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Newsletter | February 2014, Issue 1
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LABOR & EMPLOYMENT |
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Supreme Court Decisions on Ordinary Wage – Action Plan for Employers |
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On December 18, 2013, the Supreme Court, sitting en banc, rendered its decisions on the ordinary wage cases of Kabul Autotech. The Supreme Court’s ruling provided some guidance on how to resolve a substantial portion of the employers’ past obligations related to ordinary wages. |
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However, there still remains risk regarding an employer’s future obligation to increase ordinary wages, which may become an imminent and significant burden on the employers. Accordingly, an employer should establish and execute a systematic plan aimed at minimizing these ordinary wage risks as provided below. |
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Risk Analysis on Past Ordinary Wage Obligations and Settlement |
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To reduce past risk on ordinary wage obligations, it is important to analyze whether various bonuses and allowances fall under the ordinary wages in light of the Supreme Court rulings. Furthermore, it is necessary to check the company’s financial condition and analyze whether or not any additional wage claims violate the “good faith principle”. Based on such risk analysis, companies must establish and execute a strategy for negotiating with employees. |
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Wage System Reform |
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To reduce future risk on ordinary wage obligations, it is advisable for companies to review whether or not bonuses or allowances fall under ordinary wages and, if necessary, reform the wage system to simplify the wage system and enhance performance-based remunerations. |
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Review HR System and Issues Deriving from Wage System Reform |
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In reforming the wage system, an employer should not only consider the effects of the reform on various personnel affairs (e.g., performance evaluation and compensation), but should also consider the changes to the overall HR operation system. In addition, by reviewing the issues related to the wage system reform, such as extending the retirement age, it is important to minimize potential issues and to maintain consistency in HR operation. |
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Negotiation Strategy to Execute Reformed Wage System |
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Once a plan to address the risk related to ordinary wages is established, it is critical to begin communicating with the employees or engaging in reasonable negotiations with the labor union. For that purpose, it is advisable to devise a roadmap and develop negotiation points for each stage of the negotiation. |
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Minimize Ordinary Wage Related Costs and Improve Productivity |
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To manage the increased costs due to the rise in ordinary wages (e.g., overtime allowance, unused leave allowance, etc.), it is important to manage inefficiencies through improving work process. For mid- to long-term business planning, increasing profit through greater productivity should also be considered. |
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Planning and executing these tasks may be delicate, which not only requires careful legal review, but also requires a comprehensive approach taking into consideration the HR system and the relationship between the company management and its employees and/or labor unions. |
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