Managing the Risk of Whistleblowers in Korea

February 24, 2017

20150815_154338The KFTC recently released its figures on its compensation to whistleblowers.  Unlike leniency, which is used by most of the world’s antitrust regulators to encourage the reporting of cartels, awarding compensation to whistleblowers for reporting antitrust violations is not common. The KFTC has implemented a reward program for whistleblowers that has proven to be quite successful, especially as it pertains to cartel behavior. It should be noted that for whistleblowers to be rewarded (a percentage of the amount fined and recovered by the KFTC), the information provided by the whistleblowers must directly lead to the investigation of the suspect company (or in the case of cartels- the suspect companies) as well as the levying of administrative fines and penalties as well as the collecting of the same.

As one can imagine, the reward system offered by the KFTC has resulted in a dramatic increase in whistleblower activity.  For instance in 2015, 16 whistleblowers provided information on cartels.  In 2016, 15 whistleblowers provided information on cartel activity resulting in a total award of 730 Million Won.  In 2016, of the 835 Million won paid out by the KFTC to whistleblowers.

But the issue facing many companies in Korea is the fact that whistleblowing is being promoted by agencies such as the KFTC.  In fact, the whistleblowers could in fact be the very ones that violate the law and then try and save themselves by becoming a whistleblower.  Such actions emphasize the significance of risks faced by companies when hiring and firing employees in Korea.

Though the US has laws concerning whistleblowers, it also has in most states the “Employment at Will” doctrine. The Employment at Will doctrine states that an employer may discharge an employee for any reason or no reason but not for an unlawful reason; and the employee may leave at any time.  The trouble is of course that in some states the basic employment at will rule is usually not enforced. The real rule is that an employer needs a legitimate reason to terminate employment of an employee.   Therefore, before terminating an employee, an employer should take steps to prevent employee lawsuits, such as following all corporate HR processes and establishing the basis of a legitimate reason to terminate employment.  In essence, though the employment issues with whistleblowers in the US exist, they can be properly managed in most cases.

On the other hand, companies in Korea don’t even have an “Employment at Will” doctrine.  Instead, under Article 23 of the Korean Labor Standards Act, an employee may only be terminated for just-cause.  What is just-cause?  Though there is no clear definition, the courts in Korea have described it as a “cause that is attributable to the employee, who, under the socially accepted principles, makes the continuation of the employment impossible.”  Besides just-cause issues, Korean companies have other issues to worry about when dealing with employment related matter.  For example, in Korea, a demotion may be viewed as a form of disciplinary action.  As such, if a company demotes an employee without substantive justification, the employee may file a confirmation of the validity of a disciplinary sanction claim with the Korean courts or he may file a request for relief alleging wrongful disciplinary sanctions with the Labor Relations Commission.  It may be harder to terminate an employee when he or she becomes a whistleblower over an alleged violation or not.  Needless to say, this could cost the company money.

The risk of  running across whistleblowers while doing business in Korea is real, as is the risks of hiring and firing  employees in general.  To learn about ways to manage or mitigate the risk of  hiring and firing personnel in Korea,  please join me at the KBLA's 2017 risk management  seminar- " Managing Risk in Korea"  to be held on March 24 at the Hyatt Hotel in Seoul.  Visit the following link to register :


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