The Guidebook on Wage System Reform, published by the Korean Ministry of Employment & Labor, has sparked more interest, in the private sector, than the revamping of Korea’s wage system based on seniority. This post was reposted after a first posting in 2017, because of a newfound focus on wage system reform.
The major issue, in this regard, is whether the Rules of Employment of a company may be amended, without violating the Korean Labor Standards Act of Korea (“LSA”), when “wage system reform” is not consented to by a majority of the employees or the trade union.
Numerous Korean government agencies have successfully moved to a more merit-based promotion and bonus system from a strict seniority-based wage system. The private sector has closely watched this trend due to public failures by major international conglomerates. The private sector, to date, has been slow to adopt a merit-based wage or similar system due to these public failures.
The MOEL’s Guidebook on Wage System Reform (“Guidebook”) was drafted to serve as a guide for companies seeking to transition from a seniority-based system to a merit- and/or job-scope/responsibility-based system.
LSA Article 94(1) (Procedures for Preparation of and Amendment to Rules of Employment)
An employer shall seek consultation of a trade union, if there is a trade union composed of the majority of the workers in the workplace concerned, or the consultation of the majority of workers if there is no trade union composed of the majority of the workers, with regard to the preparation of an amendment to the rules of employment. However, if the rules of employment are to be modified unfavorably to workers, the employer shall obtain workers’ consent.
Some Korean courts and the Ministry of Employment & Labor of Korea have interpreted Article 94(1) of the LSA as not imposing an absolute obligation to obtain employees’ consent to employment rule modifications when the modifications are not “unfavorable to workers.” Courts and the Ministry of Employment & Labor have adopted the “generally accepted justification” test to determine whether modifications to employment rules are “unfavorable to workers.”
Generally Accepted Justification Test
Under the Generally Accepted Justification Test, Korean courts should weigh the following factors when determining whether a company’s change to its employment rules violates the LSA. The factors to be considered are:
- Degree of Disadvantage to the Employee in the Changed Employment Rules;
- Degree of Change and Necessity of the Change in the Employment Rules;
- Reasonableness of the Change in the Employment Rules;
- Whether the Disadvantage was Offset by Advantages;
- Degree of Progress in Negotiations with the Union and the Reaction of the Union and employees; and
- Whether the Changes are considered Common in Korea.
Korean courts have recently become more employee-friendly. Without a nuanced approach to amending employment rules, a nuanced understanding of Korean legal and political realities, and a savvy, experienced local Human Resources guide, companies will likely run aground on employment relationship issues. A proactive, experienced team is essential for success in Korea.
Please read an update of this issue at: Update to Korean Labor Labor Law: Guidelines on Korean Rules of Employment
by Sean Hayes
Sean Hayes is a NY attorney working for IPG Legal, a Korea-focused international law firm advising foreign individuals, executives, investors, and multinational companies on complex Korean and cross-border legal matters. He is widely regarded as one of the most experienced foreign lawyers in Korea and is notably the first non-Korean lawyer to have worked within the Korean court system, giving him rare, firsthand insight into how Korean courts and institutions operate in practice. This background allows him to translate Korean legal realities into clear, strategic advice for international clients.
Mr. Hayes focuses on high-stakes matters, including corporate and commercial disputes, employment and labor issues, internal investigations, shareholder conflicts, family and inheritance disputes, and cross-border litigation strategy. He is also the founder and editor of The Korean Law Blog, one of the most widely read English-language resources on Korean law. Known for his direct, pragmatic approach, Mr. Hayes is frequently retained for sensitive or escalating matters in which credibility, judgment, and a deep understanding of Korean legal culture and realities are essential.
Sean’s profile may be found at: Sean C. Hayes. You may schedule a call with Sean Hayes at: Schedule a Call.
___
Employment Law Articles
Additional Articles on Employment Law, in Korea, may be found at: