1. Introduction

Dismissal for managerial reasons (hereby referred to as “managerial dismissal”) refers to when an employer dismisses an employee for urgent business reasons. As managerial dismissal is implemented without cause attributable to the employee, there are strict requirements an employer must follow. Such dismissal may be accepted as justifiable according to Article 23 of the Labor Standards Act (LSA) if the employer satisfies four requirements: 1) There exists urgent necessity in relation to the business; 2) Efforts were made to avoid dismissal; 3) Fair criteria were used in the selection of those persons subject to dismissal; and 4) The employee representative was notified 50 days in advance and sincere consultations were done with him/her.

There are some items that need to be considered in reality in the process of satisfying the above four requirements. Firstly, in cases where the Collective Agreement includes an employment stabilization agreement on managerial dismissal or a clause requiring the Labor Union’s agreement in the process of managerial dismissal, how the company might deal with them is a matter of concern. Secondly, in a company with only one labor union that represents only production workers, whether an employee representative for white collar employees is needed or not when white collar employees are included in those being dismissed for managerial reasons, must also be considered. In this article, we will review these two issues in more detail.
2. Restrictions on Managerial Dismissal According to a Collective Agreement

(1) Agreements on procedures for managerial dismissal in a collective agreement

In cases where the collective agreement contains clauses requiring agreement from the labor union on those subject to managerial dismissal and the early retirement package (ERP) bonus (as seen in the box below), the company may not be able to reach an agreement with the labor union. If the company cannot reach such agreement, how can the company select those subject to dismissal and how can it determine an ERP bonus?


Collective Bargaining: Article 27 (Reduction of Personnel) 1. 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 dismissal and agree with the Labor Union on the criteria and procedure for choosing those subject to dismissal, and ERP bonus. (The order of priority follows voluntary applicants and late joiners).

The phrases in the collective agreement, “the company shall agree with the Labor Union” and “The order of priority follows…late joiners” can be the biggest barriers in the process of managerial dismissal. This is because these phrases form the essential procedures to follow, which are “The Company can conduct managerial dismissal, but must do the following: 1) Notify the Labor Union 60 days in advance; 2) Reach agreement with the Labor Union on the criteria and procedures for choosing those subject to managerial dismissal, and 3) Reach agreement with the Labor Union on details of the ERP bonus.” It is important that the company follows such procedures.

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 a higher amount. Therefore, since the company has sufficiently consulted with the Labor Union regarding the level of the ERP bonus, it is not necessary for the two parties to reach agreement. The next condition is that “the Company shall reach agreement with the Labor Union regarding the criteria for choosing those subject to dismissal.” If the two parties cannot reach such agreement, the company shall adhere to procedures that choose “voluntary applicants and late-joiners” first. This means that the company has to respect seniority and select late-joiners as those subject to managerial dismissal in cases where there is no agreement on the matter. If the company has to unilaterally dismiss some employees for managerial reasons, it does not have to pay an ERP bonus to those union members. The most beneficial course for both parties is to make every effort to reach an agreement on “reasonable criteria for dismissal”. Accordingly, in order to handle the restrictions on managerial dismissal, both parties are required to set up an appropriate ERP bonus through sufficient consultation, and work hard to reach an agreement on fair criteria for dismissal. Otherwise the company will have to dismiss simply based on seniority.

○ Judicial ruling 1) In cases where there is an article requiring prior agreement with the labor union regarding personnel dismissal in the collective agreement, such personnel dismissal outside of this process is invalid. Supreme Court ruling on Jul. 15, 2010, 2007du15797


“In cases where there are regulated in the collective agreement articles requiring prior agreement and consent with the labor union regarding personnel dismissal, or requiring an agreement on personnel dismissal through consultation with the labor union, the dismissals of personnel outside of this process shall be regarded as invalid in principle. However, even though the collective agreement contains a requirement of such prior agreement with the labor union, the employer’s personnel management rights are not always limited only to what can be implemented according to the agreement or consent of the labor union. If it is regarded that the labor union has abused its rights by requiring prior agreement, or gives up the right to prior agreement intentionally, it is valid for the employer to carry out personnel dismissal without the labor union’s agreement.”

○ Judicial ruling 2): While a prior agreement with the labor union has been made necessary for times of managerial dismissal, consultation alone would be sufficient. Seoul Appellate Court on Jul. 10, 2003, 2002na58138


“As managerial dismissal is a significantly sensitive managerial decision to be made by the management body, it cannot be an item for collective bargaining in principle. Even though managerial dismissal is an essential managerial right and cannot be an item for collective bargaining, the collective agreement can introduce an article requiring the company to decide or implement managerial dismissal based on agreement with the labor union. In this case, it shall not be determined that the company gave up or severely restricted its own managerial rights. In reviewing the article in the collective agreement requiring prior agreement with the labor union, the purpose of this agreement does not mean that the company shall have the labor union’s prior agreement in order to make managerial decisions, but the clause of the agreement shall be translated as ‘sufficient consultation’ to ensure rationality and fairness in the company’s efforts to give the labor union the opportunities necessary to deliver in advance its opinions on the criteria for managerial dismissal etc., and shall in good faith refer to the union’s opinions.”

(2) Employment stabilization agreement

Details on employment adjustment cannot be topics for collective bargaining. However, if the company accepted the union’s demand and stipulated it in the collective agreement, the employer has an obligation to observe this. A decision by the Seoul Appellate Court states “While merging with Company B, Company A will continue the employment of all personnel, and shall not, after the merger, dismiss personnel unilaterally.” Supreme Court ruling on May 26, 2011, 2011do7526
And a Supreme Court ruling: “The company shall not engage in managerial dismissal for the next five years.” Supreme Court ruling on Oct 24, 2003, 2003da43278 (Daewoo Motors)
In cases where this employment stabilization agreement is newly introduced in the collective agreement, it is doubtful whether the company can implement managerial dismissal in the event of urgent business necessity.

In general, judicial rulings explain that in cases where a company’s very survival is at risk due to financial crisis, or where a company is experiencing very negative business changes it had not anticipated at the time the employment stabilization section was agreed to in the collective agreement, this agreement does not have to be honored. However, in all other cases, this agreement remains valid.

○ Judicial ruling: Managerial dismissal in conflict with the employment stabilization agreement is unfair dismissal. Administrative Court ruling on Jul. 1, 2011, 2010guhap35272

“Employment adjustments like managerial dismissal are sensitive managerial decisions of the management body and shall not be items for collective bargaining in principle. However, the collective agreement, which is a written document of agreements made through collective bargaining between the company and the labor union, has no limitations in details, as long as those details do not violate law or good public order and customs. In cases where the employer decides to limit unilateral managerial dismissal and concludes an employment stabilization agreement with the labor union, this agreement shall be considered a normative portion of the collective agreement as the standards concerning working conditions and the treatment of workers. Accordingly, unless there is a special situation like the unfairness of continuing the effectiveness of the collective agreement in light of changes that could not be expected at the time the agreement was concluded, the company’s decision to oppose the agreement is invalid in principle.”

3. Conclusion

As managerial dismissal involves dismissing a large number of employees due to a company’s urgent business necessity, employers should make every effort to follow the restrictions found in the Labor Standards Act and relevant clauses of their collective agreements. This is necessary not only to verify that the company is using managerial dismissal as a last resort, but also to exhibit to employees surviving such dismissals that the company has done its best to protect its workforce. It is also highly desirable for the company to make sufficient efforts to avoid unilateral managerial dismissal for reasons to anticipate reliable labor relations in the future.