I. Introduction

When experiencing difficulties many companies, viewing labor as one of their highest expenses, prefer to reduce it as a first reaction, but arbitrary lay-offs can cause significant conflict and legal disputes between the company and its workers because their keeping job is a matter of their survival. Therefore, using a lay-off as a way of cutting costs should be the final step. In a lay-off situation, office workers usually have no problem getting hired elsewhere and tend to readily accept when they are asked for voluntary resignation in return for reasonable financial compensation, while production workers will desperately object to a lay-off because it is almost impossible for them to find similar jobs with equivalent wage levels. Accordingly, laying off production workers is extremely difficult to implement due to persistent objections from the related labor union as well as the workers involved. An example of this, showing how difficult lay-offs can be for both management and labor, is the situation at SSangyong Motor Company where recently, more than 20 production workers committed suicide as a result of being laid-off.
The following case demonstrates a lay-off that this writer provided legal advice for and which took place from December 2012 to August 2013 and that was reasonably implemented despite ‘difficult situations’ while doing so. Here, ‘difficult situations’ means that those subject to dismissal were production workers, that there was a labor union (hereinafter referred to as “the Labor Union”) which consisted of all production workers, and that the Collective Agreement contained an article which restricted lay-offs.

II. Major Disputes at Each Implementation Stage and their Resolution

1. Planning stage

(1) I had taken a project for lay-offs within an automobile parts production company (hereinafter referred to as “the Company”), in December of 2012. This company was foreign-owned and had suffered continuous deficits since 2008, as it could not get new competitive automobile products from its American headquarters company, and expected to see a continued deficit in the near future. In order to reduce this ever-growing deficit, the Company had to reduce its work force by a minimum of 30%. The HR director of the Asia-Pacific Regional Head Office was of the opinion that the Company would close its doors if it could not implement these lay-offs in time.
(2) When designing its lay-off plan, the Company had to reduce personnel through use of a voluntary early retirement system based upon a managerial dismissal schedule. As job security was part of the Collective Agreement with the Labor Union, it was considerably difficult to implement any arbitrary lay-off. The job security agreement stipulated that: “When the Company intends to reduce personnel due to urgent business reasons, it shall inform the Labor Union of the reason(s) 60 days prior to implementing dismissals and reach agreement with the Labor Union on the criteria and procedures for determining those who shall be subject to dismissal, as well as provisions for ERP bonuses. Provided, that the order of priority shall begin with voluntary applicants and most recently-employed.” The conditions in a Collective Agreement that a company shall “reach an agreement with the Labor Union” and “the order of priority shall begin with ……most recently-employed” can be the biggest barriers in the process of managerial dismissal. The reason for this is because these conditions frame the essential procedures required by law pertaining to managerial dismissal which the Company must follow. As for the ERP bonus, reaching an agreement is likely to be difficult as the Company expects a lower amount while the Labor Union may insist on the maximum amount. So, if the Company had sufficiently consulted with the Labor Union regarding the level of the ERP bonus, it would be no problem for the Company to determine unilaterally an appropriate level for an ERP bonus. The other two conditions were that “the Company shall reach agreement with the Labor Union on the criteria…… for determining those who shall be subject to dismissal,” and “if the two parties cannot reach such agreement, the Company shall adhere to procedures that choose voluntary applicants and recent employees first”. This means that the Company has to respect seniority and select most-recent employees as those subject to managerial dismissal in cases where there is no agreement on the matter. Accordingly, in order to deal with the restrictions on managerial dismissal, both parties are required to decide what would be an appropriate ERP bonus through consultation, and work hard to reach an agreement on fair criteria for dismissal. In the absence of this, the Company will have to dismiss based simply on seniority.

2. Negotiation stages with the Labor Union

(1) After announcing the plan for managerial dismissal in January 2013, the Company began negotiations with the Labor Union regarding efforts to implement dismissals and selection procedures for those subject to dismissal as required by the Labor Standards Act, Article (24), “Dismissal for Managerial Reasons”. When the Company announced its intention to implement managerial dismissal, the Labor Union responded that it would cooperate with the Company if the Company would pay two years’ average wages as an ERP bonus. To this, the Company proposed an ERP bonus of 6 months, after getting approval from the American Head Office, as it was running out of sufficient funds due to the long-term deficit accumulated over the past years. The Labor Union rejected such a low ERP bonus, and held a special ceremony where union officers shaved their heads and put up printed banners objecting to the managerial dismissal.
(2) The Company made efforts to negotiate with the Labor Union several times from March to May of 2013, but could not reach an agreement on ERP bonus levels or who would be subject to managerial dismissal. The Labor Union became subject to increasing pressure as they were aware of the typical tendency of foreign companies to close their businesses if they could not make money due to continuous deficits, and gradually started to compromise regarding lay-offs. On July 13, 2013, the Labor Union demanded an increase in the ERP bonus, explaining that the average wages for six months could be an amount equivalent to the average wages for only four months two years ago as they had not done much overtime lately. The Company accepted the Union’s explanation as reasonable and received special approval for an increase in the ERP bonus up to 8 months for production workers, while maintaining the 6 months’ average wages for office workers.
(3) The Company agreed with the Labor Union on the ERP bonus levels and the implementation of a Voluntary Retirement Program, but the Labor Union insisted that the Company should implement the managerial dismissal beginning with the most recently-employed, as there had been no agreement on those. The Company proposed that it should determine those subject to dismissal based on quality of performance and number of accidents over the past three years. While negotiating this matter, the Company instigated a Voluntary Early Retirement Program by posting the information within the company premises, but no production workers applied for this while only a few office workers applied. The Company realized that it would be difficult to effectively reduce the number of employees through the Voluntary Early Retirement Program, and so informed the Labor Union that it was obliged to implement managerial dismissals with the recently-employed to be dismissed first. Based on this information, the Labor Union feared that the Company would implement another lay-off plan n