Demands related to ordinary wage, extension of retirement age, and working hour reduction without wage adjustment will be the major issues in collective bargaining this year. As strong union leaderships were elected in many trade unions at large enterprises, and as these leaders attempt to make strong impressions, union demands regarding wage increases and welfare are likely to be excessive. Labor is also focusing on improving working conditions for non-regular workers and in-house subcontracted workers, aiming to restore their organizational influence in workplaces and set up additional union organizations in particular regions, meaning wage and welfare issues for non-regular and in-house subcontracted workers will arise as main points in collective bargaining at many companies. Excessive demands related to redundancy and job security are also possible due to increasing labor costs. The KEF recommends that companies pay close attention to the following issues and take steps to protect themselves from unpleasant surprises during collective bargaining sessions.
① Ordinary Wage
The Supreme Court’s full-member decision on ordinary wage had a profound impact on society at the end of last year. On 18 December, the Court ruled that regular bonuses are included in ordinary wage but requests for retroactive payment breaks the principle of good faith.
Despite this ruling emphasizing the principle of good faith, labor is planning to demand retroactive pay for the past 3 years. After the Court’s ruling, some trade unions have sent letters demanding recalculation of wages for the past 3 years. Many workplaces are dealing with lawsuits related to ordinary wage, and the number of lawsuits is expected to increase. Related disputes between labor and management will also increase since labor has included in its action guidelines plans to refuse management measures to make wages flexible through such measures as increasing the proportion of adjustable wages or transitioning monthly payment systems to annual salary systems.
When dealing with the demand to recalculate wages for the past 3 years, companies should clearly state that demands for retroactive payment of statutory allowances is against the good-faith principle, so there is no obligation for companies to make such payments. The Court also determined that agreements between labor and management to exclude regular bonuses from ordinary wage are invalid, but, again, that requests for retroactive payment of the missing wages is against the good-faith principle.
The scope of application for the principle of good faith is also problematic. Labor insists it cannot be applied from the date of the Supreme Court ruling. However, the Court has clearly stated that the good-faith principle cannot be applied to agreements made after the date of the ruling. Therefore, companies should reject demands to recalculate statutory allowances during wage negotiations.
Companies should make efforts to reduce labor costs by adjusting wage increases based on total wages or reorganizing wage payment systems. If companies are likely to face managerial difficulties due to labor costs associated with ordinary wage issues and the like, then those companies should inform their trade unions that reduction of labor costs through wage freezes or discontinuing bonuses etc., are inevitable.
② Reduction of Working Hours
Although Korean workers work more hours than the OECD average, the long working hours can be attributed to lower productivity than in advanced nations and worker preference for income over time off. In 2010, the Economic and Social Development Commission recognized the need to gradually change labor practices to reduce working hours, and the tripartite members in the Commission made an agreement to reduce working hours to 1,800 per year by 2020.
Despite the agreement, politicians these days are working on revision of the Labor Standards Act to count holiday work in statutory overtime working hours, and to reduce the number of industries exempt from inclusion in statutory working hours (26 industries →10 industries). The government is also actively working on reduction of working hours since it looks to the reduction contributing to job creation. Moreover, trade union demands to reduce working hours will increase as the Supreme Court will weigh in this year on whether employers should pay double the normal wage for work on holidays (holiday work allowance plus overtime).
To be prepared for issues related to working hour reduction, it is recommended that companies proceed voluntarily with reductions while at the same time increasing labor productivity or etc. Companies can use substitute workers on holidays and vacations, and a flexible working hour system according to the characteristics of the industry and business circumstances. Companies should also take measures to have workers use their annual paid leave.
Minimizing fixed or habitually-paid overtime work allowances is also necessary. If the existing collective agreement contains a clause setting an extra rate for overtime or recess hours which exceed statutory standards, companies should negotiate changes and reduce unnecessary labor costs.
③ Extension of Retirement Age
The revised bill to the Act on Prohibition of Age Discrimination in Employment and Aged Employment Promotion was passed in April 2013. The Act is to extend the retirement age to 60 along with a restructuring of wage systems. Nevertheless, retirement age in workplaces with 300 or more workers will be automatically extended without wage system restructuring since there is no regulation to compel restructuring. On top of this, labor is insisting on extending the retirement age without wage system restrictions before 2016.
Considering the realities in Korea where seniority-based wage systems are predominant, setting the mandatory retirement age to 60 without wage restructuring could create huge financial burdens, HRM difficulties such as employment congestion (as fewer workers are retiring to make room for new employees), and a decline in company abilities to recruit.
Therefore, companies ought to introduce the wage-peak system and minimize deterioration in company competitiveness and capacity for employment. If trade unions are against the wage-peak system, then companies should inform them that the burden from retirement age extension and wage increases/bonuses needs to be shared.
Additional measures to enhance company flexibility such as reshuffling personnel and redesigning duties are required. Companies can increase effectiveness of their HRM through establishment of transparent and clearly-understood systems for evaluation, reward and punishment.
④ In-house subcontracted and non-regular workers
The government is enforcing guidance in workplaces through labor inspections, employment status disclosures and other methods, while emphasizing protection of in-house subcontracted and non-regular workers. Politicians are rushing to revise related laws as well. Of particular note is that labor is seeking more union startups by spreading negative sentiment about the use of in-house subcontracted and non-regular workers. Disputes related to these types of employment are expected to increase.
Actually, trade unions are insisting on switching in-house subcontracted and non-regular workers into regular workers, banning the use of in-house subcontracted and non-regular workers, reinforcing primary contractor responsibilities for subcontracted workers, and prohibiting discrimination based on employment status during wage negotiations and collective bargaining this year.
Regarding these trade union demands, companies should clearly state that the use of in-house subcontracted and non-regular workers is related to HRM and company management, and is not subject to negotiation. Also, even should trade unions from outsourcing companies ask to participate in bargaining with primary contractors, primary contractors are not obligated to accept the request since there is no direct labor contract between the primary contractors and outsourcing companies. In the long term, it is recommended that objective performance evaluation systems be introduced to legitimize the different working conditions between regular and non-regular workers. And when outsourcing, companies should supervise carefully to prevent illegal dispatch or disguised subcontracting, etc.
⑤ Dismissal and Employment Stability
A considerable number of companies may face managerial crises since excessive increases are expected in labor costs related to ordinary wage, reduction of working hours, and retirement age extension. The best way forward is for labor and management to seek solutions together through consultation. Nevertheless, companies have no choice but to consider dismissals in order to reduce labor costs if consultation is not effective.
Dismissals will not be easy since the government and politicians are pushing ahead with revision of the Labor Standards Act, putting more restrictions on dismissal for managerial reasons, while labor continues disputing dismissal. Moreover, dismissal became more difficult due to the Seoul High Court’s recent interpretation on requirements for dismissal for managerial difficulties during the Ssangyong Motor dismissal case.
Despite the circumstances, companies are recommended not to set regulations on dismissal in their collective agreements. If clauses such as ‘agreement from the trade union is needed before dismissal,’ or ‘employment will be protected during business transfer and takeovers’ are included in collective agreements, then a lack of cooperation will be a significant obstacle to dismissal during times of managerial crisis. During collective bargaining, when dealing with trade unions making demands related to dismissals for managerial reasons, the principle rule is not to accept these demands. Holding discussions through joint labor-management conferences is more desirable.