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Newsletter | December 2016, Issue 4
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LABOR & EMPLOYMENT
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Labor Ministry Publishes New Guidebook on Wage System Reform
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On August 17, 2016, the Ministry of Employment and Labor (“MOEL”) published The Guidebook on Wage System Reform ("Guidebook").
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Revamping Wage Systems
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The Guidebook is designed to assist businesses with revamping their wage systems. For example, it provides useful information on the processes and methods for altering wage systems, potential legal issues, and case studies.
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Despite recent developments in the Korean society (e.g., low growth economy and an aging population), many domestic businesses still use traditional, seniority-based salary step systems more often than their counterparts in other developed countries.
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However, in the first half of 2016, there was a trend, particularly among state-owned enterprises, toward implementing (or attempting to implement) merit-based annual pay systems. Building on this momentum, the timely publication of the Guidebook is seen as the MOEL's effort to reduce the negative effects of the seniority-based salary system on the Korean economy, by shifting towards a merit-based or a job-based salary system.
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Changing Wage Systems – Employer Considerations
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In addition to a general discussion of wage system types and the direction of reform, the Guidebook provides detailed information on potential legal issues employers should consider when changing the wage systems.
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For example, the Guidebook explains the “generally-accepted justification” theory, which is a legal doctrine based on court cases where employers failed to obtain employee consent when making unfavorable changes to working terms and conditions contained in the rules of employment.
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Another example is a discussion of relevant issues that may be placed on the agenda during union negotiations.
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The “generally-accepted justification” test is based on the following six factors:
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Severity of the disadvantage to the affected employee;
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Need for, and degree of the change to be made to the rules of employment;
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Reasonableness of the change;
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Whether other working terms and conditions were adjusted favorably to offset the disadvantageous change;
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Whether there was progress in negotiating with the union, and the reaction of the union or other employees; and
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Whether the intended change is considered common in Korea under similar circumstances.
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Labor Groups’ Perspective & What It Means to Employers
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Labor groups have objected to the generally-accepted justification theory in the Guidebook, and have requested that the Guidebook be discarded.
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Further, they are threatening legal action against employers who attempt to implement wage reforms in an illegal manner.
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Given this resistance, it appears that legal challenges to changed wage systems may become a major hurdle for employers.
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Impact
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Korean employers are moving toward merit-based and job-based wage systems, which is a goal that requires a long-term commitment. To achieve this goal legally and reasonably, we believe it is most important to engage in management-union (or employee) discussions, while also complying with relevant case laws and steps contained in the Guidebook.
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Back to Main Page
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If you have any questions regarding this article, please contact below:
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For more information, please visit our website:
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