Supreme Court Ruling ``No Employment Transfer Duties Needed At The Divided-Assets Disposal.``

For the first time, Supreme court ruled that a purchasing company is not required to take over the duties of the employment transfer for the workers of the seller company, if a divided-assets disposal, in which part of the assets are separated and selectively purchased during merger and acquisition (M&A), is adopted.

This ruling reversed the lower court’s decision that even if the divided-assets disposal is adopted and can be regarded as business transfer, the employment transfer duties should be accompanied.

Team 2 of Supreme Court (Head Judge Kang, Shinwook, Justice) turned the previous verdict that had gone against the plaintiff of this case, in which the Changwon Specialty Steel asked the Natioanl Labor Relation Committee (NLRC) to nullify the second ruling for the rescue of the unfair layoffs, and returned the case to the Seoul Appellate court for a retrial.

The Changwon Specialty Steel had reemployed only 1770 out of 2342 workers of the Sammi Steel, after it took over the divisions of steel pipe and bar steel in February 1997. The remaining 245 workers filed a cancellation request to the NLRC and then won the favorable decision, which led to a judicial suit from the Changwon Specialty Steel.

The Supreme Court stated, `` When Changwon Specialty Steel took over the divisions of steel pipe and bar steel of Sammi Steel, Sammi Steel decided to clear them because of their low productivities. Then, Changwon Specialty Steel made a contract to take over the assets alone and not to take the duties of employment transfer, which is now certified to be effective.Thus, as the assets take-over of the Changwon Specialty Steel should not be regarded as business acceptance (business transfer in Sammi Steel’s view), in which the whole Sammi Steel business structure of personnel and material had to be transferred, and the Changwon Specialty Steel has no obligation to keep the employment transfer duties.``

Regarding this ruling, Korean Federation of Trade Union claimed, ``Since Changwon Specialty Steel’s purchasing encompassed the whole facility and most employees, it should have been regarded as business acceptance. Thus, we do not understand the Supreme Court’s decision. This is an unfair ruling because it now has opened a door for the foreign business or fund managers to take advantage of the law, when they purchase companies in conducting massive layoffs of the workers.``

As a way of M&A, a buyer can purchase the assets of the seller company alone, such as manufacturing factory, for a reasonable price. In principle, the buying company takes no responsibility of the employment transfer duties. In addition, there is no need to pay for the business rights of the seller company.

A traditional way of M&A for buying a company lies in the stock acceptance from the seller company, which enables the buying company to take over the full rights and duties of the seller company.

sooh@donga.com