This is the first case that I can realize the power of Korean labor union as a labor attorney. Forced business closure as a result of a labor union’s

This is the first case that I can realize the power of Korean labor union as a labor attorney.

Forced business closure as a result of a labor union’s abuse of its rights 

I. Summary  

This case is about a taxi company in Yeosu, South Jeolla Province, that actually had to shut down its business due to abuses by the labor union of its own rights. These same abuses resulted in the new employer, who purchased the taxi company, also having to shut down. The taxi company had been unable to increase the ‘deposit money which taxi drivers have to turn over to the company out of their daily earnings’ (hereby referred to as the “daily deposit”) for its last ten years, which resulted in accumulated deficits over a long period of time. Furthermore, the company was not allowed to discipline any employees who violated company regulations over the last ten years either.  

This company was the biggest taxi company in Yeosu about 10 years ago, with 80 taxis. The company and the labor union agreed on a daily deposit amount in their collective agreement in 1998. The daily deposit amount stipulated in the collective agreement was much lower than that of any of the other taxi companies, and so this helped to maintain peace between management and labor for some years. However, from 2000, the company started facing difficulty from operational deficits due to inflated prices, a rise in fuel costs, etc, and the company requested an increase in the daily deposit, but the labor union rejected, arguing that the company’s explanation of the reasons for the monthly deficit could have been falsified. The employer then completely laid out the company’s financial situation to the labor union in the hopes of being able to rescue the company, and desperately demanded the drivers’ daily deposit be increased up to the minimum break-even point. However, this was impossible, as the labor union was unwilling to compromise. In the end, the employer had to sell the business in February of 2006, due to its accumulated debt.  

A new employer purchased the taxi company with a verbal promise from the labor union that it would increase the daily deposit, but when the new employer purchased the company, the labor union allowed the increased daily deposit for only two months, after which the labor union returned to the previous daily deposit. When the new employer decided to stop subsidizing fuel in order to prevent another deficit, the union members submitted their daily deposit after deducting an amount equivalent to the fuel subsidy. The company, following the disciplinary procedures in company regulations, then dismissed several union officers who had led other union members to deduct the fuel subsidy from their daily deposit. However, the Labor Relations Commission ruled that the dismissals were unfair in that the company did not observe the expired collective agreement’s disciplinary process, which was that “the disciplinary action committee shall consist of an equal number of representatives from the company and the labor union, and its decisions shall be decided by a two-thirds majority of the committee members present.” The new employer could not raise the taxi drivers’ daily deposit amount, and was also told that the Labor Office had decided that the company’s cessation of a fuel subsidy was illegal. Again, in the end, the new employer had to give up the business, due to the accumulated debt, only two years after purchasing the company.  

II. Timeline of Major Events  

1. 1979 The taxi company was established.  

2. May 1, 1998 The drivers’ daily deposit, 65,000 won, was stipulated in the collective agreement.  

3. July 2004 A deficit of 10 million won per month started occurring, due to the rise in fuel costs. The company desperately demanded that the labor union accept a 5,000 won increase of the drivers’ daily deposit, the minimum to break even, but the labor union refused.  

4. Oct 29, 2004 The company notified the labor union of the cancellation of the existing collective agreement.  

5. Apr. ~ May 2005 The labor union went on strike for two months to prevent the sale of the taxi company.  

6. Dec 2005~Feb 2006 The taxi company suspended business for three months due to accumulated debt, and then was sold.  

7. Mar ~ Apr 2006 A new employer purchased the company after obtaining a verbal promise from the labor union that they would raise the drivers’ daily deposit by 9,000 won. However, the labor union returned to the previous daily deposit two months later.  

8. May 2006 After two months, when the new employer continued to deduct the increased daily deposit, the employees sued the company for these deductions, and the Labor Office ordered the company to return these deductions to the employees. 

9. May ~ Nov 2006  The new employer desperately demanded that the labor union raise the drivers’ daily deposit so the company could stop running a deficit. Negotiations with the labor union were held more than twenty times, but the labor union rejected the increase to the end.  

10. After Nov 2006  After sufficiently explaining the need to stop the fuel subsidy, the company stopped subsidizing fuel costs. The union members then reduced their daily deposit to 47,000 won, after deducting 18,000 won, equivalent to the fuel subsidy.  

11. Nov 2006 The company dismissed key union officers who defied the company’s decision to cease the fuel subsidy.  

12. Dec 19, 2006     The Labor Relations Commission ruled that the dismissals were unfair because the company violated disciplinary procedures.  

13. May 21, 2007 The employer appealed, but lost the case.  

14. Aug 27, 2008      The new employer gave up the business due to the debt load.  

III. Necessity for the increase in the taxi drivers’ daily deposit and the labor union’s objections 

1. Necessity for the increase in the taxi drivers’ daily deposit  

When the company and the labor union determined the drivers’ daily deposit of 65,000 won in the collective agreement in May 1998, the fuel was 222 won per liter, but in June 2006, it rose up to 737 won, a 330% increase. During this period, the base taxi fare was 1,300 won, and increased to 1,800 won. However, the taxi drivers’ daily deduction did not increase due to the labor union’s continuous objections.  

2. A written statement from one of the former company presidents 

 My company had the best working conditions of all taxi companies in July 2004. Their average monthly income was 300,000 won more than their counterparts at other taxi companies, and thanks to this situation, we were awarded a prize by the Minister of Construction and Transportation in the field of labor-management relations. However, with the rise in fuel costs, the company could not share any profit with its stockholders, and even the company’s invested capital was at risk, due to the accumulated debt. The company had been losing, on average, 10 million won every month. 

  At the emergency board meeting, I was elected the new representative director. Based on my three basic standards of company management like a principle of trust, win-win situations, and transparency, I started to negotiate with the labor union and laid out the company’s financial situation for the labor union to see (the union inspected the company’s business practices three times), but the labor union would not agree to an increase of their daily deposit. The company requested only 5,000 won more, the minimum to break even, explaining that the company would do business without profit for the time being so as to rescue the company, but the labor union refused the company request, repeatedly claiming the company was not losing money. The board meeting concluded with the company still unable to recover from its accumulated fuel and other debts, and in the end, it was sold, with the entire amount from sale going to payment of company debts. 

  A considerable number of faithful union members suggested the daily deposit be increased an additional 10,000 won (even in this case, an employee could receive, on average, 100,000 won more per month than at other companies) demanding that the company suspend its sale, but their efforts availed nothing, due to threats and interference from a few militant union members.   

3. Comparison of wages versus taxi drivers’ daily deposit 

– prepared by a certified public accountant (as of Nov 1, 2006) 

1) Company income per driver (daily deposit): 65,000 won x 25 days = 1,625,000 won/month 

2) Labor costs (direct costs + indirect costs) 1,976,609 won per driver per month 

- Direct labor costs: basic pay, long-term service allowance, car wash allowance, summer vacation allowance, tuition subsidy, severance pay reserve, insurance premiums for the four social security insurances, compensation for unused annual/monthly leave, paid leave allowance (5 days), gift expenses, fuel subsidy (26.7 liters) 1,272,645 won 

- Indirect labor costs: management staff labor costs, general expenses, car insurance, depreciation of car values, car repairs, dividends to stockholders  703,963 won  

3) Company income versus individual labor costs 

1,625,000 won (company income) – 1,976,609 won (labor costs) 

= -351,609 won (deficit amount per individual per month) 

IV. Loss of the company’s right to implement disciplinary action 

 Through negotiation with the labor union, the company introduced a disciplinary process in the collective agreement which stipulates, “the disciplinary action committee shall consist of an equal number of representatives from the company and the labor union, and its decision shall be decided by a two-thirds majority of the committee members present.” The company gave up its right to unilaterally take disciplinary action in order to include the labor union as a business partner and to cooperate in a win-win strategy. Unfortunately, the company was not able to take disciplinary action against even one union member over the company’s last ten years on account of the requirements for taking disciplinary action within the disciplinary process. Consequently, sometimes union members cursed the employer and neglected to carry out their duties properly. Union members also frequently caused car accidents. As a result of the lack of disciplinary action, the company had to pay more in annual car insurance premiums than other companies: more than 2 million won per taxi, compared to about 1 million won per taxi for the company’s competitors. This was as a direct result of the company’s inability to maintain ethical standards through disciplinary action. What is worse, under this disciplinary process, the company couldn’t even punish an employee who sued the employer without justifiable reason. This resulted in a collapse of order within the company, so manager directions were not adequately implemented.  

V. Related judicial rulings and administrative interpretation  

If a collective agreement expires, provisions concerning disciplinary process continue to be effective as normative sections. (Jan 25, 2007, Labor Relations-293)  

Although the effective period of the collective agreement expires or the collective agreement is declared invalid by one party cancelling the agreement during the autonomous extension period, ‘standards concerning working conditions and other matters concerning the treatment of employees’ (namely, the normative section), as prescribed in the collective agreement, would still remain in effect as the working conditions of individual employees. If the employer wants to revise the normative section, he shall conclude a new collective agreement in accordance with legitimate procedures, or revise the Rules of Employment and obtain collective consent of the employees concerned. (Supreme Court Ruling, Jun 9, 2000, 98da13747) 

In cases where the employer agrees with the labor union in the collective agreement that “when taking disciplinary action, the disciplinary action committee shall consist of an equal number of representatives from the company and the labor union, and its decision shall be decided by a two-thirds majority of committee members present,” it is true that it is practically impossible to discipline employees who violate company regulations. Although this makes it difficult to take disciplinary action, the validity of the disciplinary process as stipulated in the collective agreement, will still hold. 

VI. Conclusion  

In this labor case, as in other cases where the employer gives up a certain range of personnel and management rights in order to maintain peace with the labor union, the results are evident. The loss of managerial and personnel rights will lead to failure of the business, reducing competitiveness in the market and employee job security as well. Therefore, when an employer establishes autonomous agreement by collectively bargaining with the labor union, the employer should not forget that he or she should negotiate with the labor union within certain boundaries: fundamental employers’ rights, namely, personnel and managerial rights, should not be given up in the collective agreement. If the employer hands over personnel and managerial rights to the labor union, it should be remembered that negative consequences will occur for the employer and the labor union in the long run.