As in 2014, collective bargaining for this year seems to be headed for difficult times. The number of labor disputes in 2014 jumped to 111 from 72 in the previous year, and illegal industrial actions and political interventions on issues at individual workplaces continued. Especially, the full-bench Supreme Court ruling in December 2013 on the scope of ordinary wage has triggered much labor-management conflict, which of course significantly slowed down collective bargaining over the year of 2014.
According to the Seoul Central District Court, more than 200 lawsuits were initiated in 2014, showing that conflict between labor and management has become court fights rather than issues settled between the two parties. In particular, lower courts have made a series of confusing interpretations of the ‘fixedness’ of ordinary wage as well as application of the good-faith principle, which has led to confusion at the workplace. Labor disputes at conglomerate partner firms also escalated as unions were established there by the labor community to strengthen their ability to fight.
Under these circumstances, uncertainty over collective bargaining is mounting. In particular, the new leadership of the Korean Confederation of Trade Unions (KCTU), elected on 26 December, 2014, led a strike on April over 3 labor issues (opposition to structural reform of the labor market, opposition to reform of public employee pensions and indirect/non-regular employment). There is also concern that the government’s tentative ‘Comprehensive Measures for Non-regular Workers’ will only create more difficulties for enterprises because it focuses mainly on protection of non-regular workers, and not at the need for labor market flexibility or reforming wage systems. As there appears to be a widening gap between labor, management and the government regarding wage increases this year to date, tension over this issue is likely to grow.
Collective bargaining is likely to kick off earlier in 2015, yet take longer because of differences between labor and management on various issues – wage system reform, scope of ordinary wage, wage increases, reduction of working hours, non-regular workers and in-house subcontracted workers. Under these circumstances, enterprises need to be aware of the trends in discussion of major issues by the central government, the direction of labor law revisions, and demands from labor so that they may come up with the best negotiating strategies during collective bargaining.
Ordinary wage, a major issue in 2014, emerging as a key issue in 2015 as well
A key issue in collective bargaining in 2014 was whether to include various allowances and benefits in calculation of ordinary wage and revising legal allowance in accordance with the full-bench Supreme Court ruling on 18 December, 2013. Some enterprises have been able to craft successful collective agreements in 2014 while others have not, and conflict between labor and management over ordinary wage is expected to grow during 2015 collective bargaining, which will make negotiations longer and more complex.
Enterprises should therefore fully understand the Supreme Court ruling and lower court interpretations of wage details and payment methods in order to develop strategies on minimizing the burden of the labor costs which have increased as the scope for ordinary wage has widened. They will need to adjust their wages on the basis of total amount of wage and improve their wage payment methods. Among the allowances classified as ordinary wage in the collective agreement, benefits in kind which cannot be considered as ‘wages’ should be modified. Reducing extended working hours through enhancement of productivity is therefore recommended, and encouraging employees to use their annual leave to minimize payment of additional wages.
Handling labor demands for excessive wage hikes
This year, labor groups are demanding excessive wage increases: the Federation of Korean Trade Unions is demanding 7.8% for regular workers and 17.1% for non-regular workers; the Korean Confederation of Trade Unions is calling for an increase of KRW 230,000 (USD 210) for workers’ monthly salaries. The FKTU is pressing for workers’ wages to be raised to 79% of the average living cost of a 4-member household (KRW 4,307,840, or USD 4,000). However, this is a completely unrealistic amount and represents the ideal level of consumption for such a household. The FKTU also took it upon itself to alter the items and quantities in their own interest, resulting in a figure that is 33.5% higher than the average living costs for a 4-member household according to Statistics Korea.
For its own part, the KCTU’s proposal reflects the national economic growth rate and consumer price index, but does not consider the producer price index, export prices or other related indices. Also, there is a problem in that the KCTU utilized the data of National Accounts from the Bank of Korea and the Household Survey from Statistics Korea at the same level even though the targets of those surveys are different.
Regarding these unrealistic demands, on 5 March, the KEF recommended enterprises to increase or adjust their wage levels a maximum of 1.6%. While each workplace may find their own situation to be different than others (therefore requiring an adjusted wage increase), this figure was calculated by reflecting wage inflation caused by changes to labor regulations such as the widened scope of ordinary wage and retirement age extension to 60. It was decided by deducting the average annual wage increase rate (1.3%) from the national productivity growth rate (2.9%) which reflects the real GDP growth rate (3.4%), the GDP deflator growth rate (1.1%) and the increase in the employment rate (1.6%).
Demands for wages that surpass companies’ ability to pay and employees’ productivity may undermine the nation’s export competitiveness, investment and job creation. To achieve sustainable economic growth and employment, wage stability is necessary. Also, large enterprises paying high wages and making healthy profits also need to refrain from raising their wage levels and, with the money saved, hire more young people and improve employee working conditions. By doing so, the dual structure of the labor market and high youth unemployment can be gradually but effectively addressed.
When extending retirement age, wage system reform is essential to reducing burdensome labor costs
In April 2013, the Act on Prohibition of Age Discrimination in Employment & Aged Employment Promotion was revised to raise the retirement age to 60. In Korea, where seniority-based wage systems are prevalent and employment is very inflexible, the mandatory extension of retirement age to 60 will be a huge burden on businesses with increased labor costs and workforce congestion as fewer people retire, and will weaken their ability to create jobs, etc. Therefore, enterprises need to take action quickly to properly handle the extended retirement age while considering long-term labor supply and demand dynamics as well as their financial situation.
In response to extending retirement age to 60, enterprises are advised to introduce a wage peak system. If this is not possible, they should take into account the wage hike caused by retirement age extension when discussing wage increases and bonuses. While a wage peak system is not a fundamental solution to the extended retirement age, it is a temporary measure to give enterprises time to convert their current seniority-based wage systems to competency/job-based wage systems and to develop performance-based reward systems. Further, in order to properly manage their workforce, companies need to enhance the effectiveness of their HR management by ensuring functional flexibility in arrangement and transfer of personnel as well as making improvements to their systems for rewards, regulations, disciplinary action, and evaluations.
Maximizing business efficiency essential in response to reduced working hours
The government and political parties have been pushing revisions to the Labor Standards Act that will cut weekly working hour limits from 68 hours to 52 hours. However, the legislation is currently being delayed due to disagreement between management and labor, and between the ruling and opposition parties over how to reduce the social/economic side effects and impact on business.
Meanwhile, a lawsuit over premium rate for holiday work allowance is pending at the Supreme Court. This is not only about the additional allowance for holiday work, but also about the statutory limit on working hours. Companies may have to adjust the current agreement or practices regarding their working hours and the way they calculate employee wages to ensure they comply with the Supreme Court’s decision.
In response to such changes in the labor market, companies need to review their working practices and reduce unnecessarily long working hours through improvements to productivity to keep up the current level of production but in fewer hours. Also, taking into consideration the conditions of their industry and their business, it is important to promote efficiency and a healthy work-life balance for employees by encouraging them to use their compensatory holidays and a flexible/selective working hour system.
Also, companies need to work to remove provisions in their collective agreements requiring them to obtain consent from or consult with their unions when arranging work shifts, transferring personnel or altering facilities, and reduce regularly-paid allowances.
Minimize possibility for legal dispute when using non-regular and in-house subcontracted workers
The government and various politicians have suggested policies and bills to protect non-regular and in-house subcontracted workers. In December 2014, the government announced comprehensive measures on non-regular work focusing on converting the status of non-regular workers to regular employment, preventing discrimination against such workers and the abuse of subcontracting etc. Companies will have more difficulty managing their workforces since these measures concentrate on protecting workers rather than improving company competitiveness (such as by allowing more flexibility in employment).
[Table 1] The Government’s Comprehensive Measures on Non-regular Work
|
Area |
Details |
|
Promote conversion of status of non- regular workers to regular employment; prevent discrimination |
⦁ Convert surveillance/intermittent workers engaged in regular and continuous jobs to regular employment (Prepare guidelines for use of temporary workers)⦁ Extend employment period for non-regular workers and reduce disparities between non-regular and regular employment- Extend employment period for non-regular employees desiring to stay (within 2 year temporary employment period at age 35 or older)
– Provide end-of-employment compensation if employee’s status is not converted to regular employment after extension of temporary employment period ⦁ Permit trade unions to apply for remedy for discrimination on behalf of employees |
|
Prevent abuse of subcontracting |
⦁ Strengthen inspections for illegal dispatch in contract work and in-house subcontracting⦁ Clarify criteria for determining work as dispatch or subcontract |
|
Protection for independent contractors |
⦁ Expand the number of job classifications eligible for employment/industrial accident compensation insurance⦁ Implement the Guidelines to Protect Independent Contractors- Written contracts required, restrictions on contract termination, payment methods, etc. |
|
Gradual reduction of total working hours |
⦁ Include holiday work in extended work- Allow extra work (8 hours per week) upon agreement between labor and management⦁ Reduce the number of industries exempt from working hour regulations (currently 26 industries→ 10 industries)
⦁ Extend discretionary work types such as direct support for R&D, high-income earners etc. |
|
Reform wage system |
⦁ Clarify the scope of ordinary wage (stipulate definitions in law etc.) |
|
Clarify criteria for & process of terminating employment |
⦁ Strengthen requirements for dismissing workers for managerial reasons (and rehire dismissed workers if business returns to previous levels)⦁ Develop guidelines on criteria for and process of terminating employment |
|
Improve criteria and process for changing rules of employment |
⦁ Clarify process for changing rules of employment in order to introduce retirement age extension, wage peak system, etc.⦁ Revise worker representatives provisions which are applied when there is no trade union with a majority of employees as members |
At the moment, the burden on companies is expected to increase as, in 2014, the Seoul Central District Court considered indirect processes such as production management, packing, and shipping as receiving direct job orders in relation to Hyundai Motor’s in-house subcontracted workers. Companies are advised to put extra effort into preventing disputes since the lower courts tend to look at the broader scope of direct job orders from primary contractors.
Companies are advised to reject labor demands to convert non-regular workers to regular employment, restrict the types of jobs where in-house subcontracting and non-regular work is allowed, and apply the same working conditions to subcontracted workers, as these issues are not subject to negotiation. However, companies should still work to prevent unreasonable discrimination in working conditions for non-regular workers. Companies should also abide by the law and find ways to effectively manage workers by guaranteeing appropriate prices when they give out subcontracts.
Growing potential for conflict due to weak employment from decreased company profits
Korea’s economic growth rate has stayed at 0% for 4 consecutive quarters, due to weak investment and consumption. This low growth has damaged company profitability and necessitated dismissals for managerial reasons. Under the existing circumstances, labor is expected to demand many things including job security, signing an employment pact, no adjustment in production levels, more restrictions on dismissals for managerial reasons, obtaining agreement from trade unions before outsourcing, protecting existing employees’ terms and conditions of employment when business ownership is transferred, early retirement plans, obtaining agreement from trade unions when making dismissals for managerial reasons, and forming an agreement with trade unions when closing/separating/merging companies.
Discussing these issues with trade unions tends to damage company rights to manage their business and their workforces, and thus should not be part of collective bargaining. Management should be able to ask trade unions to actively participate in overcoming managerial crisis, and carry out measures such as dismissals for managerial reasons if necessary. Also, clearly state that effectively handling low performers is related to employer rights to manage their workforces, and is not subject to collective bargaining. It is recommended that companies decide on appropriate measures against such demands and secure legitimacy throughout the entire process for handling low performers.
Labor and management need to consider company circumstances when they sit down for collective bargaining. Extending the scope of ordinary wage, wage hikes higher than the company’s ability to pay, and reduction of working hours without increased productivity will likely disadvantage both labor and management. Collective agreements which benefit both parties can be concluded when both labor and management consider each other as partners to improve competitiveness.