JIPYONG LLC

[Case No.: Supreme Court Decision 2018Du54705 dated Nov. 5, 2020]

This ruling of the Supreme Court is that if there is a special agreement between the parties to a business transfer transaction that some of the employment relations shall be excluded from the succession, it shall be effective only if there is any of such justifiable causes as set forth in Article 23(1) of the Labor Standards Act, as such special agreement substantially has the same effect of dismissal.

The factual background of this case is as follows: The entire business of a hospital was transferred to party A (the “1st Business Transfer”), and then to the plaintiff (the “2nd Business Transfer”). Party A excluded the hospital’s Employees A and B from the succession upon the 1st Business Transfer, and dismissed another Employee C after the 1st Business Transfer. The plaintiff excluded the Employees A, B and C from the succession upon the 2nd Business Transfer. 

Finding that if the business is comprehensively transferred, the employment relations between the transferor and its employees are, in principle, comprehensively succeeded to the transferee, unless there is a contrary special agreement, the Supreme Court ruled, “if there is a special agreement between the parties to a business transfer transaction that some of the employment relations shall be excluded from the succession, such succession of employment relations may occur accordingly only if there is any of such ‘justifiable causes’ for dismissal as set forth in Article 23(1) of the Labor Standards Act, as such special agreement substantially has the same effect of dismissal; and dismissal of workers based only on a cause of business transfer itself cannot be deemed to have a justifiable cause.” 

And then, it ruled, “if an employee is dismissed without a justifiable cause before the date of business transfer, the employment relation between the transferor and the employee still remains in effect, and if all of the business has been transferred after the dismissal, the transferee who acquires all of the business under the business transfer agreement while maintaining the same business should be, in principle, succeeding to the employment relation with the employee dismissed by the transferor without justifiable cause, since it becomes impossible for the dismissed employee to resume his/her original job position in the relation with the transferor.”

Therefore, the Supreme Court upheld the original decision, which ruled, “the exclusion of Employees A and B from the succession upon the 1st Business Transfer substantially has the same effect of dismissal and has no justifiable cause; the subsequent dismissal of Employee C also constitutes a unfair dismissal and is invalid; and since the plaintiff who acquired all of the business from the party A, in principle, succeeded to the employment relations with Employees A, B and C that were effective at the time of the 2nd Business Transfer, its refusal to accept the request for succession of employment from the Employees A, B and C only for the reason of business transfer constitutes an unfair dismissal.”