Supreme Court: "Probation Period Also Counts as Continuous Service Period for Severance Pay Calculation"

by Choi Sukjin

Published 15 Mar.2022 17:17(KST)

Supreme Court, Seocho-dong, Seoul.

[Asia Economy Reporter Choi Seok-jin, Legal Affairs Specialist] The Supreme Court has ruled that if a probationary employee works for a certain period and is then immediately hired as a temporary worker, the probationary period can be considered a trial period, and thus the probationary period should be included in the calculation of the length of continuous service for severance pay.

The Supreme Court's First Division (Presiding Justice Kim Seon-su) overturned the lower court's ruling that dismissed Mr. A's wage claim lawsuit against B Medical Center located in a provincial area, in which he demanded payment of approximately 50 million KRW in unpaid severance pay, and remanded the case to the Jeju District Court on the 15th.

The court stated, "The lower court erred in its legal interpretation regarding the continuous service period for severance pay calculation, which affected the judgment."

Mr. A, who passed the probationary employee recruitment exam at B Medical Center, worked as a probationary employee in the hospital administration department from December 1, 1999, for one month and received 338,000 KRW as salary on December 30 of the same year.

Subsequently, after review by B Medical Center's personnel committee, Mr. A was hired as a temporary worker on January 1, 2000, and was appointed as a regular employee in August of the following year. He worked for nearly 17 years and retired on March 31, 2018.

B Medical Center calculated severance pay based on the assumption that Mr. A joined on January 1, 2000, and left on March 31, 2018, paying him 80 million KRW.

In January 2020, B Medical Center revised its compensation regulations to apply the existing progressive severance pay system only to employees who joined before December 31, 1999, and worked for more than five years, while applying a less favorable severance pay flat-rate system to those who joined before December 31, 1999, but worked less than five years, or those who joined after January 1, 2000.

B Medical Center excluded the probationary period from the calculation of the continuous service period for severance pay.

Mr. A argued that since his employment date was December 1, 1999, he should be classified as an employee who joined before December 31, 1999, and worked more than five years, thus qualifying for the progressive severance pay system under the revised compensation regulations. Accordingly, he claimed that the severance pay should be approximately 130 million KRW, and filed a lawsuit demanding payment of the unpaid 50 million KRW.

The key issue in the trial was how to interpret the nature of the period Mr. A worked as a probationary employee.

Mr. A claimed that even if January 1, 2000, was considered his official employment date, the Labor Standards Act requires that any unfavorable changes to employment rules for workers must be agreed upon by a labor union representing the majority of workers or by the consent of the majority of workers. Since these conditions were not met, the revised regulations should not apply to him.

On the other hand, B Medical Center argued that the probationary period was a one-month practical training period starting around November 1999, during which eligibility was assessed, and that recruitment was conditional upon passing the personnel committee review. They contended that the official hiring date should be considered January 1, 2000, after the probationary period and personnel committee approval.

The first and second trials sided with B Medical Center.

Considering that among the 20 probationary employees who worked alongside Mr. A, two failed during the probation and were not hired as temporary workers, the courts judged that the one-month period after passing the probationary recruitment exam was not a confirmation of employment but rather a part of the temporary worker hiring process, akin to a practical screening.

The 338,000 KRW paid to Mr. A after the probationary period was calculated differently from B Medical Center's compensation regulations, and the payment date differed from the hospital's regular payday (the 20th of each month). Also, the probationary period was three months, but the actual working period was only one month, differing from typical employee work patterns. These factors led the court to conclude that the payment could not be considered wages for labor.

Additionally, the fact that Mr. A received severance pay calculated based on January 1, 2000, as the employment date after his temporary contract expired on December 31, 2000, worked against him.

Regarding Mr. A's claim that the revised compensation regulations did not meet the consent requirements under Article 94 of the Labor Standards Act, the court found that when B Medical Center requested approval of the revision from the Jeju Governor, Mr. A was not an employee of the hospital, and the revision only introduced provisions for employees hired after January 1, 2000, without adversely affecting existing employees, so consent was not necessary.

However, the Supreme Court's judgment differed.

The court first cited the 1995 Supreme Court Grand Bench ruling, stating, "As with cases where the type of work changes during continuous service, if an employee continues to work without interruption after the trial period and signs a formal employment contract, the trial period and the formal employment period should be combined and considered as continuous service for severance pay calculation."

The court stated, "The plaintiff passed the defendant's probationary employee recruitment exam and worked as a probationary employee in the hospital administration department for one month starting December 1, 1999, performing clerical assistance and other duties. He received 338,000 KRW as salary on December 30, 1999, and after personnel committee review, was hired as a temporary worker on January 1, 2000."

It continued, "Considering these facts in light of the legal principles, the period the plaintiff worked as a probationary employee was not merely a practical screening but a trial period during which he actually provided labor. Therefore, since the plaintiff continued to work as the defendant's employee after the probationary period, it is reasonable to include the probationary period in the continuous service period for severance pay calculation."