Supreme Court Explicitly Recognizes Fixed-Term Employee's Expectation of Conversion to Regular Employment

We write about a recent Supreme Court case in which the Court explicitly recognized, for the first time, that a fixed-term employee who was hired after the enactment of the Act on Protection of Fixed-Term and Part-Time Employees (the "Act") had a reasonable expectation and right to convert their fixed-term employment contract into a regular indefinite term employment contract, where certain conditions are met (such as evidence of an intent to renew by the parties). (Supreme Court Decision 2014 Du 45765 rendered on November 10, 2016), (hereinafter the "Supreme Court Case").

The Significance of this Case

For fixed-term contracts that were entered into prior to the introduction of the Act, few questioned that employees working under fixed-term employment contracts had reasonable expectations that their contracts would be renewed. (Supreme Court Decision 2011 Du 12528 rendered on February 13, 2014).

With regard to post-Act fixed-term contracts, however, the lower courts have been less likely to acknowledge a fixed-term employee's reasonable expectation of renewal of their contract primarily because the Act introduced a two-year term limit on fixed-term employment contracts, and employers and employees could reasonably expect that the employment relationship would conclude at the end of that two-year limit.

In the Supreme Court Case, however, the Court held that a fixed-term employee's reasonable expectation for contract renewal is not restricted, even though they had a post-Act fixed term employment contract, because "the rules under the Act are established fundamentally for the purpose of preventing the abuse of fixed-term contracts and assuring employees' employment status." Further, the Court ruled that, in light of Article 5 of the Act (and other statutes) which provides for preferential employment of fixed-term employees performing the same or similar jobs or duties as regular employees, a fixed-term employee would have a reasonable expectation of conversion to an employment agreement with an indefinite term ("Expectation of Conversion to Regular Employment") if certain conditions are met.

Below is the key evidence behind the Court's ruling that the Plaintiff fixed-term employee had an Expectation of Conversion to Regular Employment:

§ The employee's employment contract stated that "this contract may be renewed one month prior to the expiration of the contract,"
§ At the time the fixed-term contract was made, the parties intended to convert it into a regular employment contract upon evaluation at the end of the fixed-term,
§ The fixed-term employee performed the same tasks and duties as other regular employees, and the company repeatedly told its fixed-term employees that they would be converted to regular employees unless there were special circumstances,
§ The company in fact had converted all of its other fixed-term employees to regular employees in the past, and
§ The company evaluated the Plaintiff fixed-term employee's performance a month before his employment contract was set to expire, to provide an opportunity to convert to regular employment.

In this case, the Court determined that the company's performance evaluation of the Plaintiff fixed-term employee was unfair; that the company failed to establish just cause to lawfully terminate his employment contract; and therefore, that the he was wrongfully terminated.

The Implication of this Case

Based on the recent Supreme Court Case, we believe that fixed-term employees are more likely to have Expectations of Conversion to Regular Employment if their duties are the same or similar to regular employees, and if a company has official performance evaluation procedures that are applied when deciding whether to convert fixed-term employees to regular employees. If your business already has evaluation procedures in place for fixed-term employees to assess whether they are qualified to convert to regular employment, we recommend that you ensure that the procedures are applied in a reasonable and fair manner.

Also related to fixed-term employees, please note that, according to a recent lower court decision (Seoul Southern District Court Case 2014 GaHap 3505 rendered on June 10, 2016), discriminating against employees on the grounds of their employment type (e.g., regular versus fixed-term employment) may constitute "discrimination based on social status" prohibited under the Labor Standards Act. Accordingly, when determining the working terms and conditions of a fixed-term employee whose employment was converted to regular employment, employers must carefully review related policies, programs, and practices so that the new regular employees are not illegally discriminated against in terms of their working terms and conditions as compared to those of existing regular employees.