The Seoul High Court recently ruled that an agreement between broadcasting company A (“Company A”) and its union (comprised of a majority of employees, the “Union”) to apply a lower salary scheme to non-fixed term contract employees who were converted to regular employees does not constitute “discrimination” prohibited by Article 6 of the Labor Standards Act (Seoul High Court Decision 2023Na2008455, July 21, 2023; not appealed).

In this case, the plaintiffs were initially hired as fixed-term employees over a period of several years and converted to non-fixed term contract employees in 2017. In 2018, they were then converted to “regular employees” in accordance with the Government’s policy on “conversion of non-regular workers to regular workers.” However, based on Company A’s agreement with the Union on wage and policy improvements (the “Agreement”), Company A applied a lower salary scheme to the plaintiffs upon their conversion to regular employees (compared to the scheme applied to existing regular employees).

The plaintiffs argued that Company A engaged in discrimination without “reasonable grounds” in violation of Article 6 of the Labor Standards Act and that the Agreement (which was the basis for the application of a different salary scheme) should be nullified since: (i) it resulted in a disadvantageous change to the plaintiffs’ working conditions without individual consent, and (ii) it forced the plaintiffs to give up wages that they were entitled to claim.

Kim & Chang represented Company A and successfully argued to the court that the application of the lower salary scheme to the plaintiffs was clearly based on “reasonable grounds” (i.e., not a violation of Article 6 of the Labor Standards Act) given the following factors: (i) the plaintiffs were hired through a different hiring process (i.e., conversion from fixed-term employment to non-fixed term contract employment to regular employment) and carried out different tasks compared to regular employees at Company A, (ii) the purpose of the Agreement was to improve the plaintiffs’ working conditions, which did improve as a result, (iii) Company A and the Union engaged in sufficient consultation regarding the salary scheme while taking into account Company A’s budget, and (iv) the Agreement specifically concerned the salary scheme to be applied and wages to be paid to the plaintiffs in the future and did not concern the wages that the plaintiffs alleged they were entitled to. In light of the above, the Seoul High Court affirmed the trial court’s decision, accepted all of the arguments made by Company A, and dismissed the plaintiffs’ appeal.

Discrimination is an issue that can take place in the workplace on a day-to-day basis. However, it is often difficult to find a clear answer to this issue due to ambiguity in the law. Apart from legal disputes related to discrimination, ensuring fair and reasonable personnel administration is critical in personnel management. We therefore advise our clients to engage in sincere and good faith consultations with employee groups (e.g., labor-management councils).

Given the ambiguity in what constitutes “reasonable grounds” in discrimination cases, this decision and the arguments we made to support the court’s finding are noteworthy and will serve as an important precedent going forward.