Korea Labor Reform Seminar 2015 Oct

한국의 노동 개혁의 전망과 준비 Labor Reform in Korea - Outlook & Preparation

위세노무법인 대표노무사 송희열 (Maven H. Song) T) 010-2714-1707

서울 영등포구 여의도동 36-23 맨하탄빌딩 1009호 e-mail ([email protected] )

15.10.14 영어세미나 교재

mailto:[email protected]

Neo-liberalism and Technological Innovation

` ` Globalization

Labor Reform in Korea - Outlook & Preparation



15.10.14 영어세미나 교재 위세노무법인 대표노무사 송희열 (Maven H. Song) T) 010-2714-1707





Changes Accompanied by Liberalization of Capital Transactions-1






Changes Accompanied by Liberalization of Capital Transactions-2






Responses from Globalization






Responses From Globalization: Legacy






한국의 노동 개혁의 전망과 준비

Growth of Flexible Jobs: OECD EPL Index (1985-2008)

0

0.5

1

1.5

2

2.5

3

3.5

4

Regular Contracts Temporary Contracts Source OECD

Continuous deregulation

of temporary contracts







Labor Force Participation Rates (2000-2010)







Unit Labor Costs in International Comparison

Index OECD base year 2000=100 Seasonal adjusted values (national currency)






Understanding the targets of reform






Dual labor market theory

Two labor markets exist with very different levels of wage and working

conditions. The two markets rarely exchange manpower, and employment

and wage are determined on a mutually exclusive basis.

- 1st labor market :

Higher wages, greater stability in employment, opportunities for promotion, fringe

benefits and reasonable procedures are the features of this market, which exists inside

companies with an internal labor market.

- 2nd labor market :

lower wages, less stability in employment, high turnover, fewer fringe benefits, and

arbitrary labor management are the features of this market.

How did the 1st labor market come to be?

- Company-specific skillsets

- Monopolistic division

- Insiders and outsiders created by the presence of a labor union.

Polarization of the labor market






Dual structure of the Korean labor market

Regular employees

(A) 56.82%

Union-shop (B) 24.99%

Large companies

(C) 12.20%

Irregular employees

(E) 37.99%

Regular employees Union-shop

Large enterprises (D) 7.56%

National Statistics Office (August 2009)

Dual labor market structure in Korea






Vicious Circle of the Dual Labor Market






Solutions to the Dual Structure







How to effectively design labor market policy?






What is a work hour system?

A work hour system refers to an institutionalized system of working hours that are

regulated according to company, societal and individual goals through regulations,

standards and laws. Such a system is also influenced by labor market supply and

demand.

Working hours & labor productivity






Long working hours






한국의 노동 개혁의 전망과 준비 Labor Reform in Korea - Outlook & Preparation





Aged Worker & youth unemployment






Shift in demographics






0

2

4

6

8

10

12

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

전체

청년층 남자

청년층 여자

장년층

Recent Trends : Youth (15~29 age) and Aged (55~64 age)

Ra

tio

(%)

Year Source : Korea Statistics

Unemployment Trends by Age Group





Classification 2008 2013 (%) Increase/ Decrease

(%)

Full-time employee 2,339,435 2,183,456 58.3 -155,979 -113.9

Temporary employee 953,332 1,050,707 28.0 97,375 71.8

Daily employee 262,672 270,397 7.2 7,725 5.7

Self-employed, with employee(s) 41,309 38,110 1.0 -3,199 -2.4

Self-employed, w/o employee(s) 212,565 129,626 3.5 -82,939 -61.1

Family member with no pay 74,111 75,427 2.0 1,316 1.0

Total 3,883,423 3,747,723 100.0 -135,700 -100.0

Source: Statistics Korea (2013)

Shift in types of youth employment

Shift in employment status of the youth (ages 15-29)







Mismatch of Labor Force Supply-Demand

5~9 10~29 100~299 300~499 500

N0 Qualified

Labor force

36.8%

High Wage Preference

35%

Insufficient Payment

Capability 10.7%

etc

7.8% Imperfect

Job-offer system

9.7%

Korea Employers Federation 10

20

30

40

50

60

70

2

3

4

5

S/Rate Shortage

6

69

5.1

60

40

2.35

28

2.4

3 5

30~99

(1000) (%)

7

1.02

0.48 1

3.19

Labor force Shortage by Business Size Reason for Labor force Shortage






Large enterprises

say:

SMEs say:

Job Opportunities: Solutions for inter-generational Conflicts






General definition Definition of decent part-time

jobs

According to Joon-hyup Lee (2013), there were no more than 60,000 (3.3%)

decent part-time jobs that satisfied all 5 of the above conditions in 2012.

Decent Job






Classification Employees in 1st labor market

Regular employees 67%

Regular ▪ Large enterprises 10-12%

Regular ▪ large enterprises ▪ labor union Less than 8%

Decent jobs 16% (approximately 3 million)

Decent jobs

Classifications within 1st labor market & sizes (2014)






Conditions for expansion of hiring the youth (company)






2012 The Korea Employers’ Federation

Public Sector

Large

Company

SME

Financial Sector

Foreign Invested 4.0%

Venture 3.0%

New hire scale down effect in extension of retirement age






Source: 2012 Survey by Korea Employers’ Federation

1. Guaranteed employment until retirement age & difficult termination (42.9%) 2. Reduced new hires due to financial burden from seniority- based pay (18.6%) 3. Reduced new hires due to slump in business (15.7%) 4. Protracted service period due to extension of retirement age (12.9%) 5. Increase in new hiring of experienced persons (86%) 6. Reduced need for new hiring due to development of technology

Causes of the aging workforce

Employer Survey: Feel about workforce aging trends & the causes?







Depending on the root causes in a country, strategies worked in other countries

▪ General or sector-specific growth initiatives

corresponding to qualifications of graduates:

industrial policies favoring existing talent to

develop a competitive advantage

▪ Morocco: Emergence

Program

▪ Tunisia: Off-shore strategy

and qualification label

▪ Systemic approach: Align needed and

obtained qualification by institutionally involving

employers in vocational training

▪ Involving employers in targeted adaption of

qualifications for pre-qualified young

unemployed

▪ Individual approach: case management,

personal coaching, application and interviewing

practice, career counseling

Winning strategies for change Country case

▪ Germany: Dual System of

Apprenticeship

▪ Tunisia: Off-shore readiness

label for graduates

▪ Norway: Job Club

Root cause pattern

DEM

AN

D

CLE

AR

AN

CE

1 Lack of hard

skills

3 Skill mismatch

2 Lack of soft skills

and motivation

5 Discouraging

regulation

4 Lack of

transparency

6 Low job

creation

SUP

PLY

▪ Incentives to hire/retain: limit overprotection of

incumbents and create hiring incentives

▪ Ensuring decent working conditions:

regulative standards favoring stable employment

▪ Information services: comprehensive and

specific up-to-date information on vacancies,

jobseekers and required qualifications

▪ Uruguay: PROJOVEN

program for vulnerable youth

▪ Germany: Virtual Labor

Market and Regional Labor

Market Monitor





//upload.wikimedia.org/wikipedia/en/6/61/Wikipedia_flag_south_africa_large.png


Definition

According to I.L.O, “Social security is the protection which society

provides for its members through a series of public measure, against

the economic and social distress that otherwise would be caused by the

substantial stoppage of earning resulting from :-

Sickness Injury Unemploy-

ment

Maternity






Social

Assistant

Social

Insurance






34.8

28.9

23.1 19.5

25.5

17.3 20.7

25.8

46.3

35.7 37

26.1

36.5

28.1 26.5

34.8

0

10

20

30

40

50

Sweden the U.K. Germany the U.S. Luxembourg Japan Korea OECD Avg.

Tax Burden Ratio Social Insurance Burden Rate

Tax Burden vs. GDP in Major OECD Countries in 2008

(in GDP, comparison: %)

Social welfare system: comparison of national tax burdens






OECD : Types of Social Welfare






Causes &

Background

Current Status

& Outcome

s

Progress of economic structure reform in Europe






Economic structure reform: Germany & France






Labor Market Reform in the U.K.






Labor market reform in Denmark







Unemployment in Germany (1960-2009)

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

5,500

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

in t

ho

usan

ds

Reunited Germany*

West Germany

East Germany

1,094,229

2,368,217

3,462,446

Source: Federal Employment Agency

Oil crises

German reunification

Post-war economic boom

Dotcom bubble

Hartz reforms

► In October 2008 the unemployment dropped under the level of 3 million for the first time since 1992

► This might be an indication that the fundamental structural problems of the German labor market

could have been decisively loosen by the Hartz reforms






Labor Market Reform in Germany







The Principles of German Labor Reform

Transform the Welfare Paradigm

Workfare (Work + Welfare)

1. Duty and Supply

2. The Request for Working with Social Wage






45%41% 40% 38%

7%8% 10% 11%

4%3% 3% 3%

4%

6% 8% 7%7%

25% 25% 24%21%

5%4% 4% 5%

2%6%

6%7%

0%

25%

50%

75%

100%

1992 1997 2002 2007

Inactive

Unemployed

Unemployedwith job

Self-employed

Marginal /irregular

Agency work

Temporary

Vocationaleducation

Permanentpart-time

Permanentfull-time


Overall Reform Effects: Evolution of the German Labor Force (1992-2007)

Source: SOEP

Decrease in the share of permanent full-time employment

Decrease in the share of inactive individuals

Growth of

flexible jobs







Stock of Short-Time Workers (1991-2010)

1. One-Euro Jobs

2. Mini-Jobs

3. Midi-Jobs

4. Self-Company

5. PSA (Man Power Service)

* Non-competent Job Seeker

* Avoid Illegal Labor

* No competition to Normal Market

* Continue Social Benefit






Variables for success or failure of labor reform

Implications of European Labor Reform






Success factors in Germany







Why have other countries failed?








Germany: A Role Model for Other Countries?






Economic Awareness levels Educational Labor

Korea : Need for reform






Current Labor Market in Korea






한국의 노동 개혁의 전망과 준비 Anatomy of Preamble

Back Ground Contents

1. Rapid Globalization 2. Low Birth Rate

3. Aging Society

4. Industry Restructuring (Knowledge▪Information▪ Service Oriented) 5. Inefficient Labor Market 6. Aggravated Polarization 7. Youth Unemployment

1. Rectify the Dual Structure of Labor Market

2. Protection of Vulnerable Workers

3. Reduce Long Working Hours

4. Remove the Uncertainty in Labor Market

5. Improve the Efficiency in Labor Market

6. Expansion of Social Safety Net

This agreement shall not be regarded as the final word on labor market reform. The most important thing is to act upon this agreement in the future

Labor Reform in Korea

Outlook & Preparation





Ⅰ. Vitalization of Jobs for Youth

Agreement Implementation Measure Consideration

1. Efforts to hire more Youth - Breakthrough Youth unemployment cliff expected face over next 3 years

- Adopt all measures aimed at hiring more Youth - Refrain from raising wage for Executives - Increase Investment - Support simultaneous employment between generations - Expand the target of ‘Employment Impact Assessment’ - Promote Tech-oriented business Start-Ups - Tax credit for Creating jobs - Granting Exemption from Tax audit - Granting subsidies to SME for long term employment - Additional points in bidding for government contract - Adjustment of Wages and Working hours - Encourage Peak Wage System - Reduce the gap between Large companies and SMEs . Wage, Benefit, Working condition - Support Future-oriented & small but strong SME

1. Understanding of National support fund 2. Target feasibility of ‘Employment Impact Assessment’ 3. Implement Peak Wage System

2. Stronger Social Support 3. Council for Promotion of Youth Employment

- Support Decent Job opportunity for Youth - Link Schools and Employment center - Support job seekers who majored in the Humanities, The arts or Physical education - Create the council for Promotion of Youth Employment

Company Government Tripartite



위세노무법인 대표노무사 송희열 (Maven H. Song)

T) 010-2714-1707 e-mail ([email protected] )



한국의 노동 개혁의 전망과 준비 Ⅱ. Mitigating the Dual structure of the

Labor market-1

Agreement Implementation Measures Consideration

1. Mutual Growth, Such as Cooperation for Coexistence between Contractors & Subcontractors and Large Enterprises & SMEs - Promotion of Performance Sharing - Sharing of Burden by Tripartite - Establishment of Fair Trade Practices and Vitalization of the Market Economy

- Top 10% voluntarily refrain from raising wages - Improvement of working conditions of contractors through the Coexistence Cooperation Foundation - Promoting the use of in-house workers' welfare funds by enterprises - Improve the Mutual Growth Index - Establish a joint industrial safety response system - Expand the Labor Welfare Promotion Fund to support the irregular and low-income workers - Monetary incentives for simultaneous hiring - Vitalization of the council for adjustment of contractor prices - Anonymous reporting system for Complaints - Encourage to enter into standard subcontracting agreements. - Subdivision of standard market unit wages per type of business and type of work - Try to avoid regulating market prices

1. Understanding of National support fund 2. Social Responsibility



Company Government Tripartite 위세노무법인 대표노무사 송희열 (Maven H. Song)






2. Improvement of Systems Related to Employment of and Rectifying Discrimination against Irregular Workers - Healthy Employment Culture - Guidance by the Public Sector - Effectiveness of the Discrimination Correction System - Protection of Irregular Workers and Rationalization of Regulations

- Prohibiting from unreasonable discrimination - Encouraging to hire regular employment status to positions of continuously-occurring tasks - Increasing the regular employment to irregular workers in the public sector - Strength the force of Discrimination Correction - Orders to pay punitive penalties in Discrimination Correction System - Labor supervision on the practice (‘passion pay’ and unfair dismissal in probation) - Submit Irregular worker related legislation - Additional items to be discussed for irregular workers . The period and number of renewal times . Jobs to eligible or restricted for dispatched work . Unions to represent for correction of discrimination . Classification between dispatched and subcontract . Top 10% high salaried on dispatched work . Prohibition of using irregular workers for core tasks in the areas of life and safety . Application of retirement benefits.

1. Refrain from unduly relying on employment of irregular workers for the sole purpose of reducing payroll costs. 2. Discrimination Correction System 3. Amendment on Irregular worker related law 4. Preparation to Labor Inspection

Ⅱ. Mitigating the Dual structure of the

Labor market-2







한국의 노동 개혁의 전망과 준비 Ⅱ. Mitigating the Dual structure of the

Labor market-3


3. Vitalization of the Labor Market - ensure employment stability - Establishment of Reasonable HRM Principles - Standards and Procedures for Termination of employment contracts - Strengthening the requirement to Endeavor to Stabilize Employment before Dismissing for Managerial Causes - Clarification of Procedures for Dismissals due to Managerial Causes

- Create a culture of directly employing workers under regular employment status - Minimize the layoff by first adjusting wages, working hours, reassignment, suspending business , leave of absence, vocational training - Strengthen its support by reorganizing its employment stabilization projects. - Detailed examples of efforts to avoid dismissals for managerial causes shall be given in the Labor Standards Act - Strengthen the effectiveness of the reemployment system. - Establish a fair assessment system - Clarify the standards and procedures for termination of employment according to law and judicial precedence (The government shall not unilaterally implement these things until they are fully discussed with workers and employers.)

Establish reasonable human resource management principles 1. Managerial Dismissal 2. General Dismissal 3. Performance Evaluation 4. Hiring








1. Removing Blind Spots and Strengthening the Social Insurances 2. Improvement of the Unemployment Benefit System 3. Employment Support for Vulnerable Social Groups 4. Protecting Vulnerable Workers and Raising Their Incomes 5. Improvement of Minimum Wage 6. Support for Balancing Work and Family 7. Employment and Welfare Services Suited to Users 8. Creating a Society driven by Vocational Skills by Vitalizing their Development

- Prevent discrimination against working students - Increase efficiency of the Durunuri Program - Compensation for accidents occurring during commute to and from work - Accepting illnesses caused by emotional labor as work-related illnesses - Workers and employers to participate in policies to Social safety net. - Strengthen the coverage of unemployment benefits (Extending the benefits period, raising the amount and expanding the beneficiaries) - Screening applicants and strengthening the support for re-employment - Prevention of back pay - Establish comprehensive Minimum Wage System by the end of May 2016 . Statistical standards, wages to be included in calculation, issues for under 15 hours worker determination by region or type of business - build a system that allows workers to work and study simultaneously

1. Emotional labor policy 2. Working students 3. Compliance with the minimum wage

한국의 노동 개혁의 전망과 준비 Ⅲ. Expansion of the Social Safety Net Labor Reform in Korea






한국의 노동 개혁의 전망과 준비 Ⅳ. Removal of Uncertainty on 3 Major Issues -1

합의내용 진행방법 기업의 고려점

1. Clarification of the Ordinary Wage System 2. Organization of Legal System to Reduce Actual Work Hours

- Build a clear definition of ordinary wage - Annual average actual working hours will be reduced to approximately 1,800 hours by 2020 - holiday work hours shall be counted as overtime work hours . Work hours per week (40+12 Overtime) . Application in Phases - Special Overtime Work (52+α) . Cause (increased orders, etc.) . Procedure (written consent from the worker representatives and the employee involved) . maximum hours (1주 8시간) - Help SMEs in industries that will be adversely affected - Reducing the Number of Business Types Subject to Special Treatment in Terms of Work Hours . From 26 business type to 10 . Maximum working hours and minimum guaranteed rest hours (2016 End of May) - Labor and management to voluntarily set work hours within the allowed range of total work hours - Discretionary Work Hours - Using all Given Leave

1. Labor and Management to voluntarily set work hours 2. Measures to Urge Workers to Take all Given Leaves







한국의 노동 개혁의 전망과 준비 Ⅳ. Removal of Uncertainty on 3 Major Issues-2 -2


3. Improvement of Wage Systems for Successful Introduction of Extended Retirement Age - Efforts to Improve Wage Systems - Expanding Wage and Work Hour Peak Systems - Reorganization of Wage Structure - Support for Adjustment of Wage Structures

- Workers and employers voluntarily adjust wage structures . Stabilize the employment of middle-aged workers . Establish a system of balanced employment between the generations . Organize and operate a dedicated organization according to duties, amount of experience, etc - Adjust wages, work hours and number of work days in consideration of workplace conditions - Take the initiative to make wage systems - Support to develop appropriate jobs and provide consulting advice and subsidies - Clarify the requirements and procedures for amendment of collective agreements and rules of employment with regard to adjustment of wage structures (shall not unilaterally implement the foregoing, unless they are fully discussed with workers and employers) - Retirement-Aged worker support . Improve work environments, career change support, re-employment of middle-aged workers. . Such support especially to SMEs.

1. Implement Peak Wage System 2. Amendment of collective agreements 3. Amendment of rules of employment 4. Adjust wage structure 5. Understand government support . The Wage and Duty Center







한국의 노동 개혁의 전망과 준비 Ⅴ. Tripartite Commission Partnership

Agreement Consideration

1. Settle the culture of productive negotiating 2. Strengthen the function and role of the Tripartite Commission . Inviting youth and irregular worker representatives . Endeavor to pass a bill for finalized and agreed on in 2013 to be promptly enacted, . Operate committees for each business type

1. Company union under the Korean Confederation of Trade Unions 2. Irregular worker representatives








Impending Practice on Tripartite Agreement

2 Guidelines

5 Bill Revisions

1. General Employment Termination

2. ROE Disadvantageous Amendment

1. LABOR STANDARDS ACT

2. ACT ON THE PROTECTION, ETC. OF

TEMPORARY AGENCY WORKERS

3. ACT ON THE PROTECTION, ETC. OF

FIXED-TERM AND PART-TIME WORKERS

4. EMPLOYMENT INSURANCE ACT

5. INDUSTRIAL ACCIDENT COMPENSATION

INSURANCE ACT






한국의 노동 개혁의 전망과 준비 Main Content of Saenuri Party Bill

Legislation Saenuri Party Proposals Issues

Employment

Insurance

Act

1. Strengthen protection of unemployment benefits

- Raise benefit payments from 50% of average wage before unemployment to 60% and

extend payment period from 90~240 days to 120~270 days.

- persons at or above 65 years of age who continue to work at a same business place are

eligible for unemployment benefits, even if the paying employer changes.

2. Tighter conditions for payment of job-seeking benefits

- Strengthen conditions for job-seeking benefits (from at least 180 days during 18 months

prior to unemployment to at least 270 days during 24 months prior to unemployment).

- Adjust lower limit of job-seeking benefits from 90% to 80% of minimum wage.

- Tighter qualifications for recognition of unemployment and penalties for receipt of

repeated reemployment benefits.

* For those who are not reemployed within 90 days or who receive benefits 3 or more

times within 5 years, reduce the period recognized to have been unemployed. When a

repeated recipient fails to follow orders for training, reduce job-seeking benefits by up

to 30%.

- Improve the benefit extension system (creation of a deliberation council to decide on

payment of training extension benefit) and abolish early reemployment allowance.

Legislation

pushed

forward by

the

government








Industrial

Accident

Compensation

Insurance Act

1. Introduction of compensation for accidents occurring during

normal commute to and from work

- To be implemented in phases (by 2017: on foot or public

transportation, by 2020: in an automobile).

- Reduce insurance benefit (e.g. disability or survivor benefit) when

an accident occurs through gross negligence of the insured.

- Release employer from liability under the Labor Standards Act to

compensate for accidents occurring during normal commute to

and from work.

- Automobile accident insurance kicks in first for accidents occurring

during commute to and from work by automobile.

Whether the time of implementation

is effective or not

Act on the

Protection, Etc.

of Temporary

Agency Workers

1. Allow dispatched workers also for root industries.

2. Expand scope of jobs to which dispatched workers are allowed,

such as for the aged workers, those paying high incomes or

those requiring specialized skills.

- Allow dispatch of aged workers to all jobs other than direct

manufacturing process jobs in the manufacturing industry and

jobs to which dispatched workers are absolutely prohibited.

- Allow high income earners engaged in jobs that require

specialized skills to be dispatched to related jobs.

3. Clarify the standards for dispatch and subcontract.

1. When allowing dispatched

workers to root industries such as

molding, casting and welding, this

will be expanded to the entire

manufacturing industry.

2. Legalize the criteria of employer

of prime contractor and the

distinguishing markers between

dispatch and subcontract by

scaling it down.








Act on the

Protection, Etc.

of Fixed-term

& Part-time

Workers

1. Restrict the number of times that a fixed-term employment contract can be

renewed (no more than 3 times within a 2 year period).

2. Allow extension of period during which a fixed-term worker can be employed

(2 years + 2 years) in exceptional circumstances.

- Limit extension to cases where a worker 35 years or older requests the extension him/herself.

- When an extended period is expired, the employer shall convert the status of the applicable

employee into an employment contract with no fixed term. When the applicable

employment agreement is terminated without conversion, the employer shall pay an

additional certain amount of ‘Separation allowance.’

* Stipulated the principle of considering the employee who continues in employment after

expiration of the extended period without any special arrangements as an employee with no

fixed-term under the Act on the Protection, Etc. of Fixed-term & Part-time Workers.

1. The number of irregular

employees will sharply

increase and it will be

impossible to improve

their employment

situation.

2. Employers will choose to

pay the Separation

allowance rather than

convert status to regular

employment.

Labor

Standards Act

1. Reduction of working hours, such as inclusion of holiday work into overtime

work.

2. Additional allowance for holiday work: 50% up to 8 hours, 100% for more than 8

hours.

3. Clarify the concept of ordinary wage.

Money and valuables paid regularly, uniformly and determined in advance.

4. Expansion of unit period towards a flexible working hours system.

5. Expansion and reorganization of the compensation leave system into the work

hour savings and leave system.

1. Diminishes the purpose

for reducing working

hours.

2. Reduces real wages by

prohibiting overlapping

extra pay.







Easy Dismissal ?






KLI Report (Supreme Court Decision 2011Du4760, Decided May 29, 2012)

A terminated employee received the lowest score in HR evaluation for 3 years.

The employee was suspended for 1 month due to being absent from a skill improvement program without proper notice.

The employee participated only marginally in the skill improvement program, ranking the lowest of 39 participants.

Only 1 person was terminated out of 91 subjects for initial skill evaluation.

Description

Key point of Supreme Court Decision

- Reviewed fairness and objectivity of selection process and post-selection management (standards, methods and actual

monitoring of subjects’ behavior and evaluation by an evaluation committee).

- Recognized as an ‘improper act’ the employee’s failure to comply with company instructions in the course of the

evaluation process, in addition to the employee ranking the lowest in the skill improvement program, and deemed such

failure as due cause for termination.





KLI Report (Supreme Court Decision 2013Da22195, Decided June 24, 2015)

* The Original trail decision: 2012Na6377, Suwon District Court

- The existence of noticeable differences between average scores in performance evaluation of persons designated as

under-performers and that of the general employee body is due to discriminatory intent of the defendant company.

- Such discrimination cannot be deemed as an action within the scope of necessity. Thus the company abused its

discretionary authority and conducted unfair performance evaluations.

- It can be fully recognized that the defendant company implemented a discriminatory policy toward those designated

as under-performers with the clear intention of terminating a certain ratio of workers to reduce payroll costs.

Description

Key point of original decision

Performance evaluations conducted outside the scope of rights granted are subject to judicial review.

Performance evaluations must not be used with malicious motive or in a subjective way.





Comprehensive Decision & Suggestions by the Korea Labor Institute

① Five criteria for fair performance evaluations and systemic HRM policies:

▲ Establish a fair and transparent performance evaluation system and disclose and explain

the system

▲ Evaluate fairly

▲ Notify or explain the evaluation results to each employee

▲ Establish a complaint-handling or voluntary dispute resolution system related to the

evaluation results

▲ Adjust job levels, make re-assignments, develop job skills and offer job choices according to

the evaluation results

② Assure fairness by implementing a systematic and reasonable HRM system and

performance evaluation system

③ Apply performance evaluation results to HR activities aimed at improving employees’

personal skills.

④ Provide opportunities to inappropriately-skilled or under-performing persons to improve

their skills, and rely on termination as a last resort

⑤ Ensure employees actively participate in establishment and implementation of

performance evaluation systems





Characteristics of Termination-related Precedents

Termination-related precedents do not clearly differentiate disciplinary termination from general termination. That is, the courts rarely recognize termination only according to the causes of general termination.

Employers usually submit to the court both the causes for general termination and

disciplinary termination together.

Employers do this as it is more advantageous for them to claim as many causes as possible than claiming only under-performance as

the cause for termination. Most precedents (Seoul Administrative Court 2008Guhap35067, Supreme Court 2000Du9113, etc.) are of

cases where an employee’s improper conduct and lack of professional knowledge were considered together.

‘Improper conduct’ of employee

‘Lack of professional knowledge’

There exists some degree of confusion in judicial decisions, because the courts tend to handle cases that

correspond to general termination more than those corresponding to disciplinary termination.

Experts deem the current situation as ‘a legal vacuum for general termination’ where terminations take place in the form of

disciplinary termination, while there are no clear legal grounds for general termination.





Ambiguity of ‘Generally-Expected Minimum Performance’

A typical precedent on general termination (90Daka25420) defines an under-performer as ‘one who fails to achieve the generally-expected minimum performance when considering their rank and wage.’

‘Generally Expected Minimum Performance’

The typical precedent on general termination (90Daka25420) gives relatively greater detail of

the definition. However, it still fails to describe the specific standard to determine ‘generally

expected minimum performance’.

<Note> Types of termination

Termination is largely divided into: termination for employer reasons (mostly layoffs); and termination for employee reasons

(disciplinary and general terminations).

Article 23.1 of the Labor Standards Act, the foundation for all termination under current applicable law prescribes that the

employer shall ‘not terminate (employment) without just cause.’ However, such prescription is somewhat abstract and leaves

room for different interpretations by different persons in judgement.





Regarding ‘Constant Repetition’

Put together, periods in which under-performance constantly took place is determined case-by-case and in accordance with the circumstances of each employer, the status and duties of the employee, etc. Thus, it is incorrect to believe that an employer can terminate an employee according to a universal standard, such as when his/her performance falls below a certain point for a certain period or a certain number of times.

How have courts ruled on this so far?

The courts have deemed termination appropriate when an employee significantly under-performs in terms of

collection of insurance premiums (90Daka25420) or management of accounts receivables (86Daka1875). However,

there is also a precedent which deemed that the termination was not justified when an employee lacked the specific

abilities required for provision of labor when this could be rectified within a short period of time (Seoul High Court

90Gu10997).

There is also a precedent which determines that termination is not justified even if the employee under-performed

for a two-year period. On the other hand, there is another precedent which recognizes termination of an employee

who received the lowest score in two consecutive performance evaluations.





Regarding ‘Incomplete Provision of Labor’

In this case also, there is no universal standard that can apply to every case.

How have courts ruled on this so far?

As an example, there are precedents where terminations have been justified: an automobile salesperson who sold an

average of 0.4 cars a month while other salespersons of the same rank sold 2.2 cars; and of 1 of 3 employees who

received the lowest score in evaluations of approximately 1,200 employees in total.

A further precedent rejects termination of 1 of 4 employees who received the lowest score in evaluations but with

positive feedback.





Professionalism of the Evaluator(s) Must Not be Overlooked

Refusing, without equitable grounds, to renew the employment contract of employees with a reasonable right to expect renewal is of no effect. (Supreme Court Decision 2012Du18868, Decided January 15, 2015)

Implications Details

An evaluation system that results in deciding to ‘maintain the fixed-term employment status’ for an employee who has served two full years after evaluation cannot be recognized as reasonable. (The regulation prescribes that employees who serve two full years shall have result either ‘converted to regular employment’ or ‘be terminated’.)

From the officer in charge signing in the ‘Opinion Column’

blank without leaving any comments on the evaluation it can

be deemed that there was a material flaw in the evaluation

process.

Since the manager is not an expert in law or HR, there can be doubt as to the reasonableness and fairness of evaluation.

A result of ‘maintain fixed-term employment status’ cannot be

interpreted that the person is ineligible to have their

employment status converted to regular employment, and if

seen otherwise, the employer is interpreting the evaluation

result in an arbitrary manner.

1 Unreasonable evaluation system

2 Violation of evaluation process

3 Evaluation skills of manager

4 Interpretation of evaluation result





Employees Must be Notified of any Changes to Evaluation Scoring Standard

In a case where an employer did not renew a fixed-term employment contract because the employee’s performance evaluation score did not meet the reference score, the court found that the failure to renew the employment contract could not be recognized as reasonable or conforming with socially accepted ideas. (Seoul Administrative Court Decision 2008Guhap34979, Decided March 13, 2009)


Since the employer failed to make prior notification to the employees of the changed evaluation standard that raised the score required for employment contract renewal, such score is not deemed a suitable cause for rejecting the contract renewal.

The employee failing to comply with work regulations only

once in a year shall be deemed insignificant in terms of

seriousness, and cannot be a cause for reduction of score.

Since not every employee received a reduction in score for failure to comply with work regulations, the employer’s action was not fair.

If the employee failed to comply with work regulations in the

course of providing service to a disabled customer upon

request, such failure cannot be a cause for reduction of

score.

The facts that no complaints were lodged against the

employee (a taxi driver for the disabled), and that the

employee had not received any disciplinary action during

his/her employment period must be considered.

1 Adjusted score for

contract renewal

2 Violation of work regulations

3 Uniform criteria for scoring

4 Reason of improper conduct

4 Sincerity of job performance





Employer’s Specific Efforts or Intention to Improvement is also Important

Imposing disciplinary termination only due the fact that an employee received the lowest performance evaluation rating for 4 consecutive years is an abuse of an employer’s right to manage human resources. (Seoul Administrative Court Decision 2005Guhap23879, Decided January 27, 2006)


When considering termination of an employment relationship, it is essential that personal evaluation be based on absolute standards to assure objectivity and reasonableness for termination.

The result of employee evaluation can be deemed strongly

reasonable if the evaluation is conducted after the job

assignment considered the characteristics of the job and the

employee’s performance abilities.

The employer is asked to consider the effort the employee took to improve his/her performance and specifically whether effort and a desire to improve was displayed.

1 Absolute evaluation and Objectivity

2 Evaluation based on characteristics of job and performance abilities

3 Employer’s efforts to improvement





Advantages of Multidimensional Evaluations

Decision not to renew an employment contract based on the result of a multidimensional evaluation is deemed to be reasonable. (Seoul Administrative Court Decision 2006Guhap33002, Decided July 6, 2007)


A multidimensional evaluation helps to exclude subjectivity from and assure objectivity of a performance evaluation system.

1 Multidimensional evaluation

and objectivity





Importance of Going Further than Just Evaluating to Offering Employees Opportunity to Improve

When an employee is ordered to improve his/her job performance and skills every year as a result of performance evaluation and fails to do so, an employer’s termination of such an employee is fair. (Seoul High Court Decision 2003Nu3316, Decided September 26, 2003)


It is necessary to specifically define the evaluation categories and standards.

Keeping records of monitoring, which can be used as

evidence, helps to assure that a system is reasonable and

feasible.

An employer going beyond just keeping a monitoring record to regularly offering opportunities to actually improve employee performance is important.

1 Materialization of evaluation standard

2 Value of monitoring record

3 Offering adequate opportunity

to improve





Cause of Under-performance & Appropriate HR Measures

① Behavioral type of cause

② Personal type of cause

③ Unclear cause

e.g. negligence at work

When there is clear cause of a behavioral type,

disciplinary action can be arranged.

e.g. abilities of an employee,

suitability to tasks, etc.

Consider improving job skills through training or

re-assignment.

Offer opportunity to improve performance, such as

lowering performance targets or extending the period

subject to performance evaluation, and then consider

taking action according to the outcome.

The employer extended the suspension period, but the employee still failed to collect the accounts receivable during the three month

extension. The employer’s decision of rightful termination is fair. <Seoul Administrative Court 2000Gu21853, December 15, 2000>

The employer placed the employee under suspended assignment, because the employee’s performance was extremely low for three

quarters (with the exception of Q2 2002, immediately after the employee was assigned to the job). The employer’s decision to do so

is fair. <Seoul Administrative Court, 2004Guhap27799, April 14, 2005>

Court Decisions case





Adequate Arrangement According to System Institutionalization

Some employers implement under-performer management programs for each under-

performing employee, while others have institutionalized performance improvement

programs for groups of employees to whom certain criteria apply, such as those with

performance evaluation scores ranking in the bottom 10% of all employees.

The institutionalized performance management programs are introduced because employers

need to increase the capabilities of their personnel to enable them to take the lead in

responding to changes in the managerial environment they face.

In light of the facts that: the under-performer program implemented at the applicable business place had been agreed by the labor-

management council; and the program seemed to have produced meaningful results, such as significantly improving the performance

of each employee participating in the program, it is deemed that the program is justifiable. <Seoul Administrative Court,

2010Guhap41673, September 9, 2011>


To justify a performance improvement program, the employer must: explain to employees the

need for such a program; and establish strict criteria and procedures for evaluation, to

practically achieve the program goals.





Appropriate Management of Personnel in a Manner Agreeable to Employees

The employer must clearly define the performance targets and the rewards and

disadvantages associated with success or failure to achieve the targets, to grant

employees the opportunity to willingly agree to the targets and attempt to raise their level of

performance. Follow-up measures will then be justified.

The plaintiff bank deemed it necessary to introduce a performance-base personnel management system to strengthen

competitiveness and determined that placing the employee under suspended assignment was fair, because the employee had already

signed the performance target and evaluation agreement and had failed to achieve the lowest required score in a number of

performance evaluations.

<Seoul Administrative Court, 2004Guhap27799, April, 14, 2005>






Current Labor Market in Korea






Reducing scope of LSA application

Necessity for protection suspended

period

Possibility of Easing Termination Clauses






Seoul Metropolitan Government: Under-performer Designation & Management Processes

Seoul Metropolitan Government C Player Designation Method (2008)

Seoul Metropolitan Government C Player Training & Evaluation Process

Employee(s) ranking lowest in performance

evaluations

Those failing to participate

subject to disciplinary

action

Subject to regular transfer

(2 years or longer)

Feedback from evaluated

employee(s) on evaluation

results

1st Draft

2nd Draft

3rd Draft

Validation of servivors and exclusion of those subject to disciplinary action

department head Feedback

Auditor’s Inspection

Review by Evaluation Committee

Final designation of under-performers

1st skill improvement training program (6 mos.) & skill diagnosis

1st Review Committee

2nd skill improvement training program

(3 mos.)

2nd Review Committee

Return to original post

Authorized Dismissal





Theoretical background of wage peak system

Wage-Productivity

Productivity

Investment

Wage

Age 50~54 Source : Jung jinsung 2004






The Court’s Opinion on Reasonableness According to Social Acceptance

The court has recently been restrictive and strict in interpreting the effectiveness of amended rules of employment, because recognizing such amended rules based only on whether the amendments are reasonable according to social norms would practically preclude the Labor Standards Act, which prescribes that any amendment to rules of employment unfavorable to employees must have employee consent.

The degree of disadvantage employees are expected to receive from such amendment

The employer’s reason to amend, and the extent needed

The feasibility of the amended rules

Other working conditions including the amended rules being improved

The history of negotiations with the labor union and its response or reaction from other employees

The general practice in country regarding similar matters

1

2

3

4

5

6

Determine the reasonableness according to social acceptance, in consideration

of the above

Factors for Consideration





Specific conditions of discretionary incentive Enforcement Decree No. 778.211(b)

Non-discretionary incentives

Discretionary incentives

Ordinary wage

Incentives

Scope of ordinary wage in the U.S.







What is not reasonable in Old Employee Management?







Knowledge and Lost Knowledge







HR Infrastructures






Personal Belief in HR Management

ER Management

WIN / win

Awareness Reform Workplace Psychology

Process Reform HR assessment

Success

In

All





Korea Labor Reform Seminar 2015 Oct

Documents

Transcript of Korea Labor Reform Seminar 2015 Oct