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[Article] Issues Related to Cancellation of Employment Decisions and Unfair Dismissal

2020.11.19

1. Introduction 1) 
 
During the recruitment process, companies may find themselves in a situation in which they need to unavoidably cancel an employment decision after they notified an applicant of the decision to hire the applicant. Further, there are many cases where a company asks an applicant for understanding that it orally notifies cancellation citing to the tight schedule following the notification to hire the applicant. However, in the current economy with low employment rate, an increasing number of these applicants are seeking a legal remedy to maintain the employment decision that they obtained with great difficulty. This article will examine recent decisions of the court of first instance and other cases relating to the cancellation of employment decision and unfair dismissal. 
 
 
2. Issue of Cancellation of Employment Decision and Unfair Dismissal 
 
A. Applicable Legal Principles 
 
The general principles of law and precedents provide that an employment agreement is established by notification of employment decision (i.e., notification that an applicant is selected for employment). Even if a company does not duly execute an employment agreement in accordance with Article 17 of the Labor Standards Act, it is deemed that an employment agreement is established when the company notifies an applicant of its employment decision. In this case, however, since the employee does not provide any work when he/she is in the phase of notification of employment decision, the company’s ground for cancellation of employment decision or dismissal would be perceived differently in comparison to the common grounds for dismissal. According to the Supreme Court’s precedent, an employer reserves the right to cancel an employment agreement during the period between making the decision to hire an applicant and the first day of work.2) 
 
This means that, since an employment agreement is established upon notification to hire an applicant, the employer is subject to the restrictions concerning dismissal under the Labor Standards Act when it cancels the employment decision. In order to exercise the right to cancel the employment agreement, the employer must have objective and reasonable grounds to deem that it is inappropriate to hire the applicant in light of the background of the employment decision and the description and nature of the work to be assigned to another employee which are acceptable under the social norms.3) Otherwise, the employer may face the problem of unfair dismissal. 
 
 
B. Analysis of Cases Related to Reasonable Grounds of Dismissals and Exercise of Right of Cancellation 
 
1) In case of change of working conditions 
 
There are decisions of the court of first instance which held that in case the employer cancelled the employment decision due to its failure to negotiate the working conditions, such as annual income, or any change of the working conditions, this does not constitute the proper grounds for the cancellation of employment decision. 
 
There is a case in which a company gave a notice to hire an applicant through a recruiter but unilaterally changed the working conditions before the applicant started work. When the applicant decided not to accept the changed conditions, the company then notified the cancellation of employment decision to the applicant. In this case, Seoul Administrative Court held that the company’s act constituted unfair dismissal as it unilaterally cancelled the employment decision and did not provide a written notice of the reason for the dismissal or the date of dismissal.4) 
 
On the other hand, there is a similar case where a company obtained a court decision that the cancellation of employment decision was valid. In this case, the company recruited employees through a recruiter. The court ruled that although the applicant’s expected annual income level was delivered to the company by the recruiter, the company could not be deemed to have provided a final notice to hire the applicant given the specific situation. This meant that the court rejected the employer’s notice of the employment decision.5) 
 
2) In case of lack of qualification of the applicant for the position 
 
In case the applicant does not have the qualification appropriate for the position, such as in case the applicant was disqualified from the position, failed to satisfy the requirements to qualify for the application, made a false statement on the resume regarding the past experience, which provides important basis for determining whether to hire such applicant, or was hired by corrupt practices, there are several decisions at the lower court which found that the employer had reasonable grounds for exercising the right to cancel the employment decision or dismissing the employee. 
 
In the case where an applicant failed to submit the documents to prove the years of experience after receiving the notice of the employment decision and the employer cancelled the employment decision after nine (9) days from the notice of the employment decision on the grounds of false statements on the resume, Daejeon District Court ruled that the cancellation was permissible (Daejeon District Court Decision 2016GuHap101234 dated October 20, 20166)). There was another similar court decision. In the case where the past experience required for the employment was suspected as false, the court of first instance found that the employer’s notice of cancellation of the employment decision was unfair dismissal; however, the appellate court held that the dismissal was justified (see Seoul High Court Decision 2019Nu58034 dated Apr.22, 20207)). 
 
3) In case of mistake of materials terms of the employment agreement 
 
While some companies specify the grounds for the cancellation of employment decision as the grounds for dismissal or disciplinary action as provided under the rules of employment, some companies which do not have such provisions under the rules of employment may run into the issues of whether they may be entitled to cancel the employment decision on the grounds of mistake concerning material terms of the employment agreement (Article 109 of the Civil Code). 
 
In the case where a company which adopted the “blind recruitment method” belatedly found that the applicant, who was given the notice of the employment decision, was disqualified from applying for the position, Daejeon High Court decided that the mistake made by the company was related to a material aspect of the juristic act because the company would not have given the notice of the employment decision to the applicant or hired the applicant as an employee had it known that the applicant was disqualified from applying for the position. The court therefore held that the company may be entitled to cancel the employment agreement (see Daejeon High Court Decision 2019Na11546 dated September 5, 2019).8) 
 
The foregoing decisions show that a company which found a mistake related to an essential part of the employment agreement may consider cancelling the employment agreement on the grounds of mistake in accordance with Article 109 of the Civil Code in order to revoke the employment agreement which provides for the right of cancellation. In this case, however, the company is required to clearly express to the applicant in writing its intent to exercise the right of cancellation as provided under the Civil Code. 
 
 
3. Any other matters of concerns to employers 
 
A. Applicant's application for preliminary injunction on declaration of provisional status

There may be cases in which the applicant filed for a lawsuit and at the same time an application for a preliminary injunction to declare for the applicant the provisional status for the purpose of seeking recognition of the status of the employee or accepted employee considering that the initial notice of acceptance established the employment agreement between the applicant and the employer (Article 300 (2) of the Civil Execution Act). 
 
Hongseong Branch of the Daejeon District Court dismissed the application for a preliminary injunction filed by the applicant as creditor on the grounds that there was not an urgent need or substantial harm which would be irreparable by monetary compensation to the extent of requiring the court to immediately declare the provisional status for the applicant before reviewing the merits of the case.9) 
 
B. Applicant’s claim for compensatory damage 
 
The applicant may also claim for compensatory damages on the grounds that the company’s cancellation of employment decision without justifiable grounds, despite having established trust as to the execution of the employment agreement, constitutes an illegal conduct of the employer infringing on the expected profit of the employee. In addition, the applicant may claim the employer’s liability, arguing that the employer is liable to compensate for the damages inflicted by the HR manager, who is an employee of the company, on a third party in the course of performing work (Article 756 of the Civil Code). 
 
There were some cases where the court acknowledged the company’s liability for compensatory damages.10) However, it would be difficult for the applicant to prove the company’s illegal conduct or the employer’s liability. There was a case where the court denied the company’s liability for illegal conduct by denying the intention or negligence of the person related to the delay in the hiring procedures, while acknowledging the fact that the company unilaterally refused the applicant’s start of work.11) In another case, the court held that the company’s act did not constitute illegal conduct because there were not sufficient grounds to find that the applicant was granted a right of reasonable expectation of prompt employment considering the detailed circumstances of the Sewol ferry disaster and because there were valid reasons for the company to not finally hire the applicant.12) 13) 
 
 
4. Conclusion

Companies sometimes have the employees notify the applicants of the cancellation of employment decision via text message, e-mail, or phone call without a careful review of legal implications because of the tight schedules following the announcement of the acceptance, including medical examination and training schedules. However, companies should note that notifying the cancellation of employment decision without thorough legal analysis of the nature of the notification in advance may lead to legal disputes. Companies therefore would need to carefully review the following: (i) at which stage of the recruitment process the company discovered the grounds for cancelling the employment decision; (ii) whether the grounds for the cancellation of employment decision constitutes either the grounds for dismissal or discharge under the rules of employment; the grounds to cancel the employment decision; the grounds to exercise the reserved right of cancellation or the grounds for cancellation under the Civil Code; and (iii) the legal nature of the cancellation of employment decision before notifying the applicant the cancellation or dismissal or discharge in writing.

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1) This article is an edited version of “Review of Recent Decisions of the Court of First Instance Related to Cancellation of Employment Decisions and Unfair Dismissal” by Hyun Jin JANG published in Monthly Labor Law (June 2020).

2) See e.g., Supreme Court Decision 2000Da51476 dated Nov. 28, 2000.

3) See Supreme Court Decision 2002Da62432 dated Feb. 24, 2006 which held that a dismissal of an employee who is in the trial period, or a refusal to execute a formal employment agreement after the expiration of the trial period, constitutes an exercise of the employer’s right to cancel the employment agreement, and Seoul High Court Decision 2019Nu58034 dated Apr. 22, 2020 which held that the same legal principle applies to the case in which the employer revokes its decision to hire an applicant.

4) See Seoul Administrative Court Decision 2019Guhap64167 dated May 8, 2020. An appeal has been filed and is pending before the appellate court.

5) See Seoul High Court Decision 2016Na2076948 dated Jun. 16, 2017. The decision became final and conclusive.

6) In this case, the employer’s HR policy provided that the employer would immediately cancel the employment of a person if such person was hired by any unfair means. The court held that, although the employment agreement was established by giving a notification to hire the applicant with the employer having a reserved right to cancel the agreement, to the extent that the company would not have hired the employee if it had known that the employee made the false statements, it could not be deemed that the company’s decision to cancel its hiring decision and its refusal to enter into a formal employment agreement exceeded the reasonable scope of the employer’s hiring authority in light of social norms. This decision became final and conclusive at the first instance court.

7) The decision became final and conclusive by the Supreme Court’s decision of discontinuance of a trial and dismissal.

8) The decision became final and conclusive as the applicant did not appeal the case.

9) Hongseong Branch of the Daejeon District Court Decision 2018KaHap5077 dated Nov. 21, 2018. It is a case filed by the plaintiff of the Daejeon High Court Decision 2019Na11546 dated Sep. 5, 2019 above.

10) The Supreme Court held that, upon cancellation of an employment decision, the company was liable for the damages incurred to the employee who gave up on other job opportunities, trusting the company’s final notification to hire the applicant and the subsequent undertaking of personnel appointment and expecting that he/she would be the employee of the company (Supreme Court Decision 92Da42897 dated Sep. 10, 1993). There is a first instance court’s decision which held that the company was liable for the 50% of the wage amount as the employee was liable for the other 50% due to his/her negligence (Seoul District Court Decision 2002Na40400 dated Aug. 27, 2003).

11) Seoul Southern District Court Decision 2017GaHap10784 dated Jan. 26, 2018. The first instance court’s decision became final and conclusive.

12) Eastern Branch Court of the Busan District Court Decision 2015GaHap101565 dated Aug. 21, 2015. The applicant of this case appealed against the decision but withdrew the appeal at the appellate court; and the decision became final.

13) For reference, there is a case where an applicant filed a claim against a company and a head-hunting company with respect to their responsibility for illegal conduct and the employer’s responsibility on the ground that the applicant’s intent about the employment was not clearly delivered to the company in the course of signing an employment agreement through the head hunting company, but the claim was not acknowledged by the court (Seoul High Court Decision 2016Na2076948 dated Jun. 16, 2017; the applicant was defeated and the decision became final at the appellate court).
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