When Is Dismissal of Underperforming Employees Lawful in South Korea? Supreme Court Standards and Practical Strategies

1. When Is Dismissal of an Underperformer Lawful Under South Korean Law?

In 2021, the Supreme Court of Korea established, for the first time, a comprehensive framework for assessing the lawfulness of dismissals based on poor performance. Under this framework, the employment rules must contain a basis for dismissal, the evaluation must be fair and objective, and the underperformance must be severe enough that continued employment is untenable under prevailing social norms.

The Four Core Requirements Under South Korean Precedent

The Supreme Court set out the following standards in its landmark 2021 ruling (Supreme Court Decision 2018Da253680, Feb. 25, 2021):

Determining Whether Continued Employment Is Untenable

The Supreme Court held that this determination requires a comprehensive consideration of multiple factors: the employee’s position and job duties; the level of performance and expertise expected for the role; the degree and duration of the performance deficiency; whether the employer provided training, reassignment, or other improvement opportunities; whether performance improved after such opportunities; the employee’s attitude; and the circumstances of the workplace.

It is important to note that the mere existence of a provision in the employment rules stating that employees may be dismissed for “markedly poor performance or inability to perform duties” does not automatically justify dismissal. The actual degree and duration of underperformance, as well as the prospect of improvement, must meet the standards established by precedent (Supreme Court Decision 2018Da251486, Sept. 15, 2022). Conversely, if the employment rules lack any provision addressing low-performer dismissal, the justification for termination becomes even weaker.

2. What Constitutes a Fair and Objective Performance Evaluation in South Korea?

The determination that an employee is a “low performer” must not be arbitrary or subjective. This is the first critical element identified by South Korea’s Supreme Court. Ensuring evaluation fairness requires transparent criteria, grievance procedures, and multi-level review by multiple evaluators.

Elements of Fair Evaluation Recognized by Korean Courts

In its 2021 ruling, the Supreme Court identified several factors that supported a finding of fair and objective evaluation (Supreme Court Decision 2018Da253680, Feb. 25, 2021).

First, the evaluation criteria and categories were disclosed to employees in advance, and employees were informed of the procedure for challenging their evaluation results. Second, although a relative grading system was used, the company mitigated its potential unfairness by granting evaluators discretion not to assign the lowest grades. Third, evaluation results were determined through a multi-tier process: the employee’s self-assessment and the first-tier evaluation by the team leader formed the basis for a second-tier review by the department head and a final review by the responsible executive.

The Importance of Objective Metrics

Purely subjective or qualitative evaluation criteria are vulnerable to challenges of arbitrariness. Therefore, employers should incorporate quantifiable, objective performance metrics into their evaluation systems. These may include attendance records, certification status, deadline compliance rates, and test scores. That said, the mere possibility that certain evaluation items might be influenced by a supervisor’s subjective judgment does not, standing alone, render the evaluation criteria unfair (Supreme Court Decision 2012Da31949).

3. How Long and How Low Must Performance Be to Justify Dismissal?

One or two low performance evaluations are insufficient to justify dismissal under South Korean law. The Supreme Court requires that underperformance be sustained “over a considerable period” and fall “below the minimum level generally expected.” In the cases where dismissal has been upheld, the periods involved were remarkably long.

Duration of Underperformance in Cases Where Dismissal Was Upheld

In the heavy industry case (Supreme Court Decision 2018Da253680, Feb. 25, 2021), the employee’s performance over approximately seven years placed him at the very bottom, ranking 3,857th or 3,859th out of 3,859 employees. Even after a 10-month job reassignment and retraining program, no improvement was observed. Approximately four years elapsed from the initial low evaluation to the final dismissal.

In the automobile manufacturer case (Supreme Court Decision 2021Du33470, Dec. 28, 2023), the period was even longer. The employee, a section chief in his 25th year with the company, had demonstrated poor performance for 11 years. In the final three years, his evaluation ranked 11,222nd out of 11,229 employees. Over eight years, the company conducted seven rounds of PIP, yet no improvement in performance or capability was achieved.

“Substantive Deficiency” vs. “Relative Underperformance”

A crucial distinction in South Korean case law is that the court requires more than merely being “relatively lower than peers.” The employee’s performance must fall below “the minimum level generally expected” for the position. This means the court looks for a substantive deficiency in the employee’s ability to perform the job, not just a relative ranking. Under a relative grading system, a fixed percentage of employees will inevitably receive the lowest grade, so that fact alone cannot constitute grounds for dismissal.

4. How Should Employers Provide Improvement Opportunities in South Korea?

Before concluding that an employee has no prospect of improvement, the employer must first provide sufficient opportunities for improvement. South Korean courts treat the question of whether the employer provided “training, reassignment, or other improvement opportunities” as a core factor in assessing the lawfulness of dismissal.

Judicial Recognition of PIP as a Legitimate Tool

In earlier years, Performance Improvement Programs were often viewed as tools to pressure employees into resignation. However, recent South Korean court rulings clearly recognize a well-designed PIP as a legitimate, systematic performance management mechanism. When a company provides sufficient improvement opportunities through a PIP and the employee’s poor performance persists, courts have upheld the resulting dismissal.

In the automobile manufacturer case (Supreme Court Decision 2021Du33470, Dec. 28, 2023), the Supreme Court of Korea noted that the company provided PIP training seven times over eight years, yet no improvement in performance or capability was achieved. The Court also held that the mere fact that the company did not formally propose a job reassignment or issue a transfer order did not mean it had failed to provide improvement opportunities.

Is Job Reassignment Mandatory Under South Korean Law?

This point was reaffirmed in the software company case (Seoul High Court Decision 2023Na2024051, Mar. 22, 2024). After the second standby order, the company gave the employee the opportunity to transfer to another department by allowing him to apply to 58 teams. However, he was rejected by all of them due to insufficient capabilities. The court confirmed that the failure to implement a formal reassignment or transfer does not, by itself, render the dismissal unlawful.

That said, employers should respect the employee’s views during the improvement process. In the automobile manufacturer case, the Supreme Court viewed positively the fact that the company respected the employee’s expressed preference to remain in his existing department during reassignment consultations.

5. When Have South Korean Courts Found Low-Performer Dismissals Unlawful?

The requirements for a lawful low-performer dismissal in South Korea are stringent. Dismissals that fail to meet these requirements are ruled as wrongful termination. In practice, insufficient evaluation periods, failure to provide improvement opportunities, and reliance solely on relative grading results are common grounds for invalidation.

Dismissal After a Three-Month Standby Period

In one case, the Supreme Court held that even if placing a low-performer on standby during an organizational restructuring was justified, dismissing the employee solely because he failed a test during a three-month standby period was insufficient to establish lawful cause (Supreme Court Decision 2018Da251486, Sept. 15, 2022).

Dismissal After Two Years of Lowest Ratings

In a research institute case (Seoul Administrative Court Decision 2022GuHap51161, Feb. 10, 2023), the employee received the lowest D grade for two consecutive years (2019 and 2020) and was dismissed. The court found the dismissal unlawful for several reasons.

First, because D grades were assigned to the bottom 5% under a relative grading system, receiving this grade did not objectively prove poor performance. Second, the employee had previously been recognized for outstanding research and selected for a tenure extension program, with B grades or higher consistently from 2008 onward. Third, the employer never required the employee to work on alternative projects or demanded improved performance before the dismissal, and in fact excluded the employee from project participation due to budget cuts, thereby denying any opportunity for improvement.

Linking Misconduct to Performance Deficiency

In a foundation case (Daegu District Court Gimcheon Branch Decision 2022GaHap15819, May 12, 2023), the employee had submitted a written apology for misconduct. However, the court found that the misconduct was not attributable to an irremediable lack of work capability, nor was it serious enough to make continued employment untenable under social norms. Even if an employee has committed misconduct, it should not be factored into a low-performer dismissal determination unless the misconduct stems directly from poor work performance or ability.

6. What Are the Alternatives to Dismissal for Underperformers in South Korea?

If an employer in South Korea seeks to separate a low-performing employee within a short timeframe, a mutual separation agreement should be considered as the primary option. A mutual separation agreement terminates the employment relationship by mutual consent and is therefore not subject to the dismissal restrictions under South Korea’s Labor Standards Act.

Responding to a Rejected Voluntary Resignation Offer

If the underperforming employee rejects a voluntary resignation offer, the employer must take a long-term approach and work toward improving the employee’s performance. Training and reassignment are the primary improvement mechanisms recognized by South Korean courts. Providing training opportunities to enhance job competency or assigning new duties is generally accepted as a legitimate HR measure.

However, assigning duties unrelated to the employee’s department or providing no substantive training while assigning new tasks can be problematic. Such measures may be viewed as undermining the employee’s motivation and creating a structure that effectively forces the employee to resign, which South Korean courts have cautioned against (Supreme Court Decision 2018Du36929).

Recommended Step-by-Step Approach

Based on extensive experience handling corporate labor disputes, a systematic approach to managing underperformers is advisable:

7. FAQ

Drawing on extensive experience in corporate labor disputes and employment advisory work, our legal team advises South Korean and multinational companies on the full spectrum of underperformer management, from designing evaluation systems and structuring PIP programs to reviewing dismissal procedures for compliance with Korean labor law.

* The legal information presented in this article is intended for general informational purposes only and may vary depending on the specific facts and circumstances of each case. For guidance on actual matters, please consult a qualified attorney.