Mr. Kim, the CEO of manufacturing company ‘A’, read a media report about increasing private education expenses and decided to lighten the child education costs of his employees. He removes the lunch allowance regulated in the Rules of Employment and sets up a tuition fund for children. This new setup will increase the total annual expenses of the company. Employees with children aged 14 or older like the new fund idea, but younger, unmarried employees are not interested. Nevertheless, Mr. Kim considers his decision rational and tries to modify the Rules of Employment. What should Mr. Kim note in this case?
Young, unmarried employees do not give a positive response to the new fund because it will not bring them immediate benefit, but employees with children like it and consider it to be of great financial support. Mr. Kim believes the change is a perfect example of improving the company welfare system because the fund shows respect for the situations of long-term employees, and will have a positive effect on the company.
However, Mr. Kim was advised that he should not make an ex parte adjustment to the Rules of Employment, and if the change would disadvantage any employees, he has to get the consent of the employees or the trade union. Mr. Kim cannot understand how the change could possibly disadvantage the employees since the costs the company would bear would increase, and the majority of employees would benefit in the end. The procedures for getting employee consent are vague for him because there are no trade unions in his company.
Rules of Employment and the procedures for modification
In order to manage an organization efficiently, rules and principles need to be established in advance, so as to effectively respond to problems. Companies have general standards regarding wages, working conditions, rewards, and disciplinary measures, even though these days, companies tend to individualize wage and working conditions.
These standards include company rules, personnel policies, codes of conduct, etc. ’Rules of Employment’ is the general term for these names under law. Thus, Rules of Employment indicates the rules related to employment relations in a company.
For example, standards regarding weekly working hours, given holidays, leaves of absence for personal reasons, and disciplinary procedures are all Rules of Employment. Under Korean labor law, companies with 10 employees or more must have Rules of Employment and report them to the government. When companies do not follow this, a penalty is imposed.
Although the employer has the basic right to prepare or modify the Rules of Employment considering that the rules are really the internal law for a company, the employer still must obtain opinions from the employees. Employers should be aware that procedures to garner consent are mandatory before alterations which may disadvantage employees are made to the existing rules.
The law states that employers must get consent from the trade union representing more than half the employees, or from more than half of the employees when there is no union. Therefore, if the change in this case ’disadvantages the employees,’ consent is required. If the employees refuse the change or the employer does not go through the proper procedures to garner consent, the modified rules will not take effect.
Standards to judge whether the change will disadvantage employees
The most important issue in Mr. Kim’s case is whether abolishing lunch allowances and setting up a tuition fund will disadvantage the employees or not.
Labor law does not specifically indicate which changes will disadvantage employees and how to judge such changes. The court makes decisions based on common sense, noting that if some employees benefit and other employees are disadvantaged, the court tends to decide the case as ’a disadvantageous change’ on the whole. Changes that bring benefit to the majority of a company’s employees but disadvantage a minority are also considered ’disadvantageous changes.’
Changing wage brackets only for particular positions can be an example. In this case, the definition of ’disadvantage’ should be applied and judged for the specific group that will be affected by the change, and only the group should be the subject of the procedures for consent. This is intended to prevent minority opinions from being ignored, and judicial precedent shows identical intent.
If the lunch allowance is abolished and the tuition fund established, it can be expected that employees without children (single and married) will be disadvantaged even though employees with children will benefit. Consequently, the change that Mr. Kim planned may be considered as a disadvantageous change.
Procedures for garnering consent to change the Rules of Employment
If the case is considered a disadvantageous change, the employer should follow the procedures indicated under labor law. Since Company A does not have a trade union, the employer has to win the approval of more than half the total employees. Theoretically, consent must be garnered only when all the employees are assembled, but it is possible to get approval from the majority of employees in each department if it is very difficult to gather every employee together at the same time especially in large corporations. In short, approval is assumed to be legal if the employees agree on the change in a decision-making process as long as it is clear that there is no employer’s intervention.
However, consent forms collected from different departments or small party units still leave room for doubt over employer intervention. An employer should pay close attention to this case since the decision-making process could be viewed as not fully reflecting employees’ opinion and may be regarded as invalid.
Regulations on changing the Rules of Employment must be followed, and legal precedent has indicated that rules changed without employees consent are invalid. However, some precedents these days hold that changes made without consent can be valid if the change is not disadvantageous according to common sense.
For instance, if two corporate bodies merge and extend the retirement age in consideration of the extension, increased wages and the modified wage scale, the change is not considered disadvantageous even if a modification in severance pay is entailed, and thus the procedures for garnering consent are not needed.