1. 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.

2. 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 cember 2012 to August 2013 and that was reasonably implemented despite ‘difficult situations’ while doing so. Here, ‘difficult situations’ meanmpetitive 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. The Company was established in Korea 30 years ago, and had suffered increasing deficits and decreasing sales since 2008. The number of employees had also gradually been reduced from 400 in 2008 to 333 in 2010, and then to 270 in 2012.


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 next year if it conducted managerial dismissals based on the principle that the most recently-employed were to be dismissed first, because the Company would not be able to reduce its labor costs and thereby improve the competitiveness of its products. Therefore, the Labor Union responded to the Company that it would accept the Company’s criteria for those subject to dismissal if the Company would accept the two following conditions: (1) the Company would reduce the number of employees to be dismissed and (2) would implement the Voluntary Early Retirement Program one time more.

To this, the Company agreed to reduce the dismissals from the original 60 production workers and 14 office workers to 40 production workers and 8 office workers. In addition, the Company implemented the Voluntary Early Retirement Program from July 13 to July 25, 2013. During this period, the target number of office workers applied, but only 10 production workers, leaving 30 still to be dismissed.

(3) Implementation stage

1) On July 25, 2013 the Company announced the managerial dismissals, informing the 30 production workers selected by following the criteria of those subject to dismissal that the Company and the Labor Union agreed upon, and put them on paid leave. In line with this, the Company informed the Labor Office of the plan for managerial dismissal. In addition, the Company stipulated in its dismissal letter that the affected persons would be able to apply for a Voluntary Early Retirement Package at any time prior to his/her termination date. Although the 30 production workers who received the advance notice of dismissal were supposed to wait at home, they came to the Company premises and occupied the Labor Union office. They then threatened the Labor Union Chairman, stating that he must hold an impeachment vote against union officers, and claiming that the Labor Union chairman’s decision was null and void as it simply supported the Company’s unilateral view. The dismissed workers, supported by former Labor Union officers led action, to impeach the current Union officers. The Labor Union Chairman feared violence from the dismissed workers and hid for three days, after which he returned and promised to hold an impeachment vote at the General Meeting. The Labor Union and Labor Relations Adjustment Act - Article 11 (bylaws) (1) Each of the following Labor Union and matters shall require a resolution adopted by the General Meeting: 2. Election or discharge of union officials; (2) The General Meeting shall adopt resolutions by the affirmative vote of a majority of the members present at a General Meeting where a majority of all members are present. However, resolutions as to the introduction and modification of bylaws, discharge of union officials, and merger, division, dissolution and structural change of a labor union shall be passed by the affirmative vote of at least two-thirds of members present at a General Meeting where a majority of all members are present.

2) Dismissed workers came to the Company and occupied the Labor Union office every day, from the day that they received their advance dismissal notices to the day of the impeachment vote, and picketed the main entrance gate, during times when workers were arriving and departing, protesting what they called the mutual conspiracy between the Company and the Labor Union. The dismissed employees were supposed to wait at home, but the Company could not control their collective action of coming to the office. The Company called the police and asked for their support after explaining the situation, but the police replied that they were not allowed to intervene in labor disputes, and if the dismissed workers intended to visit the Labor Union office, the police could not prevent their visiting. Eventually, the Company realized it had to block them from coming onto company premises on its own, and so looked into acquiring the services of a Security Guard Agency Estimate of cost of hiring a Guarding Service Agency: one person working 24 hours/day is 300,000 won/day. Twice as many guards are required as the number of strikers. The Company must provide meals and other necessary costs. 300,000 x 60 persons x 30 days = 540 million won/month; 7 months’ cost = 3.78 billion won.
. The service could cost 540 million won for one month, which would be too expensive for the Company to accept under its current financial situation. Therefore, the Company could do nothing but wait and watch the dispute from the sidelines.

(4) Concluding stage         

1) During the labor-labor disputes, the Company continuously recommended to the dismissed workers that they apply for the Voluntary Early Retirement Package and resign through their department heads and Human Resources managers. Thanks to these efforts, an additional 5 workers applied for this voluntary ERP-based resignation. The remaining dismissed workers expected that when the current union officials were impeached at the Labor Union’s General Meeting, the new labor officers would renegotiate with the Company and cancel the managerial dismissals. On August 8, 2013 there was an impeachment vote against the current union officers and the result was 42 in favor of impeachment and 58 against, rejecting the discharge of the current officials. After this result, the 25 remaining dismissed workers all applied for voluntary retirement, believing that they could not win an unfair dismissal case as long as the current Labor Union officers cooperated with the Company.
2) All 30 production workers eventually resigned with a voluntary ERP bonus package and the Company successfully avoided the managerial dismissals. This prevents any potential labor disputes related to legal claims, and furthermore was very fortunate in that the Company did not cause further pain to either the remaining workers or the resigned workers.


3. Conclusion (Evaluation of the Lay-off)

This lay-off of production workers was well-implemented through the appropriate use of managerial dismissal as per the Labor Standards Act and the Voluntary Early Retirement Program in order to cope with managerial difficulties the Company faced. At first, the Company followed Article 24 (Restrictions on Dismissal for Business Reasons), which contains: 1) urgent necessity in relation to the business; 2) efforts made to avoid dismissal; 3) fair criteria for the selection of those persons subject to dismissal; and 4) consulting in good faith with the Labor Union regarding efforts to avoid dismissals and fair criteria for the selection of those persons subject to dismissal. The above case showed that the Company satisfied the legal requirements, which are to exert effort to avoid dismissals through the Voluntary Early Retirement Program. Furthermore, the Company compared other companies’ ERP bonus levels with the Company’s ability to pay, while setting up the ERP bonuses, and negotiated with the Labor Union in good faith by responding to the workers’ demands, and then resolved the Company’s ERP bonus levels based upon mutual agreement. In particular, while the selection of those subject to dismissal was previously determined as “those most recently employed” in the Collective Agreement, the employer persuaded the Labor Union to abandon the order of recent employment and to accept the result of personnel evaluations for the past three years. Throughout this lay-off process, the Labor Union and the Company showed the desired labor-management partnership which resulted in a win-win situation during difficult times.