As Asia's third-largest economy, South Korea has now become more knowledge-intensive than ever before. Consequently, the market is open to a lot of foreign investments and MNC ventures.
Also, with a new president who is a CEO turned politician, a more pragmatic and flexible approach to labour and HR policies is expected. However, a critical understanding of the South Korean labour laws is an absolute must for those interested in doing business in the country, notes Chun Wook Hyun, senior partner, Kim & Chang. He broadly categorises the South Korean HR issues into eight major subheads.
1. Company unions, industry unions and active union activities
2. Labour management council
3. Seniority-based compensation vs performance-based pay
4. Termination based on misconduct, poor performance, business reasons
5. Formal vs informal communication
6. Severance pay and retirement pension
7. Non-regular workers/anti discrimination
8. Cultural aspects: title, seniority, hierarchy, emotion
Hyun underlines that Korean labour laws are closely aligned to the employee needs and HR must understand the criticality and uniqueness of the work culture and employment laws in Korea.
Employment contracts
To start with, employers have to have a clear understanding of the employment contracts in Korea. Under the LSA, all employers must enter into a contract with their employees specifying wages, working hours, weekly paid day off, paid annual leave and other working conditions. Any contract failing to satisfy the LSA standards will be rendered null and void, says Hyun. Also, general practices in Korea favour 'open ended' contracts. Typically, contractual provisions for individual employees determine special and employee-specific terms and conditions, not covered by relevant laws, the rules of employment (ROE) or the collective bargaining agreement (CBA) if applicable.
Labour unions
There are two national centres in Korea: The Federation of Korean Trade Unions and the Korean Confederation of Trade Unions. The Union membership is approximately 1.5 million, Hyun informs. The legal requirements for union formation in Korea are:
· Any two employees may organise a union
· No report obligation to the company
· Registration at the District government
He notes that the recent trend is towards organising non-regular workers and service industry workers. "Many luxury brands are being unionised," he remarks. And though there are other issues like promotion, compliance, lack of communication from top to bottom, that can provoke disgruntled employees into forming a union, the major issues faced by both foreign and domestic workers are wages, job security and management issues.
Hyun further outlines the permissible scope of union activities and informs that all union activities in Korea must take place "outside business hours and off business premises." Talking about the inter relations between union activities and personnel administration, he clearly says, "employee status is a pre requisite to become a union member and rules of employment/company policies will still govern the employee relationship unless the collective bargaining agreement specifies otherwise."
Multiple unions in one company is still not permissible but will be liberalised from 2010.
Rules of employment
· Rules of employment (ROE), commonly known as 'employee handbook' by foreign-invested companies, state basic working conditions of employees
· Under the LSA, any company with 10 or more employees in Korea is required to prepare a ROE that provides information on working hours, wages, severance payments, etc
· Under Korean law, the provisions of a company's ROE may not fall under the LSA's minimum standards, lest they be rendered null and void
· An employer is required to obtain the comments of the majority of employees or the majority union, then must file the ROE (including comments) to the Ministry of Labour or face an administration fine of 5 million KRW
· Amendments to the ROE which may be deemed advantageous to existing employees (ie, reduce any benefits or increase obligations), will be necessary to obtain consent of a majority of employees or the union
Considerations for restructuring/layoffs: legal implications
1. If it is an "urgent business necessity", eg: losing money
2. Lay off has to be based on reasonable and fair criteria
3. Employers must serve 50 days' notice to employee representative or union (majority union) and good faith consultation in connection thereto
4. Employers must serve 30 days' prior notice to the Ministry of Labour if laying off, in general 10% of the workforce
5. Employers have an obligation to rehire those who are dismissed if company decides to hire new employees considering the positions of these previously dismissed employees within three years of their departure
Severance and pension obligations
· Eligibility: a departing employee(regardless of the reason) who has worked for at least one year with the company
· Minimum Payment: at least 30 days' average wages for each year of service
· Discrimination among employees of similar levels is prohibited
· Interim severance payout
Labour Outlook for 2008: Anti-discrimination
Under new legislation Korea
· Prohibits discrimination of non-regular workers without reasonable cause
· Salaries and benefits should be equivalent to that of other permanent employees for the same or similar job
· Employees can petition for relief before the Labour Relations Commission or Court
· Employers may be fined up to 100 million won in addition to relief measures
· Goes into effect for large employers with over 100 employees from 1 July 2008