Dismissal Notice Pay on Business Closure: What Employers and Workers Must Know

Does a Business Closure Still Require Dismissal Notice Pay?

When a workplace shuts down, workers suddenly lose their jobs. Many people assume, "If the business is closing, there's nothing that can be done," but the law sees it differently. A business closure is a form of dismissal, so the obligation to give advance notice of dismissal (해고예고) under the Labor Standards Act (근로기준법) applies in full.

The Advance Notice of Dismissal Obligation — Article 26 of the Labor Standards Act (근로기준법 제26조)

Article 26 of the Labor Standards Act (근로기준법 제26조) requires an employer to give at least 30 days' advance notice before dismissing a worker. If the employer fails to give 30 days' notice, they must pay at least 30 days' ordinary wages as dismissal notice pay (해고예고수당). Because a business closure is also a termination of the employment relationship based on the employer's decision, this provision applies equally.

For example, if a worker whose ordinary wage is 2,500,000 KRW per month is dismissed immediately without notice, the employer must pay 2,500,000 KRW as dismissal notice pay.

Exceptions: When Dismissal Notice Pay Is Not Required

Under the proviso to the same article, an employer may dismiss a worker without advance notice in the following cases:

  1. The worker has been continuously employed for less than 3 months.
  2. The continuation of the business is impossible due to a natural disaster, incident, or other unavoidable cause (requires approval from the Labor Relations Commission).
  3. The worker has deliberately caused serious disruption to the business or inflicted property damage (reasons prescribed by Ministry of Employment and Labor ordinance).

A business closure on its own does not qualify as an "unavoidable cause." The Supreme Court has ruled that even a closure caused by deteriorating business conditions cannot be treated the same as a natural disaster or incident, because it remains a voluntary decision by the employer. Therefore, a simple business closure does not fall under any exception.

Does This Apply to Workplaces with Fewer Than 5 Employees?

Yes, it does. The advance notice of dismissal provision (Article 26) applies to all workplaces regardless of the number of regular employees. Even at a workplace with fewer than 5 employees, if a worker who has been employed for 3 months or more is dismissed without notice, the employer must pay dismissal notice pay.

Note for foreign workers: Your employment contract may specify terms different from the statutory minimum, but the statutory protections described here cannot be waived below the legal floor.

What Happens If the Employer Fails to Pay?

An employer who does not pay dismissal notice pay may face imprisonment of up to 2 years or a fine of up to 20,000,000 KRW under Article 110 of the Labor Standards Act (근로기준법 제110조). Workers may file a complaint (진정) with the competent Regional Employment and Labor Office, or bring a civil lawsuit for unpaid wages.

If the employer disappears or has no assets after closing the business, workers can use the Wage Claim Guarantee (체당금) system. The Korea Workers' Compensation & Welfare Service (근로복지공단), under the Ministry of Employment and Labor, will pay wages, severance pay (퇴직금), and dismissal notice pay on behalf of the employer up to a certain limit.

Steps Workers Should Take

  1. Record the date and method of the dismissal notice (text message, KakaoTalk, voice recording, etc.).
  2. Check whether 30 days' advance notice was given.
  3. If dismissed without notice, consider filing a complaint with the Regional Employment and Labor Office or applying for the Wage Claim Guarantee.
  4. Claim any other unpaid amounts at the same time, such as severance pay and unused annual leave (연차유급휴가) allowance.

Check Your Entitlements on Viro

In a business-closure dismissal, dismissal notice pay is just one piece — severance pay, unused annual leave pay, and other amounts are often involved as well. Use the Viro Severance Pay Calculator to estimate your severance pay first, and use the AI search to find out how to draft a complaint for your specific situation, all in one place.

This article is for informational purposes only and does not constitute legal advice. For specific cases, consult a certified labor attorney (노무사) or lawyer.