The South Korean government has established criteria indicating that demands for performance bonuses based on a certain percentage of corporate profits, referred to as 'N% performance bonuses,' are unlikely to be considered a subject of labor disputes. The guidelines also clarify that management decisions regarding the introduction of artificial intelligence (AI), the establishment or relocation of factories, and business sales are not mandatory negotiation topics.
However, if specific changes in working conditions, such as layoffs or job reassignments, are anticipated, those matters will be subject to negotiation.
On September 3, the Ministry of Employment and Labor announced the 'Guidelines on Labor Disputes Related to Management Performance Bonuses.' This document elaborates on the interpretation of the revised labor union law released in February, specifically addressing whether management performance bonuses and business management decisions fall under labor dispute topics.
The ministry explained that as demands for performance bonuses tied to a percentage of operating profits have emerged as key issues in labor negotiations amid significant industrial transformations, including AI, it has created these guidelines to enhance predictability in the field.
According to the guidelines, management performance bonuses that pertain to wages, benefits, and other working conditions are generally considered mandatory negotiation subjects. However, demands for performance bonuses linked to corporate profits, such as sales revenue, operating profit, and net income, are deemed unlikely to be subjects of mandatory negotiation or dispute actions.
This is because corporate profits involve the interests of third parties, including shareholders, creditors, and the state, and are utilized for various management decisions, such as research and development (R&D), capital investment, and dividends. The ministry believes that requiring a portion of corporate profits to be allocated for performance bonuses could fundamentally restrict a company's operational freedom.
Nonetheless, performance bonuses linked to corporate profits can still be negotiated voluntarily between labor and management. It is also possible to negotiate demands for performance bonuses that are not directly tied to corporate profits but are based on a certain percentage or fixed amount of salary or base pay, as well as the criteria, timing, and targets for payment.
The guidelines also clarify the criteria for business management decisions. Decisions regarding the establishment of new factories, overseas investments, relocation of production bases, or business sales and acquisitions, as well as the introduction of AI and automation equipment, are not mandatory negotiation subjects.
Instead, the determination of whether changes in working conditions resulting from management decisions are subject to negotiation will be based on whether such changes are 'objectively foreseeable' rather than merely possible. If specific plans for layoffs or job reassignments are being developed or confirmed through internal announcements or labor-management council materials, those related working conditions will be subject to negotiation.
For example, while opposition to the introduction of AI itself is not a mandatory negotiation subject, if plans for workforce reductions or changes in job duties and working conditions due to AI implementation become concrete, issues such as job reassignment, employment stability measures, adjustments to working hours, and health and safety measures can be negotiated. Similarly, decisions regarding factory relocations or business sales are not negotiation subjects in themselves, but related job reassignments or employment succession and stability measures are.
If a union insists on negotiating business management decisions or demands performance bonuses based on a percentage of corporate profits, the labor commission will recommend changes to the demands during the mediation stage. If the union does not comply, those aspects will be subject to administrative guidance on the grounds that they do not constitute labor disputes under the labor union law.
In cases where a strike is primarily aimed at non-negotiable issues, the legitimacy of the strike will be assessed according to Supreme Court precedents. The government maintains that even if an employer refuses to negotiate on management decisions or demands for performance bonuses linked to corporate profits, it is unlikely to be viewed as an unfair labor practice.
Kim Young-hoon, Minister of Employment and Labor, stated, "While we will fully respect and ensure autonomous negotiations between labor and management, we will consistently interpret and apply the law according to the guidelines to ensure they function as practical norms in the field."
* This article has been translated by AI.
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