Going nowhere, slowly
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By Patrick Monaghan
Imagine that you are an ordinary employee in a Korean company, working in a job function which is no longer cost-effective for your employer to maintain.
After several years of fruitless attempts to optimize operations and reduce costs, your employer finally reaches the difficult yet justifiable decision to outsource your job function to a third-party service provider. The company’s customers are understandably pleased by the decision to outsource.
This will enable them to obtain comparable (or better) services at a much lower cost. Reduced costs also result in higher profits for the company and its shareholders, and the third-party service provider is able to grow its business as well.
Flush with its newfound savings resulting from the outsourcing decision, your company has offered you a substantial separation package, as well as outplacement support to assist you in finding a new job. Sounds like a win-win situation for all sides, right? Somewhere, Milton Friedman is smiling.
While such a scenario in years past might have ended in an amicable (and lucrative) separation between employer and employee, today’s employees are often less concerned with maximizing economic utility and more concerned with holding on to their jobs, flawed or unsatisfying as they may be.
Henry David Thoreau famously remarked that man needs two things: one is love, the other is work. For employees facing redundancy in Korea in 2013, it is work above all.
In today’s environment, many companies are finding that even very generous settlement packages fail to entice skittish employees unwilling to enter the ranks of the unemployed.
Employment statistics and anecdotal evidence indicating a strong market bias against unemployed job applicants give credence to their fears, and Korea’s strong employment protections codified in the Labor Standards Act (LSA) offer employers few options or levers to coax employees to voluntarily resign.
At-will employment is not a recognized principle under Korean law, and dismissal of employees requires a demonstration of “just cause,’’ a vague and often difficult standard to satisfy.
As the irresistible forces of globalization and technology meet the immovable object of Korean labor law, the result is a painful and costly stalemate which produces adverse external consequences.
Anticipating that transitioning out non-performing or redundant employees will be nearly impossible, employers in Korea have cut back significantly on the hiring of permanent (regular) employees.
Increasingly weak job creation has left many promising would-be professionals, especially younger workers and recent school graduates, jobless and frustrated.
In addition, employed workers are forced to carry greater burdens because their companies pursue minimum staffing levels, leading to high levels of stress and physical or emotional burnout.
Surely the status quo is socially and economically unsustainable, but few public officials have offered concrete proposals to relieve this situation.
One option would be to relax the LSA’s requirements for companies facing volatile business conditions that do not quite reach the stringent “urgent business necessity’’ standard, and offer employees the protection and transparency of a statutory payment formula.
Just as regular employees are already entitled to at least one month’s salary per year of continuous service (or the equivalent in the form of a corporate pension), they would be guaranteed a minimum amount of settlement pay for accepting an early retirement offer.
This arrangement would ensure that workers receive fair and consistent compensation for their service and contributions to their employer. It would also help employers properly and accurately budget for any “right-sizing’’ that may become necessary over the life of the business.
A second option would entail the appointment of a mediation panel composed of labor representatives, outside experts and business officials to broker timely and reasonable settlements between employers and employees.
Under the current language of the LSA, the only relief available to an employee facing dismissal is through filing a complaint with the labor commission, which can only order reinstatement to his prior position with back pay.
This legal process is costly, time-consuming and adversarial, and often leads to unwanted and unfair scrutiny of both party’s motives. If the employee’s claim succeeds, his employer is then forced to create “make-work’’ jobs for the redundant employee upon rehire; in some cases, the employer secretly plots to frustrate or shame the employee into later resigning.
This situation leads to acrimony and benefits no one. Instead, a parallel mediation process, initiated by either the employee or the employer, will offer both the employer and employee fairer treatment and faster resolution of their respective concerns.
Mediators can prescribe amicable settlements while still ensuring that employees are adequately protected, and are not selected for dismissal on the basis of unreasonable or illegal criteria (such as gender, age or disability).
A third option ― which may be implemented in parallel with either of the previous options ― to consider in promoting labor flexibility is the introduction of a “wage peak’’ system.
The system provides that once employee wages taper downward after reaching an agreed-upon ceiling as the employee approaches retirement age. Many labor reform advocates have called for a “wage peak’’ system to assuage employer concerns about spiraling HR costs in the aftermath of the Korean government’s announcement of a mandatory (minimum) retirement age of 60.
This system would allow still-productive older workers to remain in the workforce and continue useful work at the company, but at reduced compensation levels.
Expanding application of the system to workers whose originally envisioned job function has been reduced or eliminated makes sense, and allows employers to match compensation with an employee’s current and ongoing value proposition.
Each of these alternatives is likely to be better than the status quo. Each merits the Korean government’s careful consideration.
The author is a senior foreign legal consultant at one of Korea’s largest law firms. His practice includes mergers and acquisitions, antitrust, labor and employment law. He can be reached at patrickjmonaghan3@gmail.com.