Korea Labor Law Outlook in 2025

2024 ended with a significant Supreme Court decision that changed how many Korean businesses are required to calculate overtime pay. 2025 also begins with the country in political turmoil, which could result in more significant changes for employers.

In this newsletter, we briefly introduce some significant employment and labor legal issues that could result in significant changes in 2025, and recap some important new legal requirements that will be in effect in 2025.

I. Potential Significant Employment & Labor-Law Changes

Two potential avenues for significant employment and labor-law changes in 2025 are:

• The presidency could change parties, which could result in the passage of significant pro-labor legislation.
• The Supreme Court could redefine the “average wage” base rate in a way that significantly increases employers’ liability for statutory severance benefits.

Pro-Labor Legislation

Korea’s president, Suk Yeol Yoon, has been impeached in connection with his recent and short-lived declaration of martial law. Under Korea’s constitutional system, if the president is impeached by a 2/3 vote of the legislature, the president is suspended and an acting president assumes the powers of the presidency. The president’s suspension will last until Korea’s Constitutional Court decides whether to uphold the impeachment.

• If the Constitutional Court upholds the impeachment, the president is permanently removed and new elections are held within 60 days.
• If the Constitutional Court reverses the impeachment, the president resumes his presidential office. In this case, there would be almost 2 years until the next scheduled presidential election.

The opposition party currently controls almost 2/3 of the seats in the legislature. And the opposition leader appears to have an edge in current polling. If the opposition party were to win the presidential election while also in control of the legislature, it would have considerable power to pass new legislation without significant obstacles.

One of the most significant potential legislative changes would be to pass the so-called “Yellow-Envelope Act.” The opposition party has already passed this bill out of the legislature, but it was vetoed by the current president. The Yellow-Envelope Act would make multiple pro-union changes to the law. But the most important would be to more broadly define an “employer” under Korea’s union law. Under that broader definition of “employer,” service recipients would be required to collectively bargain with unions representing the employees of their contractors, if they exerted substantial control over those employees’ working conditions. There is already a case pending at the Supreme Court, in which some lower courts have adopted this broader, pro-union definition of an “employer” by judicial decree; and the Supreme Court could endorse that approach in its own decision. But the Court could also decline to adopt that definition. The Yellow-Envelope Act aims to make the decision legislatively instead of leaving it to the Supreme Court.

There are other potential pro-labor changes that could affect wage-and-hour regulations, and establish further protections against discriminatory treatment, among others, should the presidency change parties.

Supreme Court Cases

In addition to potential legislative changes that could be enacted if the presidency changes parties, there is the potential for pending Supreme Court cases to effect significant changes to Korean employment law. Perhaps the most significant are pending cases in which the Supreme Court is expected to further define the scope of performance-based bonuses that must be included in calculating employees’ “average wage.” An employee’s average wage is the base rate used to calculate statutory severance benefits, which are benefits that all employees with one or more years’ service are entitled to upon termination of employment. Many employers have excluded from this calculation any bonuses that are significantly based on company business performance. The primary basis for excluding such bonuses is that they are not paid in return for employees’ work, which is a defining characteristic of wages; rather, they are more in the nature of profit sharing. But certain lower-court decisions have rejected that logic and held that the bonuses are wages.

If the Supreme Court adopts a broader definition of “average wage,” which includes bonuses based on company business performance, it will significantly affect many employers doing business in Korea and could significantly increase their liability for severance benefits.

Employers should be aware of these potential changes, and be prepared to respond to new developments in consultation with legal counsel.

II. New Significant Employment-Law Requirements in 2025

Overtime Pay Calculation

On December 19, 2024, the Supreme Court expanded the definition of “ordinary wage” to include certain fixed bonuses with payment conditions, which may impact how many businesses in Korea are required to calculate employees’ overtime pay and other statutory entitlements. The new rule is effective from and including the date of the decision. So affected employers will need to immediately comply. For more details, please refer to our December 2024 newsletter, available here.

Maternity, Paternity, and Childcare Leave

On September 26, 2024, the National Assembly passed amendments to the Gender Equal Employment and Work-Family Balance Act and the Labor Standards Act to enhance entitlements to maternity, paternity, and childcare leave. Most of the amended provisions will take effect on February 23, 2025. For details on these changes, please refer to our Q3 2024 newsletter, available here.

Stronger Enforcement for Unpaid Wages

The same set of amendments also provide for stronger enforcement mechanisms against employers that habitually fail to pay due wages, including credit sanctions, restrictions on subsidies and public-sector bidding rights, and increased criminal punishment. Additionally, statutory punitive delinquency interest for unpaid wages will apply to incumbent employees, whereas previously it applied only to employees after termination. For details on these changes, please refer to our Q3 2024 newsletter, available here.

“Small Employer Exemption” from Just Cause Termination

Although not a new employment-law requirement, a landmark decision of the Korean Supreme Court on October 25, 2024 changed which employers are subject to many Korean employment-law requirements. In this decision, the Supreme Court held that employees who are not subject to Korean law cannot be counted towards workforce-size thresholds that trigger legal rights and obligations. Companies that have fewer than five employees in Korea will generally be exempt from many major requirements under Korean employment law, including the requirement to have just cause for dismissal. Please see our Q3 2024 newsletter, available here, for more details.

Minimum Wage

Beginning from January 1, 2025, the minimum wage is KRW 10,030 (about USD 6.90 at the current exchange rate).

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