Recent Supreme Court decision recognising ordinary dismissal of sales employee for poor performance

At a glance

• The Supreme Court recently affirmed a lower court's decision recognising the reasonableness of the ordinary dismissal of a sales employee for poor performance.
• The dismissal constituted an ‘ordinary dismissal’, which was based on a comprehensive evaluation of the employee’s efforts to improve and potential for future performance, as opposed to a ‘disciplinary dismissal’ that would focus primarily on the employee’s poor performance.
• This case is significant as it is rare for an ordinary dismissal of an underperformer to be recognised as reasonable by the Supreme Court.

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This article has been reproduced with the permission of the authors Weon Jung Kim, Ki Young Kim, Paul Cho, Choon-Ho Kim, Kiyoung Park and Hoin Lee at Kim & Chang.

The Supreme Court recently affirmed a lower court’s decision recognising the reasonableness of the ordinary dismissal of a sales employee working for an automobile manufacturer (Company) due to his poor work performance and lack of any intent to improve.

In terms of background, the Company’s sales employees (who are unionised) receive high fixed salaries regardless of their sales performance and therefore have not been subject to any pressure regarding their sales performance—unlike sales employees of other companies. However, by taking advantage of such generous conditions at the Company, some of the sales employees seriously neglected their duties regarding sales activities for a considerable period of time. After monitoring this development during such time, the Company reviewed the option to terminate the employment of only those sales employees who were underperformers and had no potential for improvement given their attitude. The employee at issue in this case not only recorded very poor sales results, but also failed to show even a minimum degree of effort for improvement, and as a result, the Company inevitably decided to terminate this employee.

On behalf of the Company, Kim & Chang proactively argued that in this case, the dismissal actually constituted an 'ordinary dismissal' that was implemented after comprehensively considering the employee’s efforts to improve and the likelihood for promising changes in the future. This is to be distinguished from a 'disciplinary dismissal', which would focus primarily on the sales employee’s poor performance. In other words, by focusing on the legal principles of an ordinary dismissal, our team argued that the current situation, in which the employment of such sales employee has significantly deteriorated, is likely to persist in the future given his unwillingness to improve, therefore making it difficult to achieve the purpose of the employment agreement. In addition, our team emphasised that, despite the fact that the Company implemented an ordinary dismissal as a matter of substance (which, unlike a disciplinary dismissal, was not included in the Company’s collective bargaining agreement (CBA)), the procedural requirements for disciplinary action in the Company’s CBA (ie convening of personnel committee) were met and maintained.

For many companies, the poor performance issue has had a significant impact on the morale of many employees and productivity within the entire organisation, not just the individual poor performing employee. This has been made worse by the number of court precedents making it very difficult for employers to meet the strict requirements for a dismissal.

We believe this Supreme Court case is quite meaningful as it is one of the very rare cases in which the ordinary dismissal of an underperformer was found to be reasonable and recognised. We comprehensively analysed internal / external factors from various perspectives, including the sales employee’s performance status and the challenges of the company’s relationship with the labor union, as well as the legal principles regarding an ordinary dismissal, to find reasons and key factors to support the reasonableness of the dismissal.