Mr. Kim, CEO of a primary contractor, entered into contracts with several subcontractors to perform part of the production process. The union of a subcontractor, company A, occupied a production facility (property of Mr. Kim’s company) for 10 days after collective bargaining did not result in an agreement. As production work is disrupted by the strike, Mr. Kim has attempted to use other subcontractor workers to replace the workers on strike. Subcontractor A’s union then claimed that this was a violation of legal ‘restrictions on the use of replacement workers during strikes’. Mr. Kim is not sure how to respond to the strike by company A’s union.
In-house subcontracting is often used in every industry, including manufacturing and services. In-house subcontracting contributes to enhancing the efficiency of management and promoting the division of labor and specialization in the production process, but there are a number of contentious issues.
In Mr. Kim’s case above, the principal contractor wants to continue normal business operations even during a period of strike. To do this, the principal contractor needs to consider the followings when desiring to counteract strikes by an in-house subcontractor union, and in determining whether using other employees is a violation of employee replacement restrictions in the Trade Union Act.
The principal contractor is only a 3rd party when it comes to subcontractor industrial relations.
In-house subcontracting refers to an outsourcing contract with a view to ‘completing the work’ and in labor law is therefore fundamentally different from other forms of contract such as labor contracts or worker dispatch contracts.
Given the fact that in-house subcontracting is just a business-to-business contract for the performance of work, the principal contractor cannot intervene in nor interfere with labor issues of its subcontractors. In cases where a principal contractor does so, it is considered a violation of law, an illegal dispatch of workers or disguised outsourcing.
As the principal contractor is not allowed to directly intervene in industrial actions occurring within an in-house subcontractor, it is inappropriate for the principal contractor to use its influence to settle it.
There is a case where a principal contractor disrupted union activities and even manipulated in-house subcontractors to close down their businesses. The courts have ruled that such actions by the principal contractor amount to unfair labor practices.
Restrictions against replacing workers on strike
‘Replacement work’ refers to work performed by non-union members or union members not participating in a strike in order to continue the production work interrupted by industrial action.
Currently, Korean law prohibits employers from replacing workers on strike. Allowing this would undermine the three basic rights of labor which are guaranteed in the Constitution, and result in an imbalance of power between union and management that will render any industrial action ineffective. Let’s take a closer look at these restrictions against replacing workers on strike.
First, an employer can use his/her own direct employees as replacements.
If business operations are disrupted by industrial actions, an employer is allowed to use his/her own employees (non-union members, union members not participating in the strike) as replacements during the strike. “Own employees” refers to persons working for the concerned company regardless of the location of their workplace.
For example, if the company’s headquarters are in Seoul while other plants are located in Gwangju and Busan, employees working at the Seoul headquarters or Busan plant are allowed to be assigned as replacements for industrial action occurring at the Gwangju plant.
Second, replacements are allowed to handle illegal industrial actions.
In the past, illegal labor disputes used to be settled by government forces. However, such intervention was often too late for normal business operations, and is not the best solution against militant unions which easily go on strike.
Given that the purpose for restrictions against using replacement workers is to protect justifiable industrial actions, it is accepted as a justifiable measure to replace workers who are engaged in illegal industrial actions.
Therefore, when illegal industrial actions occur, the employer is allowed to use an outside workforce as replacements (e.g. retired employees) and it is justifiable to contract or subcontract out the suspended work.
In addition, in cases where a specific group of employees who are prohibited from participating in any industrial action goes on strike, replacements are also permitted. For example, if workers responsible for safety and security go on strike, the employer can hire new employees as replacements or contract out the suspended work.
Third, the ban on using replacements only applies to companies to which the striking trade union belongs, and only while the union is conducting an industrial action
Trade unions go on strike with an aim of inflicting economic damage to the company by stopping production. It is commonly found that companies seek ways to minimize production delays by hiring new workers and other actions.
In this context, the ban on using replacements applies to a company and its trade union under the premise that the two parties have an employment relationship. In other words, this ban becomes an issue only when the strike is carried out by the trade union of the company wanting to hire replacement workers.
In this case, the ban applies to the in-house subcontractor company since it was this subcontractor’s trade union that went on strike.
From the primary contractor’s point of view, strikes by an in-house subcontractor’s union are that company’s issue only. There is no ban on the primary contractor against using replacements.
Primary contractors can take other measures against production delays caused by strikes in subcontractor companies. These include terminating the contract with the current subcontractor and carrying out the work in the contract itself or entering into a contract with another subcontractor.
Such measures can result in job losses for the in-house subcontractor workers who participated in the strike, who may claim that the primary contractor in effect made them redundant.
However, terminating a subcontract because the subcontractor workers are on strike is legitimate considering that the measure is designed to put production back on track when the subcontract cannot be fulfilled. This measure exercises a just right according to a contract for work, under the Civil Act. This is not related to the use of replacements under the Trade Union & Labor Relations Adjustment Act, or dismissals under the Labor Standards Act.
What happens if a subcontracted company is located outside the primary contractor’s workplace?
Primary contractors can take the same measures as described above. There is generally no big issue if there is a strike at a subcontractor business outside the primary contractor’s workplace, since the subcontractors are separate from the primary contractor and thus no legal problems generally arise, barring any extraneous issues. In this case, the subcontractors cannot be considered to be using the primary contractor’s facilities or undertaking a part of production.
Thus, it is still possible for Mr. Kim to terminate the current subcontractor and give the contracted job to someone else. The job can be done by the workers employed by Mr. Kim or a new subcontractor.
Other issues to be considered
- Giving eviction orders to unions of in-house subcontractors to exercise the employer’s right to manage his facilities
As previously described, it is illegal for the trade union of an in-house subcontractor to occupy the workplace of a primary contractor and stage a demonstration. The trade union is infringing on the 3rd party’s right to manage its own facilities and property. Demonstrations are beyond the realm of justifiable industrial action, and the primary contractor will be justified in issuing an eviction order to the trade union.
- Termination of subcontract and claims for damages
If the strike results in property damage besides production delays, the primary contractor can terminate the subcontract and hold the subcontractor liable for the damage. Terminating the contract corresponds to the liberty of contract, since the primary contractor is not responsible for continuing the contract in the midst of a strike by the subcontractor’s workers. It is also possible to claim damages for obstruction of business due to the strike.