Unfavorable
Amendments to Rules of Employment and Employees’ Collective Consent

Bongsoo Jung,
Korean Labor Attorney (KangNam Labor Law Firm)

I. Introduction

Under the Act on Prohibition of Age Discrimination in
Employment and Elderly Employment Promotion, as amended in 2013, the mandatory
retirement-age system was introduced in stages beginning on January 1, 2016. As
a result, workplaces with seniority-based wage structures faced the need to
address increased labor costs arising from the extension of the retirement age
and to reform their wage systems.

Where an employer introduces a wage-peak system involving
wage reductions, the measure may, depending on its specific terms, constitute
an unfavorable amendment to the rules of employment. If an employer amends the
rules of employment to the disadvantage of employees without obtaining their
collective consent, the amended rules will, in principle, not apply to existing
employees whose vested rights or interests are adversely affected by the
amendment.

It is therefore necessary to examine the requirements and
procedures for amending rules of employment to the disadvantage of employees,
as well as the standards for determining whether an amendment is unfavorable
and identifying the proper body and method for collective consent. This article
reviews, in order, the meaning of rules of employment and the procedures for
their preparation and amendment, the criteria for determining an unfavorable
amendment, the method of obtaining employees’ collective consent, and the
doctrine concerning abuse of the right of collective consent.

 

II. Meaning and
Amendment of Rules of Employment

1. Meaning of Rules of Employment

Rules of employment are general
standards established by an employer to apply uniformly to employees of a
business or workplace with respect to working conditions and workplace
discipline. Article 93 of the Labor Standards Act requires an employer ordinarily
employing ten or more employees to prepare and file rules of employment, while
Article 94 prescribes the procedures for preparing and amending such rules.

In particular, Article 97 of the Labor
Standards Act provides that any provision of an employment contract
establishing working conditions below the standards set by the rules of
employment is invalid to that extent, and that the invalid part is governed by
the standards set forth in the rules of employment. This means that rules of
employment have normative effect in governing the terms of individual
employment contracts. Although the preparation or amendment of rules of
employment in a manner favorable to employees does not require their collective
consent, the employer must still follow the consultation procedure prescribed
by Article 94 of the Labor Standards Act.

2. Amendment of Rules of Employment

(1) Amendments Favorable to Employees

When preparing or amending rules of
employment, the employer must hear the opinion of the labor union if there is a
labor union organized by a majority of the employees at the business or
workplace. If there is no such union, the employer must hear the opinion of a
majority of the employees.

Where an amendment is favorable to employees, it is sufficient to hear the
employees’ opinion. The employer is not required to consult or reach agreement
with the employees, nor is the employer required to incorporate any opposing
views expressed by them.

The consultation procedure for preparing or amending rules of employment
is not, in principle, a condition for the validity of the rules. Accordingly,
where an amendment is not unfavorable to employees, the rules of employment do
not become invalid solely because the employer failed to follow the
consultation procedure. The purpose of the consultation requirement is to
protect employees by giving them an opportunity to express their views on the
contents of the rules of employment.^[1]

 

(2) Amendments Unfavorable to Employees

When preparing or amending rules of employment, the employer must hear the
opinion of the labor union if there is a labor union organized by a majority of
the employees at the business or workplace. If there is no such union, the
employer must hear the opinion of a majority of the employees.

Where an amendment is favorable to employees, it is sufficient to hear the
employees’ opinion. The employer is not required to consult or reach agreement
with the employees, nor is the employer required to incorporate any opposing
views expressed by them.

The consultation procedure for preparing or amending rules of employment
is not, in principle, a condition for the validity of the rules. Accordingly,
where an amendment is not unfavorable to employees, the rules of employment do
not become invalid solely because the employer failed to follow the
consultation procedure. The purpose of the consultation requirement is to
protect employees by giving them an opportunity to express their views on the
contents of the rules of employment.

1) Method of Obtaining Collective
Consent for an Unfavorable Amendment

The methods of
obtaining consent are as follows. ① If there is no
labor union representing a majority of the employees, the consent of a majority
of the employees must be obtained through a meeting-based procedure. Here,
‘consent through a meeting-based procedure’ includes a method under which
employees exchange views and consolidate their votes for or against the
proposal, free from employer intervention or interference, at the level of
organizational units or departments within the business or workplace, after
which the results are aggregated as a whole.^[2]② If there is a
labor union organized by a majority of the employees, the amended rules of
employment, once approved by that union, apply as a matter of course even to
non-union employees who did not separately consent.^[3]③ Where working
conditions are divided into separate systems for production and office
employees, or for regular and fixed-term employees, consent need only be
obtained from the employee group to which the unfavorable part of the amendment
applies. In other words, consent from a majority of all employees is not
required.^[4]④ Even if only a
particular employee group is adversely affected at the time of the amendment,
where other employee groups are expected to become subject to the amended rules
of employment in the future, consent must be obtained from an employee group
that includes those employees as well.^[5]

2) Criteria for Determining Whether an Amendment Is Unfavorable

Whether an amendment to the rules of employment is unfavorable must be
determined specifically by comprehensively considering all relevant
circumstances, including the purpose and background of the amendment, the
nature of the work performed at the workplace, and the overall structure of the
provisions of the rules of employment. Accordingly, even where one element
determining working conditions is changed unfavorably, any favorable change to
another element that is reciprocal or closely connected must also be considered
as a whole.^[6]

Relevant judicial
and administrative precedents include the following. ① Where a
progressive retirement-allowance formula was replaced with a non-progressive
formula unfavorable to employees, but the amendment also included favorable
changes such as wage increases and reductions in working hours, the amendment
could not conclusively be regarded as unilaterally disadvantageous to employees.^[7]② Where an
amendment to wage regulations forming part of the rules of employment was
favorable to some employees but unfavorable to others, the amendment could be
regarded as unfavorable to employees.^[8]③ The reduction or
abolition of overtime work exceeding the statutory working hours was not
regarded as an unfavorable amendment to the rules of employment.^[9]④ Where shift work
generated night-work and holiday-work allowances, but a change to daytime work
eliminated such allowances, the resulting monetary loss was not considered an
unfavorable measure.^[10]

 

III.
Changes in the Case-Law Doctrine on Unfavorable Amendments to Rules of
Employment

1. Change
in the Doctrine of Social Reasonableness

Traditionally,
the Supreme Court recognized the validity of an unfavorable amendment to rules
of employment made without employees’ collective consent where, in light of the
necessity for and substance of the amendment, the amendment was socially
reasonable. Social reasonableness was determined by comprehensively considering
such factors as the degree of disadvantage suffered by employees, the nature
and extent of the employer’s need for the amendment, the appropriateness of the
amended provisions, improvements in other working conditions, the course of
negotiations with the labor union, and general domestic practices concerning
the same matter.

However,
the Supreme Court changed its prior precedent through an en banc decision.[11]
The Court held that employees’ right of collective consent to an unfavorable
amendment of rules of employment is an important procedural right that gives
effect to the principle that working conditions must be determined on an equal
basis between labor and management. Accordingly, the validity or social
reasonableness of the substance of an amendment cannot substitute for
collective consent. Therefore, where an employer unfavorably amends the rules
of employment without obtaining employees’ collective consent, the amendment
is, in principle, ineffective. Social reasonableness alone is insufficient to
validate the unfavorable amendment.

 

2.
Exception Based on Abuse of the Right of Collective Consent

Employees’
right of collective consent is also subject to the principle of good faith and
the prohibition against abuse of rights. Therefore, where special circumstances
demonstrate that a labor union or employees have abused the right of collective
consent, an unfavorable amendment to the rules of employment may exceptionally
be recognized as valid even without collective consent.

An abuse
of the right of collective consent may be recognized where the necessity for
amending the rules of employment is objectively clear because of changes in
relevant laws or in the social environment surrounding the employment
relationship, and where, despite the employer’s sincere efforts to explain and
persuade employees in order to obtain collective consent, the labor union or
employees oppose the amendment without presenting reasonable grounds or
reasons. However, in light of the purpose of the Labor Standards Act in
requiring employees’ collective consent for an unfavorable amendment, whether
the right of collective consent has been abused must be determined strictly.
The mere existence of a business necessity or the reasonableness of the
amendment is not sufficient to establish such abuse.

 

3.
Application to Wage-Peak Systems

Where a
wage-peak system is introduced together with an extension of the retirement
age, it must first be determined whether the system constitutes an unfavorable
amendment to the rules of employment, taking into account both the benefit
gained from the extension of the retirement age and the disadvantage resulting
from wage reductions. If it constitutes an unfavorable amendment, the
collective consent of the employees must be obtained pursuant to Article 94 of
the Labor Standards Act. The need to reform the wage system following an
extension of the retirement age does not, by itself, dispense with collective
consent. If collective consent is not obtained, the amendment may be recognized
as valid only where special circumstances show that the employees have abused
the right of collective consent.

Even where
valid collective consent has been obtained, a wage-peak system may be invalid
if it reduces wages solely on the basis of age without reasonable grounds, in
violation of the prohibition against age discrimination under the Act on
Prohibition of Age Discrimination in Employment and Elderly Employment
Promotion. Accordingly, the validity of a wage-peak system must be determined
by comprehensively considering not only the procedure for amending the rules of
employment, but also the purpose of introducing the system, the extent of wage
reductions, the existence of corresponding measures such as a reduction in
workload, and the purpose for which the financial resources generated by the
wage reductions are used.

 

IV.
Conclusion

Where an
employer amends the rules of employment in a manner favorable to employees, the
amendment may be valid without their consent. However, where the rules of
employment are amended to the disadvantage of employees, Article 94 of the
Labor Standards Act requires the collective consent of either the majority
labor union or a majority of the employees.

Under
prior case law, an unfavorable amendment made without collective consent could
exceptionally be valid if the amendment was socially reasonable. In 2023,
however, the Supreme Court changed this precedent through an en banc decision.
The reasonableness of the substance of an amendment can no longer substitute
for collective consent. Nevertheless, where the employer has fully explained
the necessity for and contents of the amendment and made sincere efforts to
obtain employees’ consent, but the employees oppose the amendment without
reasonable grounds or reasons and thereby abuse the right of collective
consent, the amendment may exceptionally be recognized as valid. Therefore,
when pursuing an unfavorable amendment to rules of employment, an employer
should not merely emphasize the reasonableness of the amendment. The employer
must provide employees with sufficient information and faithfully follow a
process of substantive consultation and persuasion in order to obtain
collective consent.