Ⅱ. Voluntary Early Retirement Programs

1. Necessity for voluntary early retirement programs

It is difficult to dismiss employees when following all the requirements for Dismissal for Managerial Reasons under the Labor Standards Act. As this dismissal requires the employer to follow specific procedures to verify managerial reasons, many companies replace dismissals for managerial reasons by adopting a voluntary Early Retirement Program(“ERP”) instead. Voluntary early retirement means that the employee chooses to resign(rather than being pressured to), which can be a positive situation by giving employees more options than if they were dismissed for managerial reasons. If the company pays employees an additional ERP bonus and employees accept it, personnel reduction will take place even without dismissal for managerial reasons. This situation frees the company from any risk of violating the related laws, as well as the need to enter into legal proceedings or report to the Ministry of Employment and Labor.
Recently, a number of companies that have dismissed employees for managerial reasons, or were in the process of dismissing for managerial reasons, have lost lawsuits for unfair dismissal because of a lack of effort to avoid those dismissals, so ERPs can be an alternative to dismissal for managerial reasons. Thus, I would like to concretely review some implementation methods for ERP, as well as considerations to be made when using an ERP instead of dismissing for managerial reasons.

2. Implementation of voluntary early retirement programs

(1) Concept
Voluntary early retirement refers to terminating employment when the employee submits a letter of resignation voluntarily upon accepting an employer’s recommendation that he/she do so. Here, as the employer intends to dismiss the employee for unilateral business reasons(without reasons attributable to the employee), it is necessary for the employer to offer sufficient rewards to the employee so that the employee willingly submits a letter of resignation. During the time before imminent dismissal for managerial reasons, voluntary early retirement with bonuses might be the best option for the employee, rather than being fired without compensation.

(2) Matters to be considered when planning ERPs
In companies adopting ERPs, competent employees may find employment with other companies after receiving their ERP bonus. Although the main purpose of ERPs is to terminate incompetent or unproductive employees, they may also impact the company negatively should they lose competent employees as well. Therefore, it is necessary to establish a clear purpose and clear methods ahead of the implementation of an ERP. That is, if plans for an ERP mostly attract employees not specifically targeted for early retirement by the company, the company needs to have the authority to reject applications.

(3) Establishment of an ERP bonus
The employer’s major concern may usually be focused on the level of financial compensation rather than legal disputes with the employees concerned. In cases where voluntary early retirement is used as a means of dismissing employees, whether that ERP becomes successful or not is greatly dependent upon the level of ERP bonus. Generally speaking, in determining ERP bonuses, the employer needs to consider both length of service of the employees(reflecting their contribution to the company) and the company’s ability to pay those bonuses. The employer needs to pay special attention when determining the level of compensation, recognizing that the first ERP bonus paid out will become the standard for any following ERP cases.

(4) Informing employees subject to voluntary early retirement
The ideal method is for the company to specify which employees will be subject to voluntary early retirement from those who fall behind their peers in terms of skills and performance. In this case, the company creates a list of employees under consideration in advance, explains the ERP to them, and asks them to accept. If the company cannot persuade some employees to accept the ERP, then the company can begin dismissing for managerial reasons, following the guidelines under the Labor Standards Act. The employer needs to make clear to the employees that there will be no benefits should they refuse the ERP and wait to be dismissed for managerial reasons. In cases where employees are dismissed for managerial reasons, the company is not obligated to pay any financial compensation like the ERP bonus.

(5) Implementing the ERP together with dismissals for managerial reasons
In cases where employees do not accept the ERP that the company offers, the employer needs to dismiss those employees for managerial reasons, following the guidelines in the Labor Standards Act. In these cases, timing is important. If the desired number of personnel accept the ERP, it is not necessary to announce any dismissals. If dismissals are announced at the same time as the ERP, some serious problems may occur in the company’s organizational atmosphere or in the ERP bonus. Accordingly, it is recommended that the company announce the ERP before basic requirements and legal procedures needed to dismiss employees for managerial reasons. If the number of ERP applications exceeds the target, it is not necessary to dismiss any employees for managerial reasons. If the number of ERP applications falls short of the target, it is necessary to implement the basic requirements and legal procedures to begin dismissing employees for managerial reasons. That is, the company should begin dismissing the selected employees for managerial reasons if the number of applications for the ERP is insufficient. At the same time, the employees should be informed that there will be no ERP bonuses upon dismissal for managerial reasons. In this case, the managers-in-charge who directly consult with the employees subject to voluntary early retirement need to be properly trained.
In cases where it is desired that only specific employees accept early retirement, it is recommended not to announce the ERP to all employees, but to only inform the employees subject to early voluntary resignation. Those employees who accept the ERP will finish their employment when they receive the ERP bonus and submit their letters of resignation. However, the rest of the company’s contract employees will finish employment when their contract period has expired. In this case, cancellation notices for contract employees also need to be considered.

3. Other programs outside of ERP bonuses

It is necessary to develop other programs to reduce the psychological impact on an employee from sudden resignation. That is, personnel reduction should be implemented with legal severance pay + ERP bonus + outplacement + unemployment allowance.

4. Comments

As ERPs are systems where the employer provides an ERP bonus and the employee resigns in return for that ERP bonus, involuntary dismissal does not have to occur. If the employee submits a letter of resignation and receives severance pay and the ERP bonus, his or her resignation is accepted as a proper closing of labor relations, even if he/she has applied for remedy against the company. Dismissal for managerial reasons is the only method to dismiss an employee without a reason attributable to the employee under the current Labor Standards Act, which has strict legal requirements and procedures for actual practice. ERPs have frequently been used to avoid the aforementioned problems and minimize the number of employees subject to dismissal for managerial reasons. In particular, as ERPs can offer sufficient rewards and provide opportunities for re-employment, they can reduce opposition from the affected employees. ERPs will also build reliability within the remaining employees so that they can concentrate on their duties. Therefore, it is recommended that companies develop an ERP suitable for their own situations and thereby prevent many future disputes resulting from dismissals for managerial reasons.