On September 25, 2017, the government officially announced its withdrawal of two sets of guidelines issued by the previous administration: (a) “Guidelines on Fair Personnel Management”; and (b) “Guidelines on Rules of Employment” (hereinafter, the “Guidelines”). “Guidelines on Fair Personnel Management” described appropriate methods of performance management, including particularly guidance on when and how poor performers can be dismissed. The “Guidelines on Rules of Employment” were intended to clarify when an employer can amend its rules of employment (or “work rules”) in a manner adverse to the employees even without the normally required collective workforce consent, under a judicially crafted exception for changes that are “reasonable in light of socially accepted norms.”

No change in the Existing Legal Standards

The Guidelines were strongly opposed by labor organizations, but were issued by the Ministry of Employment and Labor (MOEL) over labor’s objections. Labor organizations argued that the Guidelines could make it easier for companies to fire workers and adversely change their rules of employment without their consent.

However, the Guidelines were mostly a summary of standards and procedures regarding dismissals due to poor performance and unilateral amendment of work rules, based almost entirely on existing legal precedents and current labor-related statutes. And the Guidelines had no binding legal effect; they were merely an expression of the government’s views on appropriate means for employers to comply with the law.

Just as the introduction of the Guidelines did not effect any change in the law, their abolition does not represent any substantive change in the legal standards for performance-based dismissals or amendment of rules of employment. Companies remain able to dismiss employees due to poor performance and amend their rules of employment unilaterally in accordance with existing legal precedent, or at least remain able to make the same arguments in court in defense of such actions.

No Considerable Effect on Court Decisions Applying the Relevant Law

Before the introduction of the Guidelines, courts have sometimes upheld performance-based dismissals in cases involving very significant performance deficiencies. And the courts have, exceptionally, upheld adverse changes to company rules of employment even without the majority consent of the employees—which is generally legally required—where the changes were judged to be “reasonable in accordance with established social norms.” Despite the Guidelines having no binding legal effect and thus no power to alter existing court precedents addressing these subjects, there was concern among labor organizations that the Guidelines would make it easier for companies to fire workers for poor performance, and broaden the range of exceptional circumstances in which adverse rules-of-employment changes are permissible even without the majority consent of the employees.

However, even after the introduction of the Guidelines, the courts have maintained a very strict position on the requirements for lawfully dismissing employees due to poor performance and validly changing rules of employment adversely to employees without their consent.

For instance, in one recent case the Busan District Court invalidated a dismissal of an employee due to the company’s failure to provide sufficient opportunities to improve his/her job performance.1) And the Seoul Central District Court voided a unilateral rules-of-employment change by the Korea Housing and Urban Guarantee Corporation, which had abolished the existing seniority-based salary system (“Hobong” system) and introduced a more performance-based pay system without the majority consent of the employees.2)

These court decisions have followed the generally strict approach favored by existing precedents before the issuance of the Guidelines.

Stronger Enforcement Action Expected from Government to Limit Workforce Flexibility and Performance-based Dismissals

Although abolition of the Guidelines had no significant legal effect, it reflects what is likely to be a more aggressive approach to enforcement by MOEL that may have a considerable effect on workforce practices. President Moon is in the process of pursuing his election pledge to reduce the proportion of non-regular workers to regular (permanent, full-time) workers, which will likely fit within a larger push to restrict workforce flexibility.

The government has shown a strong commitment—including through increasing its number of labor inspectors—to thoroughly supervising employers and correcting what it perceives as labor-compliance problems even without any worker complaints. In one example of the government’s commitment to robust enforcement action through MOEL’s labor inspections, MOEL recently issued a corrective order to Paris Baguette requiring it to directly hire bakery workers from partner companies.

Compliance Review of Personnel-Management Systems Recommended, in relation to Workforce Flexibility and Performance Management

Companies should be prepared for strict labor inspections and enforcement actions aimed at restricting workforce flexibility. To this end, we strongly recommend that companies perform a thorough review of their personnel-management systems. In particular, if companies have implemented performance-based personnel-management systems such as performance-based pay systems, or poor-performance management systems (e.g. PIPs and performance-based dismissals); or they significantly utilize various means to increase workforce flexibility such as the use of non-regular workers (i.e. fixed-term or dispatched workers), or voluntary separation programs; then it is strongly recommended that they thoroughly review these systems for compliance with current laws and precedents.

Additionally, if companies have changed their personnel-management systems to introduce performance-based systems or to increase workforce flexibility in ways not already stipulated in their rules of employment, they should analyze whether such changes will be regarded as adverse to the employees and whether such changes have been effected through lawful procedures.