Report in which the committee requests to be kept informed of development - Report No 404, October 2023

Case No 3433 (Republic of Korea) - Complaint date: 20-JUL-22 - Follow-up

Allegations: The complainant organizations allege that the Government’s unilateral revision of the “Guidelines on Innovation of Public Institutions” and the “Management Evaluation Manual of Public Institutions” unduly restricted free and voluntary bargaining on welfare benefits in public institutions

1. 585. The complaint is contained in a communication dated 20 July 2022 from the Federation of Korean Trade Unions (FKTU), the Federation of Korean Public Industry Unions (FKPITU), the Korea Financial Industry Union (KFIU) and the Federation of Korean Public Trade Unions (FKPTU). In a communication dated 20 July 2022, the UNI Global Union supported the allegations of its affiliate the KFIU.
2. 586. The Government provided its observations in a communication dated 3 February 2023.
3. 587. The Republic of Korea has ratified the Freedom of Association and Protection of the Right to Organise Convention, 1948 (No. 87), and the Right to Organise and Collective Bargaining Convention, 1949 (No. 98).

A. The complainant’s allegations

1. 588. In their communication dated 20 July 2022, the FKTU, the FKPITU, the KFIU and the FKPTU state that through its 2021 revision of the Management Evaluation Manual of public institutions and the Guidelines for Innovation of Public Institutions (hereafter, Innovation Guidelines), the Ministry of Economy and Finance (MOEF) has added a new management performance evaluation indicator concerning welfare-related matters in public institutions, including intra-company loans, which in practice limits the freedom of workers and employers to determine these matters through free collective bargaining. The complainants allege that welfare benefits were one of the matters that used to be determined by collective bargaining in the framework of “autonomous operation of public institutions”, guaranteed by the Act on Management of Public Institutions (AMPI); and that the 2021 revisions infringed the obligations of the Government of the Republic of Korea under Convention No. 98, including the obligations to respect and protect autonomous bargaining between labour and management and to refrain from affecting collective bargaining by compulsory means.
2. 589. The complainants state that the AMPI provides that the Government shall ensure the self-controlling operation of public institutions, but also provides that the Minister of Economy and Finance shall establish guidelines after deliberation and resolution by the Steering Committee and shall notify those to the heads of subject public institutions. Concerning intra-company loans, the complainants allege that until 2021, Innovation Guidelines only provided that: (i) public institutions may provide loans for housing funds from their budget or labour welfare funds alike, while loans for living stabilization funds could be provided from labour welfare funds only, except in case of company relocation, when living stabilization could be supported from the budget as well; and (ii) interest rates should be determined in consideration of market rates, interest-free loans being prohibited in principle. According to the complainants, within this framework, housing and livelihood loans were provided in accordance with labour-management agreements reached through collective bargaining. But the revised version of Innovation Guidelines dated 29 July 2021 introduced the prohibition of providing intra-company loans for purchasing a house larger than 85 m2 and set limits to the amount of the loan and specified the interest rate to be applied. Furthermore, on 1 October 2021, the steering committee of the MOEF decided to include in the Management Evaluation Manual of Public Institutions a new indicator concerning the improvement of intra-company loan system in line with the revised Innovation Guidelines. The complainants specify that as the results of management performance evaluation of public institutions have a direct impact on the performance-based payment – the workers at the public institutions that are evaluated below the grade D will not receive any performance-based payment – these evaluations serve as a compulsory means to invalidate collective bargaining.
3. 590. Regarding the contribution of the employer to Employee Welfare Funds, the complainants allege that the Framework Act on Labour Welfare does not contain specific restrictions concerning the contribution of business owners to intra-company labour welfare funds, except that the amount of this contribution shall be determined by the rehabilitation fund council. Nevertheless, Government Guidelines drew up a framework in this regard, providing that contributions will be made to the funds taking into consideration the amount of contribution per employee, the level of contribution by private companies in the same industry, and the financial resources required for welfare projects. The complainants allege that these Budget Guideline provisions, make the determination of the matter through autonomous negotiations between labour and management impossible.
4. 591. The complainants refer to the ruling of Suwon District Court of 11 January 2011 concerning the allowance of researchers at government-funded research institutes designated as public institutions, which provides that Government Guidelines do not change the content of existing collective agreements and are no basis for excluding the application of the Labour Standards Act (LSA). They argue that despite this ruling, by revising its Guidelines and the Management Evaluation Manual, the Government interferes in the autonomous bargaining between labour and management concerning matters such as total labour cost, welfare and intra-company labour welfare fund. They emphasize specifically that although matters related to welfare should be determined autonomously between labour and management, the scope and specific details set in the Guidelines make negotiations about them virtually impossible, especially in light of potential negative consequences of poor management performance evaluation results for a public institution, which include the dismissal of the head of the agency, warning measures and differential payment of performance-based wages. According to the complainants, as the scope and limits of negotiations are externally determined and labour and management can determine working conditions within that limited scope only, there is infringement of the right to collective bargaining. The Government is practically forcing collective bargaining to reflect the details of management performance evaluation criteria, as the public institution employers cannot take the risk of unfavourable evaluation results and have no choice but to change the matters of collective bargaining in accordance with the Guidelines and the Management Evaluation Manual. The complainants stress that the Government has revised the Guidelines and the Management Evaluation Manual according to financial necessity, unilaterally and without any notice.

B. The Government’s reply

1. 592. In its communication of 3 February 2023, the Government rejects the complainants’ allegation that it has infringed the right to collective bargaining of workers and employers of public institutions by revising its guidelines and management evaluation manual. Concerning the allegation that the guidelines were revised unilaterally and without any notice, the Government indicates that while establishing the Budget Guidelines, it has executed tripartite consultations through the Economic, Social and Labour Council. It specifies in this regard that the Public Sector Development Committee (PSDC) was the tripartite body, composed of one chairperson, nine commissioners from labour, employers and the Government respectively, and five public interest commissioners, through which consultations were conducted from 17 September 2014 to 30 April 2015. At the time, the PSDC was organized under the “Economic and Social Development Tripartite Council” which is now known as the Economic, Social and Labour Council. During its operation period, the PSDC discussed issues related to the “2015 Budget Guideline”, improvement plans for the public sector management system, rational strategies on workforce management and the wage system.
2. 593. The Government further indicates that in November 2014, the PSDC discussed labour proposals concerning the Budget Guidelines, including in two working meetings with the MOEF and the Workers’ representatives. Although no final agreement was reached between the Government and labour and no recommendation was adopted at the time, both parties achieved decent accomplishments in improving the system related to the contribution rate of Employee Welfare Funds through dialogue, and the Government later partially revised the 2015 Budget Guidelines to reflect the criteria demanded by labour. In the revised version of the Guidelines, five contribution rates were provided (5, 4, 3, 2 and 0 per cent of the net profit of the enterprise before tax) corresponding to five ranges of the cumulative amount of the fund per person, (5 or less, 5–10, 10–15, 15–25 and more than 25 million South Korean won (KRW)) while previously there were three contribution rates (5, 2 and 0 per cent of the net profit before tax, corresponding to 5 or less, 5–20 and more than KRW20 million cumulative amount of fund per person). According to the Government communication, the 2014 and revised 2015 Budget Guidelines both provided that the size of contribution per employee and the level of contribution from private enterprises in the same or similar industries will be considered in fixing the amount of contributions and that all other special contributions were prohibited.
3. 594. The Government cites provisions of national law guaranteeing freedom of association and the right to collective bargaining, including section 94 of the LSA, which provides that “an employer shall, with regard to the preparation or alteration of the rules of employment, hear the opinion of a trade union if there is such a trade union composed of the majority of the workers in the business or workplace concerned, or otherwise hear the opinion of the majority of the said workers… in case of amending the rules of employment unfavourably to employees, the employer shall obtain their consent thereto”. It further indicates that although Budget and Innovation Guidelines are notified to public institutions, according to the national law these institutions should first undergo their own decision-making process to confirm matters related to wages, welfare, contribution to Employee Welfare Fund and in-company loan programmes, propose revision frameworks such as employment rules or collective agreements covering these matters and receive consent from workers’ groups (trade unions or representatives) regarding them. Opposition from workers may defeat the amendment of employment rules or collective agreements in line with Government Guidelines. In such a case, the institutions are only evaluated as insufficient in the management performance evaluation in relevant matters such as wages and welfare expenses.
4. 595. In reply to the allegation that its Guidelines infringe public sector workers’ right to collective bargaining and Convention No. 98, the Government indicates that in a judgment dated 31 January 2002, the Constitutional Court ruled that Budget Guidelines are notified to government-invested institutions as an internal act of management and thus the counterpart of collective bargaining cannot blame it, as it does not constitute an exercise of public power on workers, but an act of internal supervision between the Government and public institutions. The Government stresses in this regard that the Guidelines do not directly bind public institutions, but only offer internal recommendations to the investee institution. It further indicates that these arguments also apply to Innovation Guidelines and that specifically regarding the in-company loans, amendment of internal regulations with a view to bringing them in line with the provisions of Innovation Guidelines requires the agreement of the trade union in accordance with sections 4 and 94 of the LSA. According to the Government, labour and management can decide not to apply the Guidelines concerning loan limits and interest rates. Therefore, the Government concludes that it has not infringed the right to collective bargaining concerning this issue in public institutions.
5. 596. In reply to the allegation of infringement of the right to collective bargaining through the revision of the management evaluation manual, the Government indicates that it conducts management performance evaluations to enhance publicity and management efficiency and to induce improvement of public services. Evaluation standards and methods are presented in advance in the manual, but the manual does not have binding force on public institutions or workers and if public institutions do not perform well under certain indicators, they will only be evaluated as insufficient in the management improvement concerning those indicators. For example, in the 2021 Manual, the execution of total labour cost under the Budget Guidelines and compliance with the intra-company loan system under the Innovation Guidelines are presented as indicators for evaluation. Nevertheless, three institutions executed total labour cost greater than the limit set forth and many institutions applied different criteria to intra-company loans. Therefore, the Government concludes that the management performance evaluations and the related Manual do not infringe the right to collective bargaining.
6. 597. In reply to the allegation of infringement of the right to collective bargaining by unilateral restriction of total labour cost in Budget Guidelines, the Government indicates that setting a ceiling for total labour cost in the Guidelines aims at preventing excessive expansion and lax management of the public sector and as most public institutions use government budget support and benefit from exclusive business rights, strict management of their labour cost is essential. Nevertheless, each institution can autonomously decide on specific payment methods and amount within the ceiling fixed. Furthermore, the Government applies the system flexibly, for example, through differential application of the increase rate according to the level of remuneration in institutions, with a view to reducing the wage gap between various public institutions. The Government again stresses that it cannot be considered that total labour cost regulations violate the right to collective bargaining in public institutions as the Budget Guidelines do not invalidate collective agreements that have already taken effect nor do government agencies block or restrict the effectiveness of those agreements. It reiterates that the Guidelines do not bind collective agreements nor do they require government approval of concluded collective agreements. Finally, according to the Government, the Budget Guidelines standard concerning the performance-based payment rate is also proposed as an ideal model and is used for management and government supervision over public institutions.
7. 598. In reply to the allegation of its interference in collective bargaining concerning intra-company loans, the Government indicates that public institutions provide housing funds and living stability funds to their employees through this loan system and reiterates that Innovation Guidelines, the 2021 revision of which has tightened the requirements on limits and interest rates of intra-company loans, do not directly bind public institutions and are only proposed by the MOEF for innovation in management. Any change unfavourable to workers in the existing rules concerning loans within a public institution will require the agreement of the unions. The Government further indicates that the Suwon District Court ruling of 11 January 2012 cited by the complainants, confirms that Government Guidelines cannot change the contents of collective agreements. It re-emphasizes the specific character of public institutions, which gain profit in exchange for providing exclusive services designated by the Government or benefit from other forms of public financial assistance providing them significant competitive advantages. According to the Government, the Innovation Guidelines’ provisions concerning welfare benefits and intra-company loans are management recommendations to the public institutions’ employers. Therefore, the Government concludes that these provisions are compatible with free conclusion of collective agreements in public institutions.
8. 599. Rejecting the allegation that Budget Guidelines’ regulation of level of contributions to Employee Welfare Funds makes autonomous negotiations between labour and management on this matter impossible, the Government indicates that section 61.1 of the Framework Act on Labour Welfare provides that a business owner may contribute an amount decided by the welfare fund council, based on 5 per cent of the net income before deducting corporate or income tax for the preceding year as financial resources for the intra-company labour welfare fund and the Guidelines’ provision on capping of the contribution is compatible with this provision of the Framework Act. The Government further refers to a Supreme Court ruling on a case related to Korea District Heating Corporation, where the labour welfare fund council had decided to contribute 2 per cent of the earnings before tax, with a view to complying with the 2010 Budgeting Guidelines. The Government communication quotes an excerpt of the Supreme Court ruling in the following terms: “ …since the Defendant’s obligation to contribute welfare funds occurs only when the council has agreed or decided on the contribution ratio, the Plaintiff cannot immediately request the Defendant to fulfil the obligation to contribute under the agreement (the collective agreement of Korea District Heating Corporation’s labour and management prescribing to save 5% of net profits before taxation for intra-company labour welfare fund) in this case”.
9. 600. The Government further indicates that pursuant to section 51(2)(1) of the AMPI, when a public institution intends to pay a contribution to a separate intra-company welfare fund corporation, it must first consult the MOEF. This preliminary consultation is to prevent reckless investments by public institutions which, unlike private companies, operate with taxes or generate profits from the provision of exclusive services designated by the Government. According to the Government, the relevant provisions in Budget Guidelines specify the procedures of these preliminary consultations, the object of which is the amount of contribution to be presented during the labour-management consultation process. Ultimately, the amount of contribution is determined by the welfare council of the fund corporation, which is composed of an equal number of labour and management members. This amount may differ from the results of the prior consultation. Therefore, Budget Guidelines have no binding force in this regard and do not interfere in collective bargaining on the matter.

C. The Committee’s conclusions

1. 601. The Committee notes that this case concerns the Government’s alleged interference in collective bargaining at public institutions through the issuance of guidelines and management performance evaluations. It recalls that the question of impact of Government Guidelines and management performance evaluations on collective bargaining in the public sector has been raised in several previous cases concerning the Republic of Korea including in Cases Nos 2829 and 3237 [365th Report, paras 430–582 and 386th Report, paras 160–213], and most recently in Case No. 3430 [see 403rd Report, paras 438–495].
2. 602. The Committee notes that the complaint focuses mainly on the impact of Government Guidelines and evaluations on collective bargaining concerning two matters: intra-company loans and the level of employer contribution to Employee Welfare Funds. In particular, the Committee notes that the complainants allege that the 2021 unilateral revision of Innovation Guidelines and the Evaluation Manual resulted in the addition of new management performance evaluation indicators concerning remuneration and welfare, including compliance with new guidelines on intra-company loans. The Committee notes that according to the complainants, these changes leave the employers of public institutions no choice but to change the previous internal rules governing welfare benefits – which were defined through collective bargaining – with a view to complying with the new Guidelines, because they cannot be expected to maintain the existing rules at the expense of unfavourable management performance evaluation results. The Committee notes the complainants’ allegation that since the Guidelines, as enforced through management performance evaluation, determine the scope and limits of negotiations between labour and management, by their adoption the Government has infringed the right to free collective bargaining in public institutions.
3. 603. The Committee notes that in reply to these allegations, the Government confirms the alleged changes were made in the Guidelines and the Evaluation Manual, nevertheless, it indicates that the Guidelines are not directly binding on public institutions, and that any change to the internal rules that would be unfavourable to workers would require the consent of the union or the majority of workers to become effective. Therefore, the Government rejects the allegation that the revision of the Guidelines and Evaluation Manual infringed the right to collective bargaining in public institutions. The Committee also notes the Government’s indications in reply to the allegation that the Guidelines were revised unilaterally, indicating that tripartite consultations took place prior to the adoption of the 2015 Budget Guidelines, and that although they did not lead to a formal agreement between labour and Government, the Government partially revised the 2015 Budget Guidelines to reflect the demands of labour concerning the criteria of determination of the rate of contribution to Employee Welfare Funds. The Committee notes however that the Government does not refer to any consultations conducted prior to the 2021 revision of the Innovation Guidelines, or specifically concerning the recommended system for granting of intra-company loans, on which the complainants’ allegations focus.
4. 604. The Committee recalls that in its examination of Case No. 3430, which also addressed, among many other issues, the impact of recommendations included in the 2021 Innovation Guidelines on collective bargaining concerning intra-company loans [403rd Report, para. 489], it had noted that “collective bargaining on terms and conditions of employment in the public institutions of the Republic of Korea is completely decentralized and takes place at the individual public institution level. Nevertheless… regarding certain terms and conditions of employment referred to in the complaint, the Government has formulated general standards and policies in form of Guideline ’recommendations’ that are applicable to all public institutions under MOEF monitoring. These recommendations are not legally binding but are integrated into the indicators used to evaluate the management performance of public institutions, which in turn determines budget availability in future exercises. As such, they operate as a legally soft, but practically effective framework for collective bargaining at the individual institution level” [403rd Report, para. 481]. The Committee had considered that in view of the special characteristics of most public institutions such as their receiving government budget support and enjoyment of exclusive business rights, a framework may be defined for the exercise of the right to collective bargaining in those institutions with a view to ensuring the preservation of public interest. Nevertheless, it had also considered that to be compatible with the right to free and voluntary collective bargaining this framework should leave a significant role to collective bargaining, and workers and their organizations should be able to participate fully and meaningfully in designing this overall bargaining framework, which implies in particular that they must have access to all financial, budgetary and other data enabling them to assess the situation on the basis of the facts [403rd Report, para. 482]. The Committee finds that these considerations are identically applicable to the present case. It will then examine whether the Government Guidelines concerning intra-company loans and rate of employer contribution to Employee Welfare Funds still leave a significant role to collective bargaining regarding these issues and whether the workers and their organizations have been able to participate fully and meaningfully in designing the framework put in place through the Guidelines and enforced through management performance evaluations.
5. 605. Concerning the rate of employer contribution to Employee Welfare Funds, the Committee notes that the complainants allege that the Framework Act on Labour Welfare allows business owners to contribute to the funds within the scope prescribed by law without providing specific restrictions, except that the amount shall be determined by the “rehabilitation fund council”. However, the Government Guidelines establish detailed standards in this regard that impose strict restrictions on autonomous negotiations between labour and management. The Committee also notes the Government’s indication that the criteria of contribution were partially revised in the 2015 revision of Budget Guidelines to accommodate labour demands, which were expressed during tripartite consultations held in 2014; however, the Government does not refer to any further tripartite consultations on the matter since 2014.
6. 606. The Committee notes that the relevant standard in the 2015 Budget Guidelines ties the level of employer contribution to Employee Welfare Funds to the cumulative amount of the fund per person and excludes employer contribution once this amount reaches KRW25 million. It further notes that final decision-making on the employer’s contribution rate belongs to the “welfare fund council”, which is composed of an equal number of members from labour and management. The Committee notes the Government’s reference to the Supreme Court decision concerning the case of Korea District Heating Corporation, where the welfare fund council had set the level of employer’s contribution at 2 per cent of the earnings before tax with a view to comply with the 2010 Budgeting Guidelines, while the collective agreement of the company provided for a 5 per cent contribution. The Committee notes that the Supreme Court ruling validated the prevalence of the welfare fund council’s decision over the collective agreement. It further notes the Government’s indication that the level of contribution proposed for decision to the welfare fund council is the outcome of preliminary consultations between the Public Institution concerned and the MOEF and the relevant provisions of the Budget Guidelines are applied in the process of these preliminary consultations but are not binding on the welfare fund council, whose decision may differ from the results of the preliminary consultations. Nevertheless, the Committee notes that the text of the relevant provision in the Budget Guidelines provides that “the amount of Employees Welfare Funds shall be contributed under the criteria stated below…”. Furthermore, the 2021 Management Evaluation Manual defines an indicator with 1.5 points which covers improvement in the system of benefits including in-company loans, and which addresses the question “whether the institution has expanded an excessive amount of money on employee benefits compared to the previous year”. In view of the foregoing, the Committee understands that although the welfare fund councils have no legal obligation to follow the Guidelines, in practice they may feel obliged not to ignore them to avoid poor management performance evaluation scores. The Committee therefore considers that the current system is likely to reduce the space for free and voluntary collective bargaining in determining the level of employer contribution to Employee Welfare Funds.
7. 607. Concerning conditions of allocation of intra-company loans, the Committee notes that according to the complainants, until 2021, Innovation Guidelines contained only general provisions concerning allocation of loans which allowed the parties to collective bargaining within each public institution to define the applicable rules by agreement and loans were allocated in accordance with those agreements. But the 2021 revision recommended the introduction of significant restrictions concerning the conditions of allocation of housing loans. The Committee notes that the revised Innovation Guidelines also set limits to the amount of housing and household stabilization loans, raised the interest rates applicable and required the application of loan-to-value ratio while allocating housing loans. The complainants allege that the Government has made autonomous negotiations de facto impossible by setting specific details in the Guidelines and integrating those criteria into a management performance evaluation indicator. The Committee notes that the Government rejects this allegation, indicating that Innovation Guidelines are not directly binding on public institutions and workers’ consent is indispensable to modify previously applicable agreements concerning intra-company loans. The Committee further notes that according to the Government, labour and management can decide not to apply the Guidelines’ standards concerning loan limits and interest rates and that many public institutions do not follow Guideline recommendations concerning intra-company loans. In view of the fact that the Government does not provide any indication on the participation of workers’ organizations in the process of revision of Innovation Guidelines, the Committee observes that, regarding intra-company loans, Innovation Guidelines as enforced through management performance evaluations are likely to restrict the scope of collective bargaining in public institutions on the basis of a framework that has been designed without meaningful participation of workers and their organizations.
8. 608. The Committee recalls that in Case No. 3430, it had requested the Government to establish a regular consultation mechanism that would allow the full and meaningful participation of the organizations representing workers of public institutions in the formulation of guidelines pertaining to the working conditions. The Committee therefore similarly considers that, to ensure effective respect for the right of workers and employers of public institutions to collective bargaining with respect to welfare benefit matters, the Government should submit these issues to consultation with the organizations representing workers of public institutions and ensure that the relevant guidelines fully respect the autonomy of the parties to bargain collectively their conditions. The Committee requests the Government to keep it informed of the measures taken in this regard.

The Committee’s recommendation

1. 609. In the light of its foregoing conclusions, the Committee invites the Governing Body to approve the following recommendation:
   • The Committee requests the Government to submit the welfare benefit issues raised in the present case to consultation with the organizations representing workers of public institutions and ensure that the relevant guidelines fully respect the autonomy of the parties in bargaining collectively their conditions. The Committee requests the Government to keep it informed of the measures taken in this regard.