With four or fewer employees, can you dismiss as you please?

Article 11 of the Labor Standards Act applies to workplaces that regularly employ 5 or more workers. So in small shops and early-stage startups, people take it for granted that ‘we have fewer than 5 people, so dismissal is no problem.’ That is half right, because only certain provisions set by Presidential Decree apply to workplaces with 4 or fewer employees. The problem is the other half.

Provisions that drop out and provisions that remain

Workplaces with 4 or fewer employees are not subject to Article 23(1), which prohibits dismissal without just cause, Article 27, which requires the grounds and timing of dismissal to be given in writing, or Article 28, which provides for applications to the Labor Relations Commission for remedy against unfair dismissal (Appended Table 1 of the Enforcement Decree of that Act). So there will be no dispute before the Labor Relations Commission over whether the grounds for dismissal were justified.

That does not mean all obligations disappear. Advance notice of dismissal (Article 26), which requires notice 30 days in advance or payment of at least 30 days' ordinary wages, also applies to workplaces with 4 or fewer employees. Unless a statutory exception applies, such as for workers employed continuously for less than 3 months, you must pay the price for letting someone go without notice. Severance pay also applies to all businesses that employ workers (Article 3 of the Employee Retirement Benefit Security Act), so it must be handled separately for employees who have worked for 1 year or more.

Obligations set by other laws, such as the minimum wage, must also be observed regardless of workplace size. Being a workplace with 4 or fewer employees means that certain provisions of the Labor Standards Act do not apply; it does not mean you are exempt from labor laws as a whole.

How are the ‘four’ counted?

The part most often gotten wrong is counting employees. The number of regular employees is calculated by dividing the total number of workers employed during the 1 month before the date the legal issue, such as a dismissal, arose by the number of operating days in that period (Article 7-2 of the Enforcement Decree). It is not just full-time employees who count; fixed-term workers, part-time workers and casual part-timers are all included, regardless of the form of employment.

Even if the average is below 5, if the days with fewer than 5 workers are less than half of the total when counted day by day, the workplace is treated as having 5 or more. Conversely, even if the average is 5 or more, if the days with fewer than 5 are half or more, it is not treated that way. For a shop that uses several part-timers only on weekends, this calculation can change the conclusion.

• Attendance records and payroll for the 1 month before the dismissal date
• Working days of part-timers and part-time workers
• Whether there are family employees and whether they work alongside other employees
• Whether another shop run by the same owner is effectively one workplace

The smaller the company, the more you should keep documents

If the number of employees is near the threshold, the first dispute before the Labor Relations Commission will be over the number of regular employees. If you gave notice of dismissal only verbally thinking you had 4 or fewer, and it is found that you have 5 or more, the dismissal can lose its effect solely for failure to give written notice. Even if you are small, the habit of giving the grounds and timing of dismissal in writing, and getting a resignation letter in the case of a resignation, is what protects the company in the end.

When your headcount is growing, it is time to revise your employment rules and employment contracts together, because the number of provisions that apply increases all at once the moment you exceed 5 employees.