Korean labor law: Possible Cases Changing Working Conditions unfavorably - the Legal Principle of Socially Acceptable Rationality

Korean labor law: Possible Cases Changing Working Conditions unfavorably - the Legal Principle of Socially Acceptable Rationality

Bongsoo Jung / KangNam labor law firm

I. Introduction

With the Aged Employment Promotion Act[1] revised in 2013, along with implementation of the compulsory retirement system starting in 2016, workplaces with seniority-based wage systems are expecting a rapid increase in labor costs. Under these circumstances, it is debatable whether unilateral introduction of a wage peak system by employers seeking to cope with the new labor costs is simply disadvantageous to employees or socially acceptable rationality. For guidance, it is necessary to look at the legal criteria required in labor laws for changing working conditions, which is equivalent to changing the Rules of Employment. With labor issues appearing in this area, I would like to explain appropriate ways to make or change the Rules of Employment, obtain consent for unfavorably-changed rules and the legal principle of socially acceptable rationality.  

II. The Rules of Employment: Concept & Making Changes

1. Concept

The Rules of Employment refer to the company regulations that an employer stipulates unilaterally regarding working conditions and service rules. The Labor Standards Act stipulates the employer’s obligations for preparing and filing their rules (Article 93) and ways to compose and change the rules (Article 94). In particular, if a labor contract includes employment conditions which are below the standards stipulated in the Rules of Employment, the nonconforming part of the labor contract is null and void (Article 97). Korean law stipulates that areas in which employment conditions have been invalidated shall be governed by the standards provided for in the Rules of Employment. The Rules of Employment are to put the employer and workers on equal footing, which shows that the employer can compose or revise the rules unilaterally when revising working conditions advantageously, but shall obtain collective consent from the majority of employees when revising them disadvantageously.

2. Making Changes to the Rules of Employment

(1) Advantageous changes

When preparing or revising the Rules of Employment, the employer should, as a rule, consider the views of the majority of employees. For favorable changes to working conditions, it is sufficient that the employer listens to the majority of employees, but there is no obligation to consult with or obtain consent from them. [2] Violations of the duty to consider employee opinions regarding changes to the Rules of Employment are subject to punitive action: the violation does not invalidate the change(s). Considering employee opinions serves as a way of protecting those employees by giving the employer opportunity to reflect their opinions in changes, but the failure to do so does not invalidate those changes. [3]

 (2) Disadvantageous changes

 When working conditions stipulated in the Rules of Employment are changed disadvantageously, existing employees will continue to work under the previous conditions if their consent was not received for the changes, but new employees hired after revision of the Rules of Employment will be subject to those changes. [4] 

1) Changing the Rules of Employment unfavorably

The acceptable methods for receiving employee consent are as follows: ① If there is no labor union composed of the majority of employees, it is necessary to receive consent from the majority of employees by means of allowing them to hold their own conference. Here, ‘obtaining consent through a conference’ means that employees get together and exchange their opinions for and against particular issues at the division or department level of a workplace or business, without interference from or participation of the employer, and then gathering their collective opinions for delivery to the employer. [5] ② If there is a labor union composed of the majority of employees, the revised Rules of Employment upon the union’s consent to the changes will also be in effect for non-union employees who have not had any input into the agreement.[6] ③ If working conditions are different for production and management divisions, and for regular and non-regular employees, consent shall be received from those groups who will be affected by the revised working conditions. This means the employer does not have to receive consent from the majority of all employees if some of them will not be affected by the changes.[7] ④ At the time the Rules are changed, even though only a certain group of employees will be disadvantageously affected, if the revisions will affect other groups of employees, consent from these other groups shall also be required. [8]  

 2) Criteria for changed working conditions to be considered disadvantageous

Whether amendment of the Rules of Employment is disadvantageous or not shall be evaluated substantially by considering all factors such as reasons and procedures for the amendment, characteristics of the jobs, and the structure of each regulation of the Rules of Employment. Accordingly, even though one working condition has been revised disadvantageously, if other related factors were changed favorably or other favorable changes were made in return for the disadvantageous change, whether these revisions were disadvantageous or not should be determined after considering all the changes. [9]  

Court rulings have showed: ① In cases where regulations on accumulating retirement payments were changed disadvantageously to non-accumulating retirement payments, if employee wages were increased and their working hours shortened, that change will not automatically be considered disadvantageous. [10] ② In cases where a wage regulation in the Rules of Employment was changed disadvantageously for some employees, but advantageously for other employees, such changes shall be considered as disadvantageous. [11] ③ Reducing or abolishing overtime work exceeding legal standard working hours cannot be regarded as a disadvantageous change to the Rules of Employment.[12] ④ In cases where working at night or on holidays in the working shift system, employees used to receive additional allowances. However after changing work shifts to day time only, night and holiday work allowances were no longer available. In this case, the reduced wages cannot be seen as disadvantageous. [13]

III. Disadvantageous Changes to the Rules of Employment and the Legal Principle of Socially Acceptable Rationality

1. Socially Acceptable Rationality

In cases where working conditions in the Rules of Employment were revised disadvantageously, if the Rules of Employment were revised without consent of the employee group, the changed rules will be invalid due to the unilateral nature of the change. However, if the revision of the Rules of Employment can be admitted as socially acceptable rationality, the change(s) may be considered legitimate. There are two opposing opinions regarding this issue: 1) As long as socially acceptable rationality is admitted, employer revisions to the Rules of Employment are effective (theory of affirmative recognition)[14], and 2) Disadvantageous employer revisions of the Rules of Employment are invalid (theory of negative recognition). [15]

 The point of dispute is whether, when introducing the extension of mandatory retirement to age 60, the employer can introduce a wage peak system to employees under a seniority-based wage system without their consent. We will review disadvantageous revision of working conditions under the theory of socially acceptable rationality.

2. Criteria for Socially Acceptable Rationality

A judicial ruling regarding criteria for socially acceptable rationality stipulated, “It is not permitted to apply disadvantageous working conditions that deprive employees of their existing rights and interests through unilateral establishment or revision of Rules of Employment by the employer. However, in cases where there is sufficient socially acceptable rationality to recognize justification in terms of both necessity and the details of the establishment or revision, even when considering the degree of employee disadvantage, the effectiveness cannot be denied simply because there was no collective consent obtained from employees to whom the previous working conditions or Rules of Employment applied. Whether there is socially acceptable rationality or not shall be evaluated by collectively considering several items such as the degree of disadvantage the employees suffer under the changed Rules of Employment, the degree of employer necessity to change the ROE, efforts to replace or compensate for the changes to the ROE, negotiation situation with the Labor Union, and other general conditions in the domestic business. Provided, as changing the Rules of Employment disadvantageously for employees ignores the provision of the Labor Standards Act requiring their consent, this should be interpreted as necessary only a limited basis under stringent conditions.

3. Review

 (1) Theory of affirmative recognition

The following points are used as support in the argument that unilaterally changing working conditions disadvantageously is rational to a degree that is socially acceptable: First, according to Paragraph 1 of Article 19-2 of the Aged Employment Promotion Act, “The employer of a business or workplace who extends the retirement age, and a labor union which is formed by the majority of all workers (or a person representing the majority of all workers) shall take the steps necessary to revise the wage system, etc. according to the conditions pertaining to the business or workplace concerned.” In a seniority-based wage system, this article can be regarded as necessary, as changing the wage system is unavoidable and socially acceptable rationality. Secondly, Paragraph 2 of Article 19-2 mentions, as the Employment Insurance Act outlines a system for subsidies related to implementation of the wage peak system in accordance with the retirement extension, such a change to working conditions would not be considered disadvantageous because there is no decreased wage in reality. Therefore, introducing a wage peak system along with extended retirement can be regarded socially acceptable rationality because of sufficient follow-up measures. In consideration of these arguments, this theory claims that employers can revise the ROE without consent of the employee group. [16]

(2) Theory of negative recognition

  The following points are used as support in the argument that unilaterally changing working conditions disadvantageously is not rational to a degree that is socially acceptable[17]: Article 19 of the Aged Employment Promotion Act stipulates that introduction of the retirement age extension to 60 years is a normative provision, while Article 19-2 stipulates that the provision on introducing a wage peak system is a suggestive one and not legally binding. The related judicial ruling shows that the theory of socially acceptable rationality shall be strictly limited as this effectively ignores the provision in the Labor Standards Act requiring employee consent. [18]

 (3) Our interpretation

In introducing extended retirement, it will not be considered justifiable for an employer to introduce a unilaterally-determined wage peak system to cut wages as this violates the principle of labor and management having decision-making power over working conditions. Provided, if the employer extends retirement age beyond the mandatory retirement age while introducing a wage peak system, this revision can be regarded as socially acceptable rationality as it contains advantages for both labor and management. 

VI. Conclusion

Revision of working conditions is possible at any time the employees and the employer agree. In cases where working conditions are revised advantageously, the employer does not need the consent of the employee group. However, if the revisions are disadvantageous, the employer needs to obtain consent from the employee group before the revision(s) shall be considered legally effective. Unilateral revision by employers violates the principle of labor and management determining working conditions, and shall not be effective due to violating both the contractual characteristics of the Rules of Employment and its normative effect. [19] For this reason, socially acceptable rationality as a theory allowing the employer to revise working conditions unilaterally, shall be evaluated strictly on a case-by-case basis, after considering a fair comparison of the necessity of revising the Rules of Employment and the disadvantage created for affected employees in unfavorable revisions.

[1] Act on Prohibition of Age Discrimination in Employment & Aged Employment Promotion, May 22, 2013

Article 19 (Retirement Age)

① When an employer sets a retirement age, he/she shall set it at 60 years of age or older.

② Regardless of Subparagraph ①, in cases where the employer has previously set a retirement age at less than 60 years of age, his/her retirement age policy shall be regarded as having been set at 60 years of age.

Article 19-2 (Changing the Wage system, etc. due to Extension of the Retirement age)

①The employer of a business or workplace who extends the retirement age in accordance with Subparagraph ① of Article 19, and a labor union which is formed by the majority of all workers (or a person representing the majority of all workers) shall take the steps necessary to revise the wage system, etc. according to the conditions pertaining to the business or workplace concerned.

Addenda

This Act shall enter into force one year from the date of enforcement of its promulgation. Provided, that the revised rules of Article 19, Paragraph ① and of Article 19-2 shall enter into force in accordance with the following: 1. Businesses or workplaces with 300 or more full-time workers, public institutes in accordance with Article 4 of the Act on the Operation of Public Institutions, local public enterprises and local corporations under Articles 49 and 76 of the Local Public Enterprises Act: effective January 1, 2016;

2. Businesses or workplaces with fewer than 300 workers, national and local governments: effective January 1, 2017.

[2] Jongryul Lim, 『Labor Law』, 13th edition, 2015, Parkyoung sa, page 353.

[3] Hyungbae Kim, 『Labor Law』, 24th edition, 2015, Parkyoung sa, page 304.

[4] Supreme Court ruling of June 24, 2011, 2009da58364.

[5] Supreme Court ruling of May 14, 2004, 2002da23185. June 24, 2011, 2009da58364.

[6] Supreme Court ruling of February 29, 2008, 2007da85997.

[7] Supreme Court ruling of December 7, 1990, 90da19647.

[8] Supreme Court ruling of May 28, 2009, 2009du2238.

[9] Supreme Court ruling of January 27, 2004, 2001da42301.

[10] Supreme Court ruling of November 13, 1984, 84daka414.

[11] Supreme Court ruling of May 14, 1993, 93da1893.  

[12] MOEL Guideline (Kungi 68207-286, March 13, 2003).

[13] MOEL Guideline (Kungi 68207-691, June 11, 2003).

[14] Chulsoo Lee, “It is possible for an employer to unilaterally implement a wage peak system!”, 『Labor Law 』, Jungang Economy, April 2015.

[15] Kaprae Ha, “It is impossible for an employer to unilaterally implement a wage peak system!”, 『Labor Law 』, Jungang Economy, April 2015.

[16] Chulsoo Lee, “The wage peak system is possible to be implemented unilaterally by the employer!”

[17] Kaprae Ha, “The wage peak system is impossible to be implemented unilaterally by the employer!”

[18] Supreme Court ruling of January 28, 2010, 2009da32362.

[19] Jung Lee, “Whom to get consent for revising the Rules of Employment disadvantageously”,『Labor Law』, Jungang Economy, September 2009.