Foreign Workers Without Permanent Residency Can Transition to Permanent Contracts After Two Years

The Seoul Central District Court has ruled that foreign workers on temporary contracts, even those without permanent residency, can be converted to permanent positions if they have worked for the same company for over two years. This landmark decision overturns the previous administrative interpretation by the Ministry of Employment and Labor, which maintained that foreign workers without permanent residency were excluded from the protections of the Fixed-Term Employment Act. Following this ruling, companies employing foreign workers will need to reassess their hiring practices and management of employment contracts under this new standard. It is important to note that this is still a preliminary judgment, and further developments may arise as the case progresses through higher courts.

This ruling carries significant implications for the job security of foreign workers. Companies can no longer simply dismiss contract renewals based on visa type. In particular, for visas that allow for long-term stays, there is a greater likelihood that the Fixed-Term Employment Act will apply, necessitating a reassessment of HR policies.

Case Overview and Court’s Ruling

Mr. A from the UK (on an F-2 visa) and Mr. B from the U.S. (on an F-6 visa) both renewed their employment contracts four and three times, respectively, while working for GS Engineering & Construction. However, when the company refused to renew their contracts in 2023, both men filed lawsuits claiming they had already become permanent employees under the Fixed-Term Employment Act. The court ruled in favor of the plaintiffs, determining that since their total period of employment surpassed two years, they were entitled to a permanent contract, deeming the termination of their contracts to be unfair dismissal. The court emphasized that “limitations on the length of stay are not directly related to the maximum employment duration, and extensions are possible if conditions are met.” This interpretation distinguishes the residence status of foreign workers from their employment relationships, making it more challenging for companies to evade their obligations regarding job security based on visa duration.

Application of Employment Rules for Permanent Contract Workers and Holiday Bonuses

Following their transition to permanent contracts, both individuals asserted that they should be entitled to holiday bonuses under the company’s regular employee rules. The court agreed that since there were no specific employment rules for permanent contract workers, the standard rules for regular employees should apply. However, it only mandated the payment of 50% of the holiday bonus, taking into account discretionary bonuses. The court clarified that while there was no requirement for holiday bonuses during their time as temporary workers, this ruling underscores that a union’s collective agreement may not apply uniformly to all employees. To minimize potential disputes, companies should clearly articulate the criteria for bonus payments in their employment rules and collective agreements.

Key HR Management Considerations for Employers

• There is a high likelihood of transitioning workers to permanent contracts after two years of employment, regardless of visa type.
• Any differences in working conditions between regular and temporary employees must be clearly defined in terms of job responsibilities and labor intensity to remain lawful.
• Discrimination in working conditions for foreign employees based solely on nationality or residency status is not justified.
• Employers should specifically outline wage components and payment criteria in their employment rules and collective agreements to prevent disputes.

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