Ⅲ. Disadvantageous Changes to the Rules of Employment

1. Socially acceptable rationale

In cases where working conditions in the rules of employment are revised disadvantageously, or if the rules of employment are revised without consent of the employee group, the changed rules will be invalid due to the unilateral nature of the change. However, if the revision is done according to socially acceptable rationale, the change(s) may be considered legitimate. There are two opposing opinions regarding this issue: ① As long as socially acceptable rationale is admitted, employer revisions to the rules of employment are effective(i.e. theory of affirmative recognition), and ② Disadvantageous employer revisions of the rules of employment are invalid(i.e. theory of negative recognition).
The point of dispute is whether, when introducing the extension of mandatory retirement to age 60, the employer can introduce a wage peak system to employees under a seniority-based wage system without their consent. The following reviews a disadvantageous revision of working conditions under the theory of socially acceptable rationale.

2. Criteria for socially acceptable rationale

A judicial ruling regarding criteria for socially acceptable rationale stipulated that it is not permitted to apply disadvantageous working conditions that deprive employees of their existing rights and interests through unilateral establishment or revision of rules of employment by the employer. However, in cases where there is sufficient socially acceptable rationale to recognize justification in terms of both necessity and the details of the establishment or revision(even when considering the degree of employee disadvantage) the effectiveness cannot be denied simply because there was no collective consent obtained from employees to whom the previous working conditions or rules of employment applied. Whether there is socially acceptable rationale or not shall be evaluated by collectively considering several items such as the degree of disadvantage the employees suffer under the changed rules of employment, the degree of employer necessity to change the rules, efforts to replace or compensate for the changes to the ROE, negotiation situation with the labor union, and other general conditions in the domestic business. Provided, as changing the rules of employment disadvantageously for employees ignores the provision of the Labor Standards Act requiring their consent, this should be interpreted as necessary in only a limited basis under stringent conditions.

3. Review

(1) Theory of affirmative recognition
The following points are used as support in the argument that unilaterally changing working conditions disadvantageously is rational to a degree that is socially acceptable: First, according to Paragraph 1 of Article 19-2 of the Aged Employment Promotion Act, the employer of a business or workplace who extends the retirement age, and a labor union which is formed by the majority of all workers(or a person representing the majority of all workers) shall take the steps necessary to revise the wage system, etc. according to the conditions pertaining to the business or workplace concerned. In a seniority-based wage system, this article can be regarded as necessary, as changing the wage system is unavoidable and reflects socially acceptable rationale. Secondly, Paragraph 2 of Article 19-2 mentions that as the Employment Insurance Act outlines a system for subsidies related to implementation of the wage peak system in accordance with retirement extension, such a change to working conditions would not be considered disadvantageous because there is no decreased wage in reality. Therefore, introducing a wage peak system along with extended retirement can be regarded as socially acceptable rationale because of sufficient follow-up measures. In consideration of these arguments, this theory claims that employers can revise the rules of employment without consent of the employee group.

(2) Theory of negative recognition
The following points are used as support in the argument that unilaterally changing working conditions disadvantageously is not rational to a degree that is socially acceptable : Article 19 of the Aged Employment Promotion Act stipulates that introduction of the retirement age extension to 60 years is a normative provision, while Article 19-2 stipulates that the provision of introducing a wage peak system is a suggestive one and not legally binding. The related judicial ruling shows that the theory of socially acceptable rationale shall be strictly limited as this effectively ignores the provision in the Labor Standards Act requiring employee consent.

(3) Opinion
In introducing extended retirement, it will not be considered justifiable for an employer to introduce a unilaterally-determined wage peak system to cut wage as this violates the principle of labor and management having decision-making power over working conditions. Provided, if the employer extends retirement age beyond the mandatory retirement age while introducing a wage peak system, this revision can be regarded as socially acceptable rationale as it contains advantages for both labor and management.

4. MOEL Guidelines

(1) The concept of reasonable according to social acceptability

The reason employers need to obtain consent from the employee group in changing the rules of employment unfavorably is to protect employee working conditions and prevent unilateral and disadvantageous revision of the rules of employment disadvantageously. In cases where the employer changes the working conditions unfavorably without consent of the related employees, the changed rules are invalid in principle. However, this may not be the case ① in situations where the employer deems it inevitable to change the rules of employment due to business necessity or other logical reasons, ② in situations where the changes will not be unreasonable for the employees, and ③ in situations where the employer cannot run the business well due to severely restricted managerial rights. If the employer cannot adjust working conditions due to constant employee rejection of such changes, the company’s competitiveness will deteriorate, as will employee job security.
In this case, judicial rulings explain that even though the rules of employment are changed unfavorably for the employees, if there is sufficient socially acceptable reason behind the need to make changes deemed justifiable, revision of employment rules without employee consent will not be invalidated. However, such determination should be done on a strictly limited basis due to the fact that this may circumvent the requirement, under the Labor Standards Act, to have employee consent when making unfavorable changes to working conditions.


* Related rulings

1. Supreme Court ruling on July 22, 2004, 200d da 57362 (part of a larger judicial ruling): In cases where there is sufficient socially acceptable reason to recognize justifiability in terms of both necessity and the details of establishment or revision, even when considering the degree of employee disadvantage, the effectiveness cannot be denied simply because there was no collective consent obtained from the employees to whom the previous working conditions or rules of employment applied. Whether there is socially acceptable reason or not shall be determined by collectively considering several items such as ① the degree of disadvantage the employees suffer under the changed rules of employment (ROE), ② the degree of employer necessity to change the ROE, ③ Acceptability of the ROE revisions, ④ efforts to replace or compensate for the changes to the ROE, ⑤ negotiating situation with the labor union, and ⑥ other general conditions in a domestic business.
2. Supreme Court ruling on August 13, 2015, 2012Da43522 (part of a larger judicial ruling): Provided, in consideration of the purpose of legislation that making changes to the rules of employment that are disadvantageous for employees requires the process of receiving the consent of the employees to whom those rules apply, in accordance with Article 94, Paragraph (1) of the Labor Standards Act, if it is evident that the rules of employment were changed in a way unfavorable to the employees in terms of the stipulations in the previous ROE, application of reasonable according to social acceptability should be interpreted as necessary only on a limited basis and under stringent conditions.


(2) Key items in recognizing changes as reasonable according to social acceptability

1) Basic principles

In order to consider disadvantageous revision of employment rules as socially acceptable, the content shall not violate the purpose of the Labor Standards Act. Whether there exists socially acceptable reason or not shall be determined by collectively considering several items: ① the degree of disadvantage the employees suffer under the changed rules of employment, ② the degree of employer necessity to change the ROE, ③ acceptability of the ROE revisions, ④ efforts to replace or compensate for the changes to the ROE, ⑤ negotiating situation with the labor union, and ⑥ other general conditions in a domestic business. On the other hand, judicial precedent explains that changes shall be deemed reasonable according to social acceptability only on a limited basis under stringent conditions, and shall not be accepted automatically as done for socially acceptable reasons simply because it is necessary to revise the rules of employment.

2) Criteria (6 items)

① The degree of disadvantage the employees suffer under the changed rules of employment
In adjusting salary, severance pay and other such items, if such conditions do not seem remarkably disadvantageous for employees to accept, changes may be deemed reasonable according to social acceptability in collective consideration of the other five criteria.

② The degree of employer necessity to change the ROE
In cases where revisions to the rules of employment revisions are unfavorable to employees, the revisions need to be necessary in terms of the company’s business conditions or organizational operations. If the rules of employment are changed in order to unify the working conditions due to organizational changes in the company, such as merger or acquisition, necessity to revise the rules of employment may be recognized.

③ Acceptability of the ROE revisions
In collectively considering the sequence or content of the rules of employment revisions, it should, from a legal standpoint, be deemed necessary enough to adopt such revisions. When the company introduces interim measures before full implementation or can change the provisions in a reasonable manner in light of changing circumstances, acceptability of the changes may be recognized.

④ Efforts to compensate for changes to the ROE
In cases where the company introduces supplementary measures to improve other working conditions as a reasonable balance to the unfavorable changes for the employees(i.e., employees are not simply disadvantaged), this is regarded as reasonable according to social acceptability.

⑤ Negotiating situation with the labor union
The employer shall sufficiently explain the necessity and details of the unfavorable changes to working conditions, and shall make every effort to obtain the consent of the labor union representing the majority of employees, or if there is no such labor union, consent from the majority of employees. It is difficult for the courts to accept that changes are necessary and reasonable according to social acceptability without the employer engaging in sincere negotiation with the labor force. If the revised rules of employment apply to all employees, an employer receiving consent from only part of the work force shall not be considered reasonable according to social acceptability.

⑥ Other general conditions in a domestic business.
Under the situation where the revised working conditions are not determined as particularly disadvantageous in comparison with those of a company’s competitors, in cases where the employer cannot avoid changing working conditions unfavorably to overcome managerial difficulties, such changes should be deemed reasonable according to social acceptability upon consideration of other criteria collectively.

5. Comments

Revision of working conditions is possible at any time the employees and the employer agree. In cases where working conditions are revised advantageously, the employer does not need the consent of the employee group. However, if the revisions are disadvantageous, the employer needs to obtain consent from the employee group before the revision(s) shall be considered legally effective. Unilateral revision by employers violates the principle of labor and management determining working conditions, and shall not be effective due to violating both the contractual characteristics of the rules of employment and its normative effect. For this reason, socially acceptable rationale as a theory allowing the employer to revise working conditions unilaterally, shall be evaluated strictly on a case-by-case basis, after considering a fair comparison of the necessity of revising the rules of employment and the disadvantage created for affected employees in unfavorable revisions.