment contracts) or related labour practices, or if it is recognised that ‘a relationship of trust has been established that the employment contract will be renewed if certain conditions are met’ based on the various circumstances surrounding the employment relationship, that trust is protected. In this case, the employer cannot unilaterally dismiss the contracted employee merely due to the expiration of the contract period.

For example, if the company regulations or employment contracts set out a procedure for renewing the contract, and it is stipulated that the contract will be renewed if the employee achieves a certain work rating, it can be said that there is an expectation that the contract will be renewed if the work rating is achieved. Similarly, the right of expectation can be derived from mentioning in the recruitment announcement or in the job interview that the position is a ‘full-time job conversion or renewal of contract’.

Unless there are special circumstances, the right to expect renewal may also be granted if there is a usual practice of renewing the contract with most of the contract employees.

If a right to expect renewal exists, ‘reasonable cause’ is required for an employer to refuse to renew the contract. This is a somewhat more relaxed standard than the ‘just cause’ standard that is usually required for dismissal, but it is not always easy to meet this requirement in practice. The employer must prove reasonable grounds for non-renewal, for example that the reason for needing the contract in the first place has expired or that the employee has not met the standard of evaluation results.

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In the above circumstances, ending a fixed-term contract is not a simple matter. Recently, even where there is no specific requirement or procedure for renewing a contract, there is a tendency for courts to readily recognise the right to expect renewal for work that is required at all times (as opposed to merely temporary work). It is therefore necessary for employers that use a large number of fixed-term employment contract forms to examine the actual state of operation and check the legal risks.

*Yulchon LLC