Mr. Kim, the CEO of Company A, has 10 fixed-term employees who have been working for him as telemarketers for a year and a half, and he is having difficulty deciding whether to allow their employment contracts to expire at the end of two years or grant them permanent employment. He is aware that contract-based employees should be given indefinite-term contracts after being employed for more than 2 years, but giving all such employees permanent jobs would increase his labor costs. On the other hand, if Mr. Kim lays them off, the company will lose some skilled workforce.
What are the options open to Mr. Kim?
The legal term for non-regular employees (such as contract or temporary employees) is ‘fixed-term employee’. A ‘fixed-term employee’ has an employment contract for a fixed period (one or two years) with an employer. Because of this fixed term, the employment contract will automatically expire on a certain date even if the employer does not give separate notice. Therefore, ‘layoff’ is not an accurate way to express a terminated employment relationship due to the maturity of the employment contract.
Occasionally, non-regular employees take it for granted that they will be given regular employment at the end of their second year working for the company. This is a misunderstanding of labor law. Current law regards fixed-term employees who are kept on beyond 2 years as employees with indefinite-term contracts.
Upon the expiration of a 2-year term employment contract, Mr. Kim has 2 options: i) allow the contract to expire automatically, or ii) grant some (or all) employees with expiring contracts regular job status.
There are advantages and disadvantages to these two options. What is best for the company should be decided after considering each employee’s performance and his/her importance to the work.
What are the labor management options if the contract expires?
It is not mandatory for an employer to grant regular job status to non-regular employees. Employers should take into account the business environment and the company’s plans for human resources management, particularly when the employee’s position is peripheral to the business and does not require any special skills.
How should an employer allocate his workforce after fixed-term contracts expire? Common solutions include filling vacancies by hiring other people for fixed-term employment, or if recruiting is difficult, giving the existing employee new duties.
In addition, if the position is peripheral, employers may consider outsourcing. However, when considering this, employers need to be aware of the many possible problems besides those related to ’illegal dispatch’. They need think about the recent illegal actions by non-regular employees at E-Land.
What should an employer do when changing the status of non-regular employees to regular employees?
An employer may choose to grant a non-regular employee a permanent position if his/her work is valuable to the company and requires special skills. But in this case, the employer should also take into account the business environment and plans for human resources management, as well as the employee’s sense of ownership in the company.
Employers must carefully consider possible changes that may occur after granting permanent positions to non-regular employees. Labor costs may increase due to increasing wages and cost of employee welfare programs. Dismissal will also be more difficult due to strict regulations regarding regular employees. In case of workplaces with trade unions, regular employees may also be applied by collective bargaining agreements upon joining a trade union.
If only a few non-regular employees are given regular positions, the employer should use fair standards and rational procedures acceptable to all employees. As well, the employer should work with the regular employees to seek various ways to minimize labor costs.
It is also important to have different treatment and regulations for non-regular employees given regular employment. One of the two options below may be suitable, depending on the company’s circumstances and characteristics of the position.
1. Equal application of the same personnel management rules that apply to existing regular employees
2. Establishment of new personnel management rules that better fit the position characteristics
In the first option, employers may choose to place new regular employees in suitable positions in the company by applying the same personnel management rules. Employers may also create new titles and incorporate these employees into the personnel system if necessary. In these cases, the existing personnel management rules are normally applied without new provisions.
The second option, “Establishment of new personnel management rules,” requires new employment rules and wage classification tables according to level of importance of each employee’s work. In this case, wages and standards for promotion may be set slightly lower than for existing regular employees, given their experience with the company already. This may trigger strong opposition from non-regular employees, as they have been criticized as “semi-regular workers” by labor groups.
Therefore, if there are any differences in working conditions, it is necessary for employers to use reasonable standards which reflect the value, importance and difficulty of the work. This standard should be acceptable to all employees.
The preferred way to deal with personnel matters regarding fixed-term employees
Most employers tend to put off, until the expiration of fixed-term contracts, the decision on whether to allow such contracts to expire or give indefinite-term contracts to their fixed-term employees. But at the outset of hiring non-regular employees, employers would be wise to have firm mid- to long-term plans for human resource management.
First, employers should establish principles on the use of non-regular and regular employees by reviewing job descriptions and level of importance of the work.
Second, employers should be fully aware of the details of procedures to correct discrimination. This will help employers to be better prepared for possible claims of discrimination by non-regular employees.
Third, for prevention and resolution of possible conflicts between regular and non-regular employees at the workplace, employers should make every effort to help employees understand the company’s HRM system.