The Supreme Court of Korea has ruled that the maximum paid annual leave granted to one-year fixed-term workers shall be 11 days, not 26 days.
(Supreme Court Decision No. 2021Da227100 rendered on October 14, 2021)
On October 14, 2021, the Supreme Court ruled that the paid annual leave for one-year fixed-term workers is 11 days. As this decision conflicts with the previous guidelines of the Ministry of Employment and Labor ("MOEL"), stating, "If a fixed-term worker's one-year employment contract expires, allowances must be provided for up to 26 days of unused annual leave," the decision is having an enormous impact on the domestic labor sector.
[Summary of the case]
The Labor Standards Act ("LSA") stipulates, "Every employer shall grant any employee who has worked not less than 80 percent of one year a paid leave of 15 days" (Article 60 (1)) and, "Every employer shall grant any employee who has continuously worked for less than one year or who has worked less than 80 percent of one year one paid-leave day for each month during which he or she has continuously worked," (Article 60 (2)). However, on November 28, 2017, the LSA was amended to remove paragraph 3 of the same Article, stating, "In cases where a paid leave is granted for the first one-year of work, the worker shall be entitled to 15 days including the leave set forth in paragraph 2, and in cases where the worker has already used the leave set forth in paragraph 2, the number of days used shall be subtracted from 15 days."
In such circumstances, the Employment and Labor Administration issued a guideline stating about the paid annual leave for fixed-term workers with one-year contracts, "In the event a one-year employment contract for a fixed-term worker expires, allowances must be provided for unused paid annual leave of up to 26 days." ("Explanations on the Amended Labor Standards Act Regarding the Expansion of Annual Leave Guarantees for Fixed-term Workers Who Have Worked for Less Than One Year," published on May 2018)
The worker, in this case, used all of his 15 days of annual leave while working at the company for one year. After leaving the company, the worker sent a petition to the Employment and Labor Administration insisting that he did not receive an annual leave allowance for 11 days of annual leave from the employer. Afterward, the employer granted the worker an annual leave allowance for 11 days under the guidance of the Employment and Labor Administration.
However, the employer filed the lawsuit, arguing that (1) it is unjust to grant up to 26 days of annual leave to a worker who has executed a one-year employment contract and that the worker must return the allowance for 11 days since the employer granted the annual leave allowance to the worker who had already used up the entire annual leave under the mistaken guidance of the labor authorities. In addition, the employer argued that (2) it was illegal for the government to come up with an interpretation stating that workers with one-year employment contracts shall be granted up to 26 days of annual leave or allowances for any unused leave, create and distribute guidelines based on such interpretation, and have the labor authorities provide guidance based on such interpretation.
The court of the first instance found that all of the employer's arguments were unjust and dismissed all the claims. However, the appellate court accepted the employer's claims against the worker, and while both the worker and employer appealed to the Supreme Court, the Supreme Court upheld the appellate court's decision without leave to amend.
[Supreme Court's ruling]
Citing the following reasons, the Supreme Court ruled that a maximum of 11 days of annual leave shall be granted to workers who have executed a one-year employment contract.
- The November 28, 2017 amendment to the LSA deleted the provisions of Article 60 (3), stating, "In cases where a paid leave is granted for the first one-year of work, such leave shall be 15 days including the leave set forth in paragraph 2, and in cases where the worker has already used the leave set forth in paragraph 2, the number of days used shall be subtracted from 15 days." The ground for the amendment was merely to make workers receive up to 11 days of annual leave for the first year of work and up to 15 days for the second year of work. The deletion of Article 60 (3) cannot provide the basis for applying the provisions of Articles 60 (1) and 60 (2) at the same time for a worker who has worked for only one year.
- Unless otherwise stated, the right to use paid annual leave accrues on the day following the completion of one year's work from the previous year. In addition, in cases where the employment relationship terminates before that time due to resignation, etc., a claim cannot be made for an annual leave allowance. For a one-year fixed-term worker, the employment relationship terminates on the day following the completion of the employment, so a claim for an annual leave allowance cannot be made.
- If the provisions of both Articles 60 (1) and 60 (2) apply to a fixed-term worker on a one-year contract, the worker would be granted a total of 26 days of annual leave. Given that Article 60 (4) states, "the total number of days of leave, including accrued leave, shall be limited to 25 days," if a fixed-term worker on a one-year contract receives more than 25 days of leave, which is the number of days of leave granted to a permanent worker, it will result in placing the fixed-term worker in a superior position to the permanent worker, and it violates the principle of equity.
- Given that the right to use annual leave, or the right to claim an annual leave allowance, is provided as compensation for the one year of work during the previous year, and that the purpose of the annual leave system was to provide workers with opportunities for mental and physical rest and improve quality of life by relieving workers of their work obligations while being paid for a set period of time, it is appropriate to interpret that Article 60 (1) of the LSA stipulates that a worker who has worked for at least 80 percent of the first year of work shall be granted 15 days of paid leave for the second year if the worker maintains the employment relationship for the following year.
Furthermore, although the Supreme Court ruled that the government's interpretation, which considered paragraphs 1 and 2 of Article 60 of the LSA as applying concurrently for fixed-term workers on a one year and so determined that 26 days of annual leave or an allowance for any unused portion shall be granted, was invalid, the Court also ruled that it could not find any intention or negligence on the part of the government concerning the creation and distribution of such guidelines by the Employment and Labor Administration and the issuance of related guidance by the labor authorities. Thus, the Court ruled that the employer's claims against the government seeking damages were without merit.
Although the MOEL previously released guidelines implying that fixed-term workers who have worked for one year shall be granted up to 26 days of annual leave, the Supreme Court's judgment of the case of 2021Da227100 has resulted in only a maximum of 11 days of annual leave being granted to such workers, so we expect the MOEL to change these guidelines soon following this judgment.
Until now, domestic companies have been granting allowances instead of annual leave for up to 26 days for fixed-term workers who have worked for one year in accordance with the MOEL's guidelines, but due to the Supreme Court's judgment in the case of 2021Da227100, it is expected that domestic companies will file suit against those who have left their companies, seeking to recoup the relevant annual leave allowances.
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