[비즈한국] Companies sometimes make decisions that are difficult to explain by money alone. Understanding the laws or systems hidden behind them provides a deeper insight into the inner workings. ‘Useful Business Tips (Al-Sseul-Bi-Beop)’ introduces clues to help understand the flow of business.
It was something I experienced during a meeting. An older manager treated a much younger executive with great respect. The executive would sometimes use formal language with the manager and other times use informal, direct language. Listening from the side, it was fascinating to see how nervous the older manager was. A friend working at a company explained it this way: The junior was promoted to an executive role, while the senior remained a manager. The senior manager is just grateful to still have a job. This is because a senior who is passed over for promotion can become a target for restructuring. Furthermore, it is said that sometimes a higher-ranking junior might intentionally treat a senior disrespectfully just because they feel uncomfortable working together.
We often try to ignore simple facts. In a pyramid structure, not everyone can become a superior. It is entirely possible for a junior to be promoted first. After all, it would be unreasonable to base promotions solely on length of service. Eventually, certain members may become unwanted, burdensome existences—targets for restructuring—whom the organization no longer needs or can accommodate. From an employee's perspective, this subject is extremely unpleasant. Perhaps that is why, in dramas, HR staff are often depicted as very disagreeable characters.
However, the user, or the company, approaches this from a completely different perspective. This is especially true in the recent business environment where M&As have become commonplace. In the various M&As I have been involved in regarding legal due diligence, redundant departments and personnel were created, and restructuring followed, with only the timing differing. From the company's perspective, how is restructuring conducted, and what methods are available? And what are the issues under the Labor Standards Act accompanying each method? If one knows this, couldn't one think of a logic for employees to respond? In this column, I would like to examine the basis for restructuring.
Restructuring is not a topic discussed openly. It involves a small number of people acting secretly and executing it abruptly. Rather than using the term "restructuring," which itself causes resistance, it is refined into phrases such as "personnel streamlining" or "organizational reorganization." Therefore, even though it happens often around us, the process by which it is executed is not well known.
There are various backgrounds for restructuring. The first is a deterioration in the company's business situation. Sometimes, it is carried out preemptively to prepare for potential future downturns even if the current situation is good, which often sparks controversy. Second, there are organizational changes, branch closures or consolidations, and the abolition of specific projects or departments. Third, there is clearing up personnel backlogs and slimming down the organization through restructuring focused on senior staff. There are also restructurings at the global headquarters or group level.
Methods for restructuring include △layoffs, △voluntary retirement, and △resignation by mutual agreement. Layoffs refer to dismissals for managerial reasons; they carry strict limitations under the Labor Standards Act because they have a significant impact not only on individual employees but also on related industries and local communities. (1) There must be an urgent managerial need, (2) efforts must be made to avoid layoffs, (3) fair and reasonable selection criteria for those to be laid off must be used, and (4) the employees' representative must be notified and consulted sincerely 50 days in advance. Additionally, when laying off 10% or more of employees, a layoff report must be submitted to the Ministry of Employment and Labor, and there is an obligation to re-hire laid-off employees.
In the United States, employment at-will is recognized. Therefore, dismissals can occur for reasons such as project cancellations or position eliminations, but such dismissals are prohibited in Korea. Perhaps because I hear about American news too often, I am sometimes asked, "If the position disappears, doesn't the person disappear too?" In Korea, that should absolutely not be the case.
There is much controversy over what "urgent managerial need" means. In the past, the Supreme Court required a situation where business could not be continued due to a downturn, or at least a situation where the company was in extreme financial difficulty. However, recently, the court has ruled that "cases where personnel reduction is necessary to preemptively cope with a crisis that may come in the future are also included" (2018Du44647), and there is an opinion that urgent managerial need as a ground for dismissal is interpreted more broadly than in the past. Even so, since layoffs must meet all strict requirements, it is not an easy choice for a company.
That is why companies use restructuring that does not look like dismissal, namely "voluntary retirement" and "resignation by mutual agreement (recommended resignation)." Voluntary retirement is a system where a company accepts retirement applications from employees and, after final approval, reaches an agreement on retirement. Voluntary retirement is used when the company wants to reduce the number of employees or conduct relatively large-scale restructuring. The company recruits applicants by offering better conditions (such as severance packages) than the statutory severance pay.
The issues that arise here are as follows: If there is coercion or pressure from the employer in an employee's application for voluntary retirement, it can be considered a dismissal in substance. Also, in principle, an employee can withdraw their application for voluntary retirement before the employer's approval, but cannot withdraw it after approval. The employer has discretion in whether to approve voluntary retirement within the scope of reasonableness. Therefore, it is legal to reject a voluntary retirement application if the individual is deemed key personnel, and for this reason, courts often respect the employer's judgment in cases where employees contest the employer's disapproval.
In reality, the most sensitive area is resignation by mutual agreement. The company recommends resignation to a specific employee, and the employment relationship is terminated by mutual agreement. One might wonder if there is any reason for an employee to voluntarily agree. For this reason, even if it looks like a negotiation for resignation in form, it is often judged as a dismissal in substance.
If the company applies pressure by making definitive statements like "look for another job" or "how will you decide your future" during an interview, or if they suddenly stop the employee from performing their existing duties—such as by removing their desk or confiscating their ID card to prevent office access—it is highly likely to be judged as a dismissal.
Resignation by agreement strictly requires the employee's voluntary resignation; therefore, it does not take effect if the employee does not accept it. Accordingly, if the employer takes disadvantageous personnel measures or stops paying salary while the employee has not yet decided to resign, this is also highly likely to be judged as a dismissal, as it created a state where the employee could not make a free decision.
Restructuring is a business issue for the company and a survival issue for the employee. The boundary is determined not by form, but by substance. The legal assessment varies depending on whether the employee's choice is voluntary or if they are being forced into a conclusion that has already been reached. Thinking about it, whether a dismissal is legal is a serious matter that determines a person's life, but the criteria for judgment are not clear. This is why labor cases are difficult and lead to intense emotional conflicts.