Firms need not bargain over profit-linked bonuses, Labor Ministry says

Companies are no longer obligated to bargain with unions over demands for bonuses set as a percentage of corporate profit, the Ministry of Employment and Labor said Thursday.

The guidelines are the ministry's attempt to settle confusion left by the amended Trade Union and Labor Relations Adjustment Act, known as the "Yellow Envelope" law, which took effect in March and widened the scope of bargaining to cover management decisions that affect working conditions. Disputes over how far that expansion reaches have flared at companies including Samsung Electronics, over both profit-based bonuses and its new chipmaking plants.

The ministry's new guidelines also place a decision to build or move a plant outside mandatory bargaining. The prospect that such a project might one day lead to restructuring is not on its own enough to make it a bargaining subject or grounds for mediation or industrial action, the ministry said.

A demand that ties a bonus to revenue, operating profit or net profit belongs to voluntary negotiation between the two sides rather than mandatory bargaining.

Such formulas "risk infringing on the rights of third parties including the state and investors, or shareholders, and excessively restrict a company's managerial judgment and execution," the guidelines say.

Operating profit is measured before interest, corporate tax and dividends, which makes it the source of legal claims held by shareholders, creditors and the state. Net profit includes nonoperating income with no direct link to the work employees perform. Allocating a fixed share of either as a bonus pool in advance is unreasonable, the government concluded.

An employer that refuses to negotiate such a demand cannot easily be punished for an unfair labor practice. A union cannot request mediation from the Labor Relations Commission on it either, and so cannot secure a lawful right to strike by that route.

Samsung Electronics' union had demanded that the company peg its bonus pool to 15 percent of annual operating profit and scrap the cap holding payouts to half of annual salary. After mediation at the labor relations commission collapsed, Labor Minister Kim Young-hoon took over the talks himself in May and produced a deal hours before a walkout was due to begin.

Unions may still ask for a base pay or annual salary increase in line with operating profit, or for a fixed-sum bonus. The act allows collective bargaining on the full range of matters that determine working conditions, including wages, working hours, welfare, dismissal, workers' status and other terms of treatment.

"Within that category we should protect the three labor rights [to organize, bargain and act collectively] as far as possible," a ministry official said. "But a bonus set at a percentage of operating profit restricts third parties' basic rights excessively, so it cannot be a mandatory bargaining subject."

The government also restated that a decision to relocate or expand a plant is not in itself a bargaining subject. Interpretive guidelines issued in February had already put decisions aimed at changing corporate structure, such as mergers, splits, transfers and sales, outside collective bargaining. Bargaining becomes possible only where a change in working conditions is objectively foreseeable, such as reassignment following layoffs or restructuring.

This time the ministry listed cases. An announcement or public disclosure of a management decision does not trigger a duty to bargain. Neither does a mid- to long-term business plan or an abstract remark by an executive. Nor does a claim resting on media reports or a union's own assumption, where there is no objective confirmation that the company is pursuing layoffs. A union can demand bargaining only once a layoff plan is confirmed to be in preparation or decided.

Samsung Electronics said in June that it will build two semiconductor fabs in Gwangju as part of a wider investment across the Gwangju and Jeolla provinces.

Opposition to new technology such as AI is treated the same way. Resisting it on the ground that it may affect working conditions is not legitimate industrial action, the guidelines say.

Doubts have been raised about whether the guidelines can hold the line at workplaces.

"The 'Yellow Envelope' law stretched the scope of bargaining too far by taking it to management decisions that affect working conditions, so even in narrowing it through guidelines the ministry has not set out a clear balance between managerial authority and the three labor rights," Kwon Hyuk, a Korea University labor law professor, said. "It will have to issue second and third sets of guidelines every time a similar dispute comes up."

A second scholar took issue with the economics rather than the drafting.

"Performance pay is inevitably linked to company earnings anyway, and shareholder dividends are paid out of net profit," Jung Heung-jun, who teaches labor relations at Seoul National University of Science and Technology, said. "Spelling out that a demand for a fixed share of company earnings is not a mandatory bargaining subject will keep causing controversy. The guidelines will serve to some extent as a manual, but I doubt they will work properly in reality."

Labor pushed back immediately and demanded that the government "scrap the guidelines."

"A single remark by the president does not hand the executive branch the power to shrink the scope of a law passed by the National Assembly, or to restrict the three labor rights guaranteed by the Constitution," the Federation of Korean Trade Unions said in a statement. "We will take legal action against employers who refuse to bargain on the basis of these guidelines."

The Korean Confederation of Trade Unions, which labor minister Kim led as chairman from 2010 to 2012, went further.

"Corporate performance can never be achieved without workers' labor, yet this puts shareholders' interests first," the confederation said. "It is an employer-biased guideline and a declaration that the government intends to fight workers."

Employers objected from the opposite direction.

"We remain concerned that conflict at workplaces over the scope of labor disputes, including reassignment, will continue," the Korea Enterprises Federation said. "The definition of a labor dispute in the Trade Union Act should be amended."

BY KIM KYUNG-HEE [[email protected]]