Newly-elected president Moon Jae-In's administration has officially begun on May 10, 2017. President Moon, a liberal who favors labor-friendly policies (and a more open policy toward North Korea), has pledged to make significant and broad changes to the current labor-law regime.
Below, we briefly summarize his campaign pledges on labor issues, and the implications for current HR practices if those pledges are fulfilled.
1. Limit the Use of Non-Regular Workers
President Moon has promised to propose new legislation tentatively named the "Special Law on Preventing Discrimination against Non-Regular Workers," with the following proposed components:
- Enforcing equal pay for equal work.
- Imposing limits on the use of fixed-term and part-time employees, which will prohibit their use for safety-related work, and jobs that are not temporary or seasonal.
- Introducing a non-regular-worker levy on large companies that hire an excessive number of non-regular workers.
- Imposing some form of joint-employer liability over the employees of internal contractors, to cover even legitimate contractor relationships free of illegal worker-dispatch issues. "Internal" or "in-house" contractors refer to third-party contractors whose workplaces are located at their service recipients' premises.
Under Korean labor law, there are two broad categories of workers: regular and non- regular. Regular workers are full-time employees with indefinite (i.e. permanent) employment terms. There are four (4) principal types of non-regular workers: (i) part-time employees; (ii) fixed-term employees; (iii) dispatched workers from manpower agencies; and (iv) in-house contractor employees who work for a service recipient but who are not subject to direct control and supervision by that recipient.
Thanks to relatively recent amendments, current law already provides robust protections from discrimination against the first three categories of non-regular workers; for example, willful or repeat violators are subject to punitive damages (up to treble damages). These increased protections have resulted in more disputes between workers and companies, and this trend is expected to accelerate if these proposed changes become law.
There has never been any regulation of the types of roles that can be filled by fixed-term and part-time employees (whereas dispatched workers have always been limited to particular kinds of positions). If this proposal becomes law, companies will be prohibited from using even part-time or fixed-term workers for any jobs that are not temporary or seasonal, or for safety-related work. Since these jobs will have to be filled only with regular employees, companies' personnel costs will increase and disputes concerning converting non-regular workers to permanent employees are likely to follow.
Moreover, if this proposed legislation passes, a using company will bear joint-employer liability respecting the employees of any in-house contractors, even in the case of a legitimate service-provider relationship. Currently, a using company has an obligation to directly hire the employees of a contractor if the relationship is found to be, in substance, an illegal worker-dispatch relationship; but a company is generally not liable to the employees of a true contractor.
2. Reduced Working Hours
President Moon has pledged to reduce Korea's currently infamously excessive working hours. His main proposals are: Obligating companies to record employees' office time. Requiring strict adherence to a 52-hour limit on maximum weekly working hours (including overtime). Reducing the scope of industry-based overtime exemptions. Extending the substitute holiday system to private companies. Under the substitute holiday system—which is currently mandatory only for civil servants and employees of government enterprises—if certain national holidays fall on a weekend, the following working day becomes a holiday. Allowing flexible working hours for parents with a child who is 8 years old or younger, or at or below the second grade in elementary school, whereby working hours can be reduced from the regular 8 hours to 6 hours per day, without any pay cut, for up to 24 months.
In a wage-claim lawsuit involving unpaid overtime pay, the burden of proof lies with the claimant, the employee. If companies are legally obligated to keep and record employees' office hours, it will become much easier for employees to prove their actual working hours, and it may de facto shift the burden of proof to the company. Related disputes and lawsuits are likely to increase.
Whether hours of work done during weekly days off (generally Saturdays and Sundays) are included in "weekly" working hours for purposes of calculating overtime pay is currently a major controversy, with cases pending before the Supreme Court that should decide the issue.
3. Preventing Abuse of Voluntary Separation Programs
President Moon has also promised to regulate employers' abuse of so-called "voluntary separation programs" (also referred to as "early retirement programs"). Under President Moon's proposed changes, a company would not be permitted to create a so-called "blacklist" which lists the targeted employees whose resignations the company wishes to accept under the program. Most significantly, a two-week cooling off period would be imposed, during which employees could withdraw their submitted application forms.
It is a prevalent practice among companies in Korea to prepare a "blacklist" when designing a voluntary separation program. Expressly prohibiting a "blacklist" will have a significant impact on companies' current practices. Moreover, a mandatory two-week cooling-off period is an entirely new exception to the existing jurisprudence on voluntary resignation, whereby a resignation letter is treated as an offer which cannot be withdrawn once accepted. Overall, companies will likely find it more challenging to use voluntary separation programs as a way of effecting restructurings.
4. 10,000 Won Minimum Wage By 2020
President Moon has promised to increase the minimum wage from the current KRW6,470 to KRW10,000 by 2020.
Raising the minimum wage to KRW10,000 from the current level of KRW6,470 would require a double-digit increase every year until 2020. Companies should evaluate and, if necessary, change their current pay systems to ensure they do not result in unnecessary exclusion of items of compensation from the calculation of employees' minimum wages. Please note that many bonuses and allowances are not included in the calculation of the minimum wage. Violation of the minimum-wage law is subject to criminal penalties.
5. Expanding Youth Employment Quotas to Private Companies
The "youth employment quota," which currently applies only to government agencies and government controlled or invested enterprises, may be temporarily expanded to cover large (300+ employees) private companies. For the next three (3) years, until 2020, subject companies may be required to hire sufficient young (below 35) workers to constitute 3 to 5 percent or more of their workforce. Failure to comply with this requirement will subject covered employers to a youth-employment levy (essentially an administrative fine).
If passed, this regulation will have a direct impact on hiring costs for companies with 300 or more employees. However, as the current youth-employment quota regulation has been subject to heated controversy—including legal challenges—due to its potential for reverse age-discrimination, a contemplated expansion may invite similar constitutional challenges.
6. Enhancing Remedies for Unpaid Wages
A significant change may be made by extending the statute of limitations for unpaid-wage claims from the current 3 years, to 5 years. Additionally, the requirements to receive government compensation for unpaid wages are to be relaxed for young workers (below 35) so that they can more easily receive unpaid-wage compensation from the government even without a final judgment or the employer entering bankruptcy.
President Moon's promise to extend the statute of limitations for unpaid-wage claims from the current 3 years to 5 years will, if kept, expose companies to significantly enhanced risks because any unpaid wages for the past 5 years (an additional two years) could be claimed by employees.
Additionally, under current law employees may request that the government provide substitute pay for their back wages only in the event of the company's bankruptcy, or when there is a final and non-appealable judgment from a court awarding back pay. The government then seeks recourse from the delinquent employers.
The new proposed system, if enacted, will allow young workers to receive substitute pay from the government more easily in other situations as long as non-payment of wages is somehow confirmed. If the exact back-pay amount need not be proven before the government makes a substitute payment, however, there may later be disputes between the government and the delinquent companies over determining the amount to be reimbursed.
Public Sector-Driven Job Creation
President Moon has placed job creation as a top priority among his economic pledges, vowing to create 810,000 new jobs in the public sector. His plan includes 174,000 new civil service positions in national security and public safety; 340,000 in social services; and converting 300,000 non-regular workers to permanent employees.
Expanding Childcare Leave and Paternity-Leave, and Benefits
Paternity leave may be increased from the current 5 days (including 3 paid days) to 14 days (including 10 paid days). Childcare-leave wage-replacement subsidies may also be increased to twice the current level for the first three (3) months. A parent may also be able to use child-care leave for up to 6 months with increased leave subsidies (twice the current level) if the leave begins immediately after the other parent's maternity leave or childcare leave.
Enhanced Protection of Contractor Workers
Additional industrial safety obligations may be imposed on companies with respect to the workers of their contractors. And outsourcing dangerous work to contractors may be entirely prohibited.
Protecting Special Categories of Employees
President Moon promised increased protection for special categories of employee that often fall outside the protections of Korean labor law, such as insurance planners, home school teachers, and delivery drivers.
Anti-Slavery and Anti-Bullying
The Labor Standards Act's current anti-slavery clause and no-violence clause may be amended to expand their coverage and to specify the particular types of conduct that are prohibited.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.