SOUTH KOREA Law and Practice Contributed by: Ki Wook Kang, Kyung Chun Kim, Junghae Kang and Do Kyeom Kim, Lee & Ko
employees are deemed to be transferred other than the employees who object to such transfer. Thus, in practice it is not uncommon to obtain consent of such in-scope employees in the case of a business trans - fer transaction. The terms of any M&A transaction must comply with provisions of the Labour Standards Act (LSA). Under the LSA, involuntary termination of employment is permitted only for “just cause” and an M&A transaction itself cannot be the ground for any involuntary termination, such as a lay-off, or restruc - turing. Satisfying the requirements under the LSA for such involuntary termination is considered difficult in Korea, which limits the acquirer’s ability to conduct any significant HR restructuring in connection with the M&A transaction. Employment issues that investors may face in con - nection with M&A transactions include demands of the labour union relating to job security, bonuses, or concessions under collective bargaining agreements, discriminatory treatment issues between regular employees and non-regular employees and under - paid, or unpaid, wages or allowances. In particular, with the so-called Yellow Envelope Act scheduled to take effect in March 2026, managerial decisions affect - ing working conditions – such as those arising in the context of M&A – will be expressly included within the scope of labour dispute actions, and workers who are not directly employed (including those employed by subcontractors) will, subject to certain requirements, also be permitted to initiate labour disputes (see 3.1 Significant Court Decisions or Legal Developments ). Investors need to conduct appropriate due diligence on these potential HR issues, all of which may have significant financial implications for the acquirer. 2.6 National Security Review In order for a foreign investor to acquire a 10% or more share ownership in a defence company for a purchase price equal to or in excess of KRW100 mil - lion, the investor must obtain prior approval of MOTIR pursuant to the FIPA. If the acquirer intends to acquire a controlling interest over the management of defence companies by means of a purchase or exchanges of shares, mergers or business transfers, such acquirer must obtain prior approval of MOTIR pursuant to the Defence Acquisition Programme Act.
FIPA provides that foreign investment may be restrict - ed where a foreign investor effectively acquires mana - gerial control of an enterprise and such acquisition is likely to: (i) impede the production of defence industry materials; (ii) involve goods or technologies subject to export authorisation that are highly likely to be divert - ed for military purposes; (iii) result in the disclosure of information treated as a state secret; (iv) seriously and materially undermine the maintenance of interna - tional peace and security; or (v) lead to a significant risk of leakage of National Core Technologies (NCT) or National High-Tech Strategic Technologies (NHST). MOTIR determines whether any of the foregoing grounds for restriction are met through a national security review, which may be initiated either upon a filing by the foreign investor or ex officio. Where, as a result of such review, MOTIR determines that the transaction would adversely impact national secu - rity, it may prohibit the transaction, in which case the transaction must be suspended. If the transaction has already been completed, the shares or equity inter - ests transferred pursuant to such transaction must be transferred within six months (extendable by up to one year) to a Korean national or to a foreign investor that does not pose national security concerns. The Industrial Technology Protection Act (ITPA) pro - vides for a national security review of foreign invest - ments related to NCT. According to the ITPA, for - eign investors are required to obtain prior approval of MOTIR to obtain control, by way of acquisition, merger, joint venture or other types of investments, of Korean entities holding NCT developed with gov - ernment R&D subsidies. In addition, foreign investors are required to report in advance to MOTIR to obtain control of entities which hold NCT developed with - out government R&D subsidies. Similarly, the Special Measures Act on Strengthening and Protecting the Competitiveness of the National High-Tech Strate - gic Industry provides for a prior approval regime by MOTIR for foreign investment in companies holding NHST. Where prior approval is obtained following review by MOTIR, the aforementioned national secu - rity review may be exempted.
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