Can the Employees of Two Companies be Combined for LSA Applicability?

The Korean Supreme Court has recently ruled that when multiple companies operate as "a unified economic and social unit with operational integration," the total number of employees may be counted together in determining Labor Standards Act applicability. In this specific case, two companies operating in a symbiotic manner each with less than five employees individually, the Supreme Court determined they should be regarded as a "business or workplace employing five or more regularly employed workers" under the Labor Standards Act (LSA) (Supreme Court Decision 2023Du57876, Decided on October 25, 2024).

This decision arose from a case disputing whether two companies, both controlled by the same foreign parent company, could be considered a single business or workplace under the LSA.

The Supreme Court affirmed the general principle that "business entities with separate corporate personalities cannot, in principle, constitute a single business or workplace unless there are special circumstances." However, the Court also established criteria for when multiple entities with separate corporate personalities could be treated as a single business or workplace.

The Court stated that "where there are special circumstances demonstrating operational unity and organic interdependence sufficient to consider the separate entities as a substantively unified economic and social unit, they may be regarded as a single business or workplace."

The determination of these special circumstances requires a comprehensive consideration of factors including:

1. Whether the type, nature, purpose, method, and location of work are identical

2. Whether personnel and labor management are not independently managed but are instead uniformly controlled by a single business entity or management

3. Whether the activities of each unit are combined for a unified business purpose, with close interconnection in terms of human and physical resources, as well as financial and accounting operations.

In this case, the two offices of Company A and Company B operated on the same premises and engaged in hotel sales in an identical manner. Both companies were managed by the same branch manager, and their employees and managers regarded the two companies as a single business or workplace. Furthermore, a significant number of employees from Company A were transferred to work under the Korean office of Company B.

The Supreme Court concluded that "at the time of the dismissal in question, Companies A and B had already integrated their human and physical resources, operating for a substantial period as a substantively unified economic and social unit." Therefore, the Court upheld the lower court's finding that Companies A and B constituted a single business or workplace employing five or more workers regularly.

As a result, the Court affirmed that the LSA’s restrictions on dismissal applied to Company A and that the dismissal of the worker in question was an unfair dismissal.