Korea Labor Reform Seminar 2015 Oct

한국의 노동 개혁의 전망과 준비Labor Reform in Korea - Outlook & Preparation
위세노무법인 대표노무사 송희열 (Maven H. Song) T) 010-2714-1707
서울 영등포구 여의도동 36-23 맨하탄빌딩 1009호 e-mail (mrhysong@gmail.com )
15.10.14 영어세미나 교재

Neo-liberalism and Technological Innovation
``Globalization
Labor Reform in Korea - Outlook & Preparation

Changes Accompanied by Liberalization of Capital Transactions-1

Changes Accompanied by Liberalization of Capital Transactions-2

Responses from Globalization

Responses From Globalization: Legacy

한국의 노동 개혁의 전망과 준비
Growth of Flexible Jobs: OECD EPL Index (1985-2008)
0
0.5
1
1.5
2
2.5
3
3.5
4
Regular Contracts Temporary Contracts Source OECD
Continuous deregulation
of temporary contracts

Labor Force Participation Rates (2000-2010)

Unit Labor Costs in International Comparison
Index OECD base year 2000=100
Seasonal adjusted values (national currency)

Understanding the targets of reform

Dual labor market theory
 Two labor markets exist with very different levels of wage and working
conditions. The two markets rarely exchange manpower, and employment
and wage are determined on a mutually exclusive basis.
- 1st labor market :
Higher wages, greater stability in employment, opportunities for promotion, fringe
benefits and reasonable procedures are the features of this market, which exists inside
companies with an internal labor market.
- 2nd labor market :
lower wages, less stability in employment, high turnover, fewer fringe benefits, and
arbitrary labor management are the features of this market.
 How did the 1st labor market come to be?
- Company-specific skillsets
- Monopolistic division
- Insiders and outsiders created by the presence of a labor union.
Polarization of the labor market

Dual structure
of the Korean
labor market
Regular
employees
(A)
56.82%
Union-
shop (B)
24.99%
Large
companies
(C)
12.20%
Irregular
employees
(E)
37.99%
Regular
employees
Union-shop
Large
enterprises
(D) 7.56%
National Statistics Office (August 2009)
Dual labor market structure in Korea

Vicious Circle of the Dual Labor Market

Solutions to the Dual Structure

How to effectively design labor market policy?

What is a work hour system?
 A work hour system refers to an institutionalized system of working hours that are
regulated according to company, societal and individual goals through regulations,
standards and laws. Such a system is also influenced by labor market supply and
demand.
Working hours & labor productivity

Long working hours

Aged Worker & youth unemployment

Shift in demographics

0
2
4
6
8
10
12
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
전체
청년층 남자
청년층 여자
장년층
Recent Trends : Youth (15~29 age) and Aged (55~64 age)
Ratio(%)
YearSource : Korea Statistics
Unemployment Trends by Age Group

Classification 2008 2013 (%)
Increase/
Decrease
(%)
Full-time employee 2,339,435 2,183,456 58.3 -155,979 -113.9
Temporary employee 953,332 1,050,707 28.0 97,375 71.8
Daily employee 262,672 270,397 7.2 7,725 5.7
Self-employed, with employee(s) 41,309 38,110 1.0 -3,199 -2.4
Self-employed, w/o employee(s) 212,565 129,626 3.5 -82,939 -61.1
Family member with no pay 74,111 75,427 2.0 1,316 1.0
Total 3,883,423 3,747,723 100.0 -135,700 -100.0
Source: Statistics Korea (2013)
Shift in types of youth employment
Shift in employment status of the youth (ages 15-29)

Mismatch of Labor Force Supply-Demand
5~9 10~29 100~299 300~499 500
N0 Qualified
Labor force
36.8%
High Wage Preference
35%
Insufficient Payment
Capability 10.7%
etc
7.8%
Imperfect
Job-offer system
9.7%
Korea Employers Federation
10
20
30
40
50
60
70
2
3
4
5
S/RateShortage
6
69
5.1
60
40
2.35
28
2.4
3
5
30~99
(1000) (%)
7
1.02
0.48 1
3.19
Labor force Shortage by Business Size Reason for Labor force Shortage

Large
enterprises
say:
SMEs
say:
Job Opportunities: Solutions for inter-generational Conflicts

General definition
Definition of decent part-time
jobs
According to Joon-hyup Lee (2013), there were no more than 60,000 (3.3%)
decent part-time jobs that satisfied all 5 of the above conditions in 2012.
Decent Job

Classification Employees in 1st labor market
Regular employees 67%
Regular ▪ Large enterprises 10-12%
Regular ▪ large enterprises ▪ labor union Less than 8%
Decent jobs 16% (approximately 3 million)
Decent jobs
Classifications within 1st labor market & sizes (2014)

Conditions for expansion of hiring the youth (company)

2012 The Korea Employers’ Federation
Public Sector
Large
Company
SME
Financial Sector
Foreign Invested 4.0%
Venture 3.0%
New hire scale down effect in extension of retirement age

Source: 2012 Survey by Korea Employers’ Federation
1. Guaranteed employment until
retirement age & difficult
termination (42.9%)
2. Reduced new hires due to
financial burden from seniority-
based pay (18.6%)
3. Reduced new hires due to slump
in business (15.7%)
4. Protracted service period due to
extension of retirement age
(12.9%)
5. Increase in new hiring of
experienced persons (86%)
6. Reduced need for new hiring
due to development of
technology
Causes of the aging
workforce
Employer Survey: Feel about workforce aging trends & the causes?

Depending on the root causes in a country, strategies worked in other countries
▪ General or sector-specific growth initiatives
corresponding to qualifications of graduates:
industrial policies favoring existing talent to
develop a competitive advantage
▪ Morocco: Emergence
Program
▪ Tunisia: Off-shore strategy
and qualification label
▪ Systemic approach: Align needed and
obtained qualification by institutionally involving
employers in vocational training
▪ Involving employers in targeted adaption of
qualifications for pre-qualified young
unemployed
▪ Individual approach: case management,
personal coaching, application and interviewing
practice, career counseling
Winning strategies for change Country case
▪ Germany: Dual System of
Apprenticeship
▪ Tunisia: Off-shore readiness
label for graduates
▪ Norway: Job Club
Root cause pattern
DEMANDCLEARANCE
1 Lack of hard
skills
3 Skill mismatch
2 Lack of soft skills
and motivation
5 Discouraging
regulation
4 Lack of
transparency
6 Low job
creation
SUPPLY
▪ Incentives to hire/retain: limit overprotection of
incumbents and create hiring incentives
▪ Ensuring decent working conditions:
regulative standards favoring stable employment
▪ Information services: comprehensive and
specific up-to-date information on vacancies,
jobseekers and required qualifications
▪ Uruguay: PROJOVEN
program for vulnerable youth
▪ Germany: Virtual Labor
Market and Regional Labor
Market Monitor

Definition
 According to I.L.O, “Social security is the protection which society
provides for its members through a series of public measure, against
the economic and social distress that otherwise would be caused by the
substantial stoppage of earning resulting from :-
Sickness Injury Unemploy-
ment
Maternity

Social
Assistant
Social
Insurance

34.8
28.9
23.1
19.5
25.5
17.3
20.7
25.8
46.3
35.7 37
26.1
36.5
28.1 26.5
34.8
0
10
20
30
40
50
Sweden the U.K. Germany the U.S. Luxembourg Japan Korea OECD Avg.
Tax Burden Ratio Social Insurance Burden Rate
Tax Burden vs. GDP in Major OECD Countries in 2008
(in GDP, comparison: %)
Social welfare system: comparison of national tax burdens

OECD : Types of Social Welfare

Causes
&
Backgroun
d
Current
Status
&
Outcome
s
Progress of economic structure reform in Europe

Economic structure reform: Germany & France

Labor Market Reform in the U.K.

Labor market reform in Denmark

Unemployment in Germany (1960-2009)
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
5,500
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
inthousands
Reunited Germany*
West Germany
East Germany
1,094,229
2,368,217
3,462,446
Source: Federal Employment Agency
Oil crises
German
reunification
Post-war
economic boom
Dotcom bubble
Hartz reforms
► In October 2008 the unemployment dropped under the level of 3 million for the first time since 1992
► This might be an indication that the fundamental structural problems of the German labor market
could have been decisively loosen by the Hartz reforms

Labor Market Reform in Germany

The Principles of German Labor Reform
Transform the Welfare Paradigm
Workfare (Work + Welfare)
1. Duty and Supply
2. The Request for Working with Social Wage

45%
41% 40% 38%
7%
8% 10% 11%
4%
3% 3% 3%
4%
6% 8% 7%
7%
25% 25% 24% 21%
5%
4% 4% 5%
2%
6%
6%
7%
0%
25%
50%
75%
100%
1992 1997 2002 2007
Inactive
Unemployed
Unemployed
with job
Self-
employed
Marginal /
irregular
Agency work
Temporary
Vocational
education
Permanent
part-time
Permanent
full-time
Overall Reform Effects: Evolution of the German Labor Force (1992-2007)
Source: SOEP
Decrease in the share of permanent full-time employment
Decrease in the share of inactive individuals
Growth of
flexible jobs

Stock of Short-Time Workers (1991-2010)
1. One-Euro Jobs
2. Mini-Jobs
3. Midi-Jobs
4. Self-Company
5. PSA (Man Power Service)
* Non-competent Job Seeker
* Avoid Illegal Labor
* No competition to Normal Market
* Continue Social Benefit

Variables for success or failure of labor reform
Implications of European Labor Reform

Success factors in Germany

Why have other countries failed?

Germany: A Role Model for Other Countries?

Economic Awareness
levelsEducational Labor
Korea : Need for reform

Current Labor Market in Korea

한국의 노동 개혁의 전망과 준비Anatomy of Preamble
Back Ground Contents
1. Rapid Globalization
2. Low Birth Rate
3. Aging Society
4. Industry Restructuring
(Knowledge▪Information▪
Service Oriented)
5. Inefficient Labor Market
6. Aggravated Polarization
7. Youth Unemployment
1. Rectify the Dual Structure of Labor
Market
2. Protection of Vulnerable Workers
3. Reduce Long Working Hours
4. Remove the Uncertainty in Labor Market
5. Improve the Efficiency in Labor Market
6. Expansion of Social Safety Net
This agreement shall not be regarded as the final word on labor market reform.
The most important thing is to act upon this agreement in the future
Labor Reform in Korea
Outlook & Preparation

Ⅰ. Vitalization of Jobs for Youth
Agreement Implementation Measure Consideration
1. Efforts to hire more
Youth
- Breakthrough Youth
unemployment cliff
expected face over
next 3 years
- Adopt all measures aimed at hiring more Youth
- Refrain from raising wage for Executives
- Increase Investment
- Support simultaneous employment between
generations
- Expand the target of ‘Employment Impact
Assessment’
- Promote Tech-oriented business Start-Ups
- Tax credit for Creating jobs
- Granting Exemption from Tax audit
- Granting subsidies to SME for long term
employment
- Additional points in bidding for government
contract
- Adjustment of Wages and Working hours
- Encourage Peak Wage System
- Reduce the gap between Large companies and
SMEs
. Wage, Benefit, Working condition
- Support Future-oriented & small but strong SME
1. Understanding of
National support fund
2. Target feasibility of
‘Employment Impact
Assessment’
3. Implement Peak Wage
System
2. Stronger Social
Support
3. Council for Promotion
of Youth Employment
- Support Decent Job opportunity for Youth
- Link Schools and Employment center
- Support job seekers who majored in the Humanities,
The arts or Physical education
- Create the council for Promotion of Youth Employment
Company Government Tripartite
위세노무법인 대표노무사 송희열 (Maven H. Song)
T) 010-2714-1707 e-mail (mrhysong@gmail.com )

한국의 노동 개혁의 전망과 준비Ⅱ. Mitigating the Dual structure of the
Labor market-1
Agreement Implementation Measures Consideration
1. Mutual Growth, Such
as Cooperation for
Coexistence between
Contractors &
Subcontractors and
Large Enterprises &
SMEs
- Promotion of
Performance Sharing
- Sharing of Burden by
Tripartite
- Establishment of Fair
Trade Practices and
Vitalization of the
Market Economy
- Top 10% voluntarily refrain from raising wages
- Improvement of working conditions of contractors
through the Coexistence Cooperation Foundation
- Promoting the use of in-house workers' welfare
funds by enterprises
- Improve the Mutual Growth Index
- Establish a joint industrial safety response system
- Expand the Labor Welfare Promotion Fund to
support the irregular and low-income workers
- Monetary incentives for simultaneous hiring
- Vitalization of the council for adjustment of
contractor prices
- Anonymous reporting system for Complaints
- Encourage to enter into standard subcontracting
agreements.
- Subdivision of standard market unit wages per
type of business and type of work
- Try to avoid regulating market prices
1. Understanding of
National support
fund
2. Social Responsibility
Company Government Tripartite 위세노무법인 대표노무사 송희열 (Maven H. Song)

2. Improvement of
Systems Related to
Employment of and
Rectifying
Discrimination
against Irregular
Workers
- Healthy Employment
Culture
- Guidance by the
Public Sector
- Effectiveness of the
Discrimination
Correction System
- Protection of
Irregular Workers
and Rationalization
of Regulations
- Prohibiting from unreasonable discrimination
- Encouraging to hire regular employment status to
positions of continuously-occurring tasks
- Increasing the regular employment to irregular
workers in the public sector
- Strength the force of Discrimination Correction
- Orders to pay punitive penalties in Discrimination
Correction System
- Labor supervision on the practice (‘passion pay’ and
unfair dismissal in probation)
- Submit Irregular worker related legislation
- Additional items to be discussed for irregular workers
. The period and number of renewal times
. Jobs to eligible or restricted for dispatched work
. Unions to represent for correction of discrimination
. Classification between dispatched and subcontract
. Top 10% high salaried on dispatched work
. Prohibition of using irregular workers for core tasks
in the areas of life and safety
. Application of retirement benefits.
1. Refrain from unduly
relying on
employment of
irregular workers
for the sole purpose
of reducing payroll
costs.
2. Discrimination
Correction System
3. Amendment on
Irregular worker
related law
4. Preparation to
Labor Inspection
Ⅱ. Mitigating the Dual structure of the
Labor market-2

한국의 노동 개혁의 전망과 준비Ⅱ. Mitigating the Dual structure of the
Labor market-3
3. Vitalization of the Labor
Market
- ensure employment
stability
- Establishment of
Reasonable HRM Principles
- Standards and Procedures
for Termination of
employment contracts
- Strengthening the
requirement to Endeavor
to Stabilize Employment
before Dismissing
for Managerial Causes
- Clarification of Procedures
for Dismissals due to
Managerial Causes
- Create a culture of directly employing
workers under regular employment status
- Minimize the layoff by first adjusting wages,
working hours, reassignment, suspending
business , leave of absence, vocational
training
- Strengthen its support by reorganizing its
employment stabilization projects.
- Detailed examples of efforts to avoid
dismissals for managerial causes shall be
given in the Labor Standards Act
- Strengthen the effectiveness of the re-
employment system.
- Establish a fair assessment system
- Clarify the standards and procedures for
termination of employment according to law
and judicial precedence
(The government shall not unilaterally
implement these things until they are
fully discussed with workers and
employers.)
Establish reasonable
human resource
management principles
1. Managerial Dismissal
2. General Dismissal
3. Performance
Evaluation
4. Hiring

1. Removing Blind Spots
and Strengthening the
Social Insurances
2. Improvement of the
Unemployment
Benefit System
3. Employment Support
for Vulnerable Social
Groups
4. Protecting Vulnerable
Workers and Raising
Their Incomes
5. Improvement of
Minimum Wage
6. Support for Balancing
Work and Family
7. Employment and
Welfare Services
Suited to Users
8. Creating a Society
driven by Vocational
Skills by Vitalizing
their Development
- Prevent discrimination against working students
- Increase efficiency of the Durunuri Program
- Compensation for accidents occurring during
commute to and from work
- Accepting illnesses caused by emotional labor as
work-related illnesses
- Workers and employers to participate in policies
to Social safety net.
- Strengthen the coverage of unemployment
benefits (Extending the benefits period, raising
the amount and expanding the beneficiaries)
- Screening applicants and strengthening the
support for re-employment
- Prevention of back pay
- Establish comprehensive Minimum Wage System
by the end of May 2016
. Statistical standards, wages to be included in
calculation, issues for under 15 hours worker
determination by region or type of business
- build a system that allows workers to work and
study simultaneously
1. Emotional labor policy
2. Working students
3. Compliance with the
minimum wage
한국의 노동 개혁의 전망과 준비Ⅲ. Expansion of the Social Safety Net

한국의 노동 개혁의 전망과 준비Ⅳ. Removal of Uncertainty on 3 Major Issues -1
합의내용 진행방법 기업의 고려점
1. Clarification of the
Ordinary Wage
System
2. Organization of Legal
System to Reduce
Actual Work Hours
- Build a clear definition of ordinary wage
- Annual average actual working hours will be
reduced to approximately 1,800 hours by 2020
- holiday work hours shall be counted as overtime
work hours
. Work hours per week (40+12 Overtime)
. Application in Phases
- Special Overtime Work (52+α)
. Cause (increased orders, etc.)
. Procedure (written consent from the worker
representatives and the employee involved)
. maximum hours (1주 8시간)
- Help SMEs in industries that will be adversely
affected
- Reducing the Number of Business Types Subject
to Special Treatment in Terms of Work Hours
. From 26 business type to 10
. Maximum working hours and minimum
guaranteed rest hours (2016 End of May)
- Labor and management to voluntarily set work
hours within the allowed range of total work
hours
- Discretionary Work Hours
- Using all Given Leave
1. Labor and
Management to
voluntarily set work
hours
2. Measures to Urge
Workers to Take all
Given Leaves

한국의 노동 개혁의 전망과 준비Ⅳ. Removal of Uncertainty on 3 Major Issues-2 -2
3. Improvement of
Wage Systems for
Successful
Introduction of
Extended Retirement
Age
- Efforts to Improve
Wage Systems
- Expanding Wage and
Work Hour Peak
Systems
- Reorganization of
Wage Structure
- Support for
Adjustment of Wage
Structures
- Workers and employers voluntarily adjust wage
structures
. Stabilize the employment of middle-aged workers
. Establish a system of balanced employment
between the generations
. Organize and operate a dedicated organization
according to duties, amount of experience, etc
- Adjust wages, work hours and number of work days
in consideration of workplace conditions
- Take the initiative to make wage systems
- Support to develop appropriate jobs and provide
consulting advice and subsidies
- Clarify the requirements and procedures for
amendment of collective agreements and rules of
employment with regard to adjustment of wage
structures (shall not unilaterally implement the
foregoing, unless they are fully discussed with
workers and employers)
- Retirement-Aged worker support
. Improve work environments, career change
support, re-employment of middle-aged workers.
. Such support especially to SMEs.
1. Implement Peak
Wage System
2. Amendment of
collective agreements
3. Amendment of rules
of employment
4. Adjust wage structure
5. Understand
government support
. The Wage and Duty
Center

한국의 노동 개혁의 전망과 준비Ⅴ. Tripartite Commission Partnership
Agreement Consideration
1. Settle the culture of productive negotiating
2. Strengthen the function and role of the Tripartite
Commission
. Inviting youth and irregular worker representatives
. Endeavor to pass a bill for finalized and agreed on in
2013 to be promptly enacted,
. Operate committees for each business type
1. Company union under the Korean
Confederation of Trade Unions
2. Irregular worker representatives

Impending Practice on Tripartite Agreement
2 Guidelines
5 Bill Revisions
1. General Employment Termination
2. ROE Disadvantageous Amendment
1. LABOR STANDARDS ACT
2. ACT ON THE PROTECTION, ETC. OF
TEMPORARY AGENCY WORKERS
3. ACT ON THE PROTECTION, ETC. OF
FIXED-TERM AND PART-TIME WORKERS
4. EMPLOYMENT INSURANCE ACT
5. INDUSTRIAL ACCIDENT COMPENSATION
INSURANCE ACT

한국의 노동 개혁의 전망과 준비Main Content of Saenuri Party Bill
Legislation Saenuri Party Proposals Issues
Employment
Insurance
Act
1. Strengthen protection of unemployment benefits
- Raise benefit payments from 50% of average wage before unemployment to 60% and
extend payment period from 90~240 days to 120~270 days.
- persons at or above 65 years of age who continue to work at a same business place are
eligible for unemployment benefits, even if the paying employer changes.
2. Tighter conditions for payment of job-seeking benefits
- Strengthen conditions for job-seeking benefits (from at least 180 days during 18 months
prior to unemployment to at least 270 days during 24 months prior to unemployment).
- Adjust lower limit of job-seeking benefits from 90% to 80% of minimum wage.
- Tighter qualifications for recognition of unemployment and penalties for receipt of
repeated reemployment benefits.
* For those who are not reemployed within 90 days or who receive benefits 3 or more
times within 5 years, reduce the period recognized to have been unemployed. When a
repeated recipient fails to follow orders for training, reduce job-seeking benefits by up
to 30%.
- Improve the benefit extension system (creation of a deliberation council to decide on
payment of training extension benefit) and abolish early reemployment allowance.
Legislation
pushed
forward by
the
government

Industrial
Accident
Compensation
Insurance Act
1. Introduction of compensation for accidents occurring during
normal commute to and from work
- To be implemented in phases (by 2017: on foot or public
transportation, by 2020: in an automobile).
- Reduce insurance benefit (e.g. disability or survivor benefit) when
an accident occurs through gross negligence of the insured.
- Release employer from liability under the Labor Standards Act to
compensate for accidents occurring during normal commute to
and from work.
- Automobile accident insurance kicks in first for accidents occurring
during commute to and from work by automobile.
Whether the time of implementation
is effective or not
Act on the
Protection, Etc.
of Temporary
Agency Workers
1. Allow dispatched workers also for root industries.
2. Expand scope of jobs to which dispatched workers are allowed,
such as for the aged workers, those paying high incomes or
those requiring specialized skills.
- Allow dispatch of aged workers to all jobs other than direct
manufacturing process jobs in the manufacturing industry and
jobs to which dispatched workers are absolutely prohibited.
- Allow high income earners engaged in jobs that require
specialized skills to be dispatched to related jobs.
3. Clarify the standards for dispatch and subcontract.
1. When allowing dispatched
workers to root industries such as
molding, casting and welding, this
will be expanded to the entire
manufacturing industry.
2. Legalize the criteria of employer
of prime contractor and the
distinguishing markers between
dispatch and subcontract by
scaling it down.

Act on the
Protection, Etc.
of Fixed-term
& Part-time
Workers
1. Restrict the number of times that a fixed-term employment contract can be
renewed (no more than 3 times within a 2 year period).
2. Allow extension of period during which a fixed-term worker can be employed
(2 years + 2 years) in exceptional circumstances.
- Limit extension to cases where a worker 35 years or older requests the extension him/herself.
- When an extended period is expired, the employer shall convert the status of the applicable
employee into an employment contract with no fixed term. When the applicable
employment agreement is terminated without conversion, the employer shall pay an
additional certain amount of ‘Separation allowance.’
* Stipulated the principle of considering the employee who continues in employment after
expiration of the extended period without any special arrangements as an employee with no
fixed-term under the Act on the Protection, Etc. of Fixed-term & Part-time Workers.
1. The number of irregular
employees will sharply
increase and it will be
impossible to improve
their employment
situation.
2. Employers will choose to
pay the Separation
allowance rather than
convert status to regular
employment.
Labor
Standards Act
1. Reduction of working hours, such as inclusion of holiday work into overtime
work.
2. Additional allowance for holiday work: 50% up to 8 hours, 100% for more than 8
hours.
3. Clarify the concept of ordinary wage.
Money and valuables paid regularly, uniformly and determined in advance.
4. Expansion of unit period towards a flexible working hours system.
5. Expansion and reorganization of the compensation leave system into the work
hour savings and leave system.
1. Diminishes the purpose
for reducing working
hours.
2. Reduces real wages by
prohibiting overlapping
extra pay.

Easy Dismissal ?

KLI Report (Supreme Court Decision 2011Du4760, Decided May 29, 2012)
A terminated employee received the lowest score in HR evaluation for 3 years.
The employee was suspended for 1 month due to being absent from a skill improvement program without proper notice.
The employee participated only marginally in the skill improvement program, ranking the lowest of 39 participants.
Only 1 person was terminated out of 91 subjects for initial skill evaluation.
Description
Key point of Supreme Court Decision
- Reviewed fairness and objectivity of selection process and post-selection management (standards, methods and actual
monitoring of subjects’ behavior and evaluation by an evaluation committee).
- Recognized as an ‘improper act’ the employee’s failure to comply with company instructions in the course of the
evaluation process, in addition to the employee ranking the lowest in the skill improvement program, and deemed such
failure as due cause for termination.

KLI Report (Supreme Court Decision 2013Da22195, Decided June 24, 2015)
* The Original trail decision: 2012Na6377, Suwon District Court
- The existence of noticeable differences between average scores in performance evaluation of persons designated as
under-performers and that of the general employee body is due to discriminatory intent of the defendant company.
- Such discrimination cannot be deemed as an action within the scope of necessity. Thus the company abused its
discretionary authority and conducted unfair performance evaluations.
- It can be fully recognized that the defendant company implemented a discriminatory policy toward those designated
as under-performers with the clear intention of terminating a certain ratio of workers to reduce payroll costs.
Description
Key point of original decision
Performance evaluations conducted outside the scope of rights granted are subject to judicial review.
Performance evaluations must not be used with malicious motive or in a subjective way.

Comprehensive Decision & Suggestions by the Korea Labor Institute
① Five criteria for fair performance evaluations and systemic HRM policies:
▲ Establish a fair and transparent performance evaluation system and disclose and explain
the system
▲ Evaluate fairly
▲ Notify or explain the evaluation results to each employee
▲ Establish a complaint-handling or voluntary dispute resolution system related to the
evaluation results
▲ Adjust job levels, make re-assignments, develop job skills and offer job choices according to
the evaluation results
② Assure fairness by implementing a systematic and reasonable HRM system and
performance evaluation system
③ Apply performance evaluation results to HR activities aimed at improving employees’
personal skills.
④ Provide opportunities to inappropriately-skilled or under-performing persons to improve
their skills, and rely on termination as a last resort
⑤ Ensure employees actively participate in establishment and implementation of
performance evaluation systems

Characteristics of Termination-related Precedents
Termination-related precedents do not clearly differentiate disciplinary
termination from general termination. That is, the courts rarely recognize
termination only according to the causes of general termination.
Employers usually submit to the court both the causes for general termination and
disciplinary termination together.
Employers do this as it is more advantageous for them to claim as many causes as possible than claiming only under-performance as
the cause for termination. Most precedents (Seoul Administrative Court 2008Guhap35067, Supreme Court 2000Du9113, etc.) are of
cases where an employee’s improper conduct and lack of professional knowledge were considered together.
‘Improper conduct’
of employee
‘Lack of professional
knowledge’
There exists some degree of confusion in judicial decisions, because the courts tend to handle cases that
correspond to general termination more than those corresponding to disciplinary termination.
Experts deem the current situation as ‘a legal vacuum for general termination’ where terminations take place in the form of
disciplinary termination, while there are no clear legal grounds for general termination.

Ambiguity of ‘Generally-Expected Minimum Performance’
A typical precedent on general termination (90Daka25420) defines an
under-performer as ‘one who fails to achieve the generally-expected
minimum performance when considering their rank and wage.’
‘Generally Expected Minimum Performance’
The typical precedent on general termination (90Daka25420) gives relatively greater detail of
the definition. However, it still fails to describe the specific standard to determine ‘generally
expected minimum performance’.
<Note> Types of termination
Termination is largely divided into: termination for employer reasons (mostly layoffs); and termination for employee reasons
(disciplinary and general terminations).
Article 23.1 of the Labor Standards Act, the foundation for all termination under current applicable law prescribes that the
employer shall ‘not terminate (employment) without just cause.’ However, such prescription is somewhat abstract and leaves
room for different interpretations by different persons in judgement.

Regarding ‘Constant Repetition’
Put together, periods in which under-performance constantly took place is determined
case-by-case and in accordance with the circumstances of each employer, the status
and duties of the employee, etc. Thus, it is incorrect to believe that an employer can
terminate an employee according to a universal standard, such as when his/her
performance falls below a certain point for a certain period or a certain number of
times.
How have courts ruled on this so far?
The courts have deemed termination appropriate when an employee significantly under-performs in terms of
collection of insurance premiums (90Daka25420) or management of accounts receivables (86Daka1875). However,
there is also a precedent which deemed that the termination was not justified when an employee lacked the specific
abilities required for provision of labor when this could be rectified within a short period of time (Seoul High Court
90Gu10997).
There is also a precedent which determines that termination is not justified even if the employee under-performed
for a two-year period. On the other hand, there is another precedent which recognizes termination of an employee
who received the lowest score in two consecutive performance evaluations.

Regarding ‘Incomplete Provision of Labor’
In this case also, there is no universal standard that can apply to every case.
How have courts ruled on this so far?
As an example, there are precedents where terminations have been justified: an automobile salesperson who sold an
average of 0.4 cars a month while other salespersons of the same rank sold 2.2 cars; and of 1 of 3 employees who
received the lowest score in evaluations of approximately 1,200 employees in total.
A further precedent rejects termination of 1 of 4 employees who received the lowest score in evaluations but with
positive feedback.

Professionalism of the Evaluator(s) Must Not be Overlooked
Refusing, without equitable grounds, to renew the employment contract
of employees with a reasonable right to expect renewal is of no effect.
(Supreme Court Decision 2012Du18868, Decided January 15, 2015)
Implications Details
 An evaluation system that results in deciding to ‘maintain the
fixed-term employment status’ for an employee who has
served two full years after evaluation cannot be recognized
as reasonable. (The regulation prescribes that employees
who serve two full years shall have result either ‘converted to
regular employment’ or ‘be terminated’.)
 From the officer in charge signing in the ‘Opinion Column’
blank without leaving any comments on the evaluation it can
be deemed that there was a material flaw in the evaluation
process.
 Since the manager is not an expert in law or HR, there can
be doubt as to the reasonableness and fairness of evaluation.
 A result of ‘maintain fixed-term employment status’ cannot be
interpreted that the person is ineligible to have their
employment status converted to regular employment, and if
seen otherwise, the employer is interpreting the evaluation
result in an arbitrary manner.
1 Unreasonable evaluation system
2 Violation of evaluation process
3 Evaluation skills of manager
4 Interpretation of evaluation result

Employees Must be Notified of any Changes to Evaluation Scoring Standard
In a case where an employer did not renew a fixed-term employment contract because the
employee’s performance evaluation score did not meet the reference score, the court found that the
failure to renew the employment contract could not be recognized as reasonable or conforming with
socially accepted ideas.
(Seoul Administrative Court Decision 2008Guhap34979, Decided March 13, 2009)
 Since the employer failed to make prior notification to the
employees of the changed evaluation standard that raised the
score required for employment contract renewal, such score
is not deemed a suitable cause for rejecting the contract
renewal.
 The employee failing to comply with work regulations only
once in a year shall be deemed insignificant in terms of
seriousness, and cannot be a cause for reduction of score.
 Since not every employee received a reduction in score for
failure to comply with work regulations, the employer’s action
was not fair.
 If the employee failed to comply with work regulations in the
course of providing service to a disabled customer upon
request, such failure cannot be a cause for reduction of
score.
 The facts that no complaints were lodged against the
employee (a taxi driver for the disabled), and that the
employee had not received any disciplinary action during
his/her employment period must be considered.
1
Adjusted score for
contract renewal
2 Violation of work regulations
3 Uniform criteria for scoring
4 Reason of improper conduct
4 Sincerity of job performance

Employer’s Specific Efforts or Intention to Improvement is also Important
Imposing disciplinary termination only due the fact that an employee
received the lowest performance evaluation rating for 4 consecutive years
is an abuse of an employer’s right to manage human resources.
(Seoul Administrative Court Decision 2005Guhap23879, Decided January 27, 2006)
 When considering termination of an employment relationship,
it is essential that personal evaluation be based on absolute
standards to assure objectivity and reasonableness for
termination.
 The result of employee evaluation can be deemed strongly
reasonable if the evaluation is conducted after the job
assignment considered the characteristics of the job and the
employee’s performance abilities.
 The employer is asked to consider the effort the employee
took to improve his/her performance and specifically whether
effort and a desire to improve was displayed.
1 Absolute evaluation and Objectivity
2
Evaluation based on characteristics
of job and performance abilities
3 Employer’s efforts to improvement

Advantages of Multidimensional Evaluations
Decision not to renew an employment contract based on the result of a
multidimensional evaluation is deemed to be reasonable.
(Seoul Administrative Court Decision 2006Guhap33002, Decided July 6, 2007)
 A multidimensional evaluation helps to exclude subjectivity
from and assure objectivity of a performance evaluation
system.
1
Multidimensional evaluation
and objectivity

Importance of Going Further than Just Evaluating to
Offering Employees Opportunity to Improve
When an employee is ordered to improve his/her job performance and
skills every year as a result of performance evaluation and fails to do so,
an employer’s termination of such an employee is fair.
(Seoul High Court Decision 2003Nu3316, Decided September 26, 2003)
 It is necessary to specifically define the evaluation categories
and standards.
 Keeping records of monitoring, which can be used as
evidence, helps to assure that a system is reasonable and
feasible.
 An employer going beyond just keeping a monitoring record
to regularly offering opportunities to actually improve
employee performance is important.
1
Materialization of
evaluation standard
2 Value of monitoring record
3
Offering adequate opportunity
to improve

Cause of Under-performance & Appropriate HR Measures
① Behavioral type of cause
② Personal type of cause
③ Unclear cause
e.g. negligence at work
When there is clear cause of a behavioral type,
disciplinary action can be arranged.
e.g. abilities of an employee,
suitability to tasks, etc.
Consider improving job skills through training or
re-assignment.
Offer opportunity to improve performance, such as
lowering performance targets or extending the period
subject to performance evaluation, and then consider
taking action according to the outcome.
The employer extended the suspension period, but the employee still failed to collect the accounts receivable during the three month
extension. The employer’s decision of rightful termination is fair. <Seoul Administrative Court 2000Gu21853, December 15, 2000>
The employer placed the employee under suspended assignment, because the employee’s performance was extremely low for three
quarters (with the exception of Q2 2002, immediately after the employee was assigned to the job). The employer’s decision to do so
is fair. <Seoul Administrative Court, 2004Guhap27799, April 14, 2005>
Court Decisions case

Adequate Arrangement According to System Institutionalization
Some employers implement under-performer management programs for each under-
performing employee, while others have institutionalized performance improvement
programs for groups of employees to whom certain criteria apply, such as those with
performance evaluation scores ranking in the bottom 10% of all employees.
The institutionalized performance management programs are introduced because employers
need to increase the capabilities of their personnel to enable them to take the lead in
responding to changes in the managerial environment they face.
In light of the facts that: the under-performer program implemented at the applicable business place had been agreed by the labor-
management council; and the program seemed to have produced meaningful results, such as significantly improving the performance
of each employee participating in the program, it is deemed that the program is justifiable. <Seoul Administrative Court,
2010Guhap41673, September 9, 2011>
To justify a performance improvement program, the employer must: explain to employees the
need for such a program; and establish strict criteria and procedures for evaluation, to
practically achieve the program goals.

Appropriate Management of Personnel in a Manner Agreeable to Employees
The employer must clearly define the performance targets and the rewards and
disadvantages associated with success or failure to achieve the targets, to grant
employees the opportunity to willingly agree to the targets and attempt to raise their level of
performance. Follow-up measures will then be justified.
The plaintiff bank deemed it necessary to introduce a performance-base personnel management system to strengthen
competitiveness and determined that placing the employee under suspended assignment was fair, because the employee had already
signed the performance target and evaluation agreement and had failed to achieve the lowest required score in a number of
performance evaluations.
<Seoul Administrative Court, 2004Guhap27799, April, 14, 2005>

Reducing scope of LSA
application
Necessity for
protection suspended
period
Possibility of Easing Termination Clauses

Seoul Metropolitan Government: Under-performer Designation & Management Processes
Seoul Metropolitan Government C Player
Designation Method (2008)
Seoul Metropolitan Government C Player
Training & Evaluation Process
Employee(s)
ranking lowest
in performance
evaluations
Those failing
to participate
subject to
disciplinary
action
Subject to
regular
transfer
(2 years or
longer)
Feedback from
evaluated
employee(s)
on evaluation
results
1st Draft
2nd Draft
3rd Draft
Validation of servivors and exclusion of those
subject to disciplinary action
department
head Feedback
Auditor’s
Inspection
Review by
Evaluation
Committee
Final designation of
under-performers
1st skill improvement training
program (6 mos.) & skill diagnosis
1st Review Committee
2nd skill improvement
training program
(3 mos.)
2nd Review Committee
Return to original
post
Authorized
Dismissal

Theoretical background of wage peak system
Wage-Productivity
Productivity
Investment
Wage
Age 50~54Source : Jung jinsung 2004

The Court’s Opinion on Reasonableness According to Social Acceptance
The court has recently been restrictive and strict in interpreting the effectiveness of amended
rules of employment, because recognizing such amended rules based only on whether the
amendments are reasonable according to social norms would practically preclude the Labor
Standards Act, which prescribes that any amendment to rules of employment unfavorable to
employees must have employee consent.
The degree of disadvantage employees are expected to receive from such amendment
The employer’s reason to amend, and the extent needed
The feasibility of the amended rules
Other working conditions including the amended rules being improved
The history of negotiations with the labor union and its response or reaction from other employees
The general practice in country regarding similar matters
1
2
3
4
5
6
Determine the reasonableness according to social acceptance, in consideration
of the above
Factors for Consideration

Specific conditions of discretionary incentive
Enforcement Decree No. 778.211(b)
Non-
discretionary
incentives
Discretionary
incentives
Ordinary wage
Incentives
Scope of ordinary wage in the U.S.

What is not reasonable in Old Employee Management?

Knowledge and Lost Knowledge

HR Infrastructures

Personal Belief in HR Management
ER Management
WIN / win
Awareness Reform
Workplace Psychology
Process Reform
HR assessment
Success
In
All

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