Recently, in a case where an employer failed to pay statutory severance by the extended payment date agreed upon by the employer and employee, the Supreme Court reversed and remanded the lower court’s decision, holding that the employer violated the Employee Retirement Benefit Security Act (the “ERBSA”) by failing to make the payment by the extended payment date (Supreme Court Decision 2023Do188, July 13, 2023).
Article 9, Paragraph 1 of the ERBSA provides, in principle, that “when an employee separates, the employer shall pay statutory severance within 14 calendar days from the date on which the reason for the payment occurs, provided that under special circumstances, the payment date may be extended by an agreement between the parties concerned.” Additionally, Article 44, Item 1 of the same Act provides for criminal sanctions regarding a person (i.e., registered representative) who violates the above provision.
In this case, the trial court and the appellate court found the employer not guilty of violating the ERBSA on the ground that, as long as the parties agreed to extend the payment date within 14 calendar days from the separation date, the employer may not be subject to criminal sanctions for failure to comply with the extended payment date.
The primary rationale behind the trial and appellate courts’ decisions is as follows: (i) acts subject to a criminal penalty under the ERBSA are limited to violations of the mandatory provision that “the statutory severance payment shall be made within 14 calendar days from the date on which the reason for payment occurs” and thus, it is difficult to interpret that this provision subjects an employer to criminal sanctions for failing to comply with an extension of the payment date agreed upon by the employer and employee; (ii) the ERBSA should be interpreted in this regard to apply only if either “the statutory severance payment” or the “agreement on extending the payment date” is not made within 14 calendar days from the date on which the reason for payment occurred; (iii) if the parties agreed to extend the payment date, it is appropriate to hold an employer liable for failure to observe the payment date through civil litigation; and (iv) if an employer is subject to a criminal penalty for failure to observe the extended payment date in cases where an employee agreed to receive statutory severance after a long period of time or via long-term installments, the date when the crime occurred and the point at which the statute of limitations commences become unclear. Under such interpretation of the law, acts that are subject to criminal sanctions will inevitably vary depending on the parties’ agreement and such interpretation is against the principle of “no punishment without a legal basis.”
However, the Supreme Court disagreed and reversed the appellate court’s decision, remanding the case back to the appellate court. According to the Supreme Court, based on the text, form and purpose of Article 9, Paragraph 1 of the ERBSA, which pertains to the obligation to pay money and valuables within a set deadline, the relevant provision merely allows an extension of the payment date agreeded upon by the parties, and it cannot be deemed to exempt an employer from criminal liability when it fails to pay statutory severance by the extended payment date. Therefore, even if the parties had agreed to extend the payment date, if the employer fails to pay statutory severance by the extended payment date, it constitutes a violation of the ERBSA.
In sum, the Supreme Court clarified the extent of an employer’s criminal liability under Article 9, Paragraph 1 and Article 44, Item 1 of the ERBSA by ruling that in this case, the employer violated the ERBSA when it failed to pay statutory severance within the mutually agreed upon extended date.