KEF: "Performance-Based Profit Sharing Not Subject to Labor Disputes"

Management Recommendations on Labor Issues Announced
"Performance-Based Profit Sharing Linked to Operating Profit Unrelated to Working Conditions"
"Ministry of Employment and Labor Must Clarify That This Is Not Subject to Collective Bargaining"

The Korea Employers Federation (KEF) has asserted that performance-based profit sharing linked to operating profit and major management decisions, such as the establishment of new factories, should be explicitly excluded from the scope of labor disputes.

On the 17th, KEF announced its “Management Recommendations on Recent Labor Issues,” which includes these assertions. The federation pointed out that if demands from labor unions for collective bargaining over performance-based profit sharing linked to operating profit and for participation in major management decisions such as new factory establishments are recognized as subjects of labor disputes, this could undermine corporate investments and business activities.

On the 16th, members of the Samsung Electronics Labor Union Donghaeng (Donghaeng Union) were chanting slogans in protest against the performance bonus gap in front of the Samsung Electronics Suwon Plant in Yeongtong District, Suwon City, Gyeonggi Province. Photo by Yonhap News

Performance-based Profit Sharing Linked to Operating Profit... Contraction in Investment and R&D

First, KEF maintains the position that performance-based profit sharing linked to operating profit does not qualify as a working condition and therefore cannot be a subject of collective bargaining. The organization explained that under the Labor Standards Act, performance bonuses are not regulated as working conditions. The Supreme Court has also previously denied that performance bonuses constitute wages, noting that they are more akin to the post hoc distribution of management performance and have no direct and close relation to working conditions.

KEF further argued that even under the revised Trade Union and Labor Relations Adjustment Act, such profit-based bonuses do not fall under “business management decisions affecting working conditions,” which are eligible for collective bargaining. Unlike decisions such as layoffs or redeployments related to restructuring, which cause substantive and concrete changes to working conditions, the distribution of profits according to operating results does not have the same effect.

The organization cited international examples, stating that it is rare for companies abroad to guarantee a fixed proportion of operating profit as bonuses. In the United States, bonuses are differentiated based on individual performance. In Japan, unions and management negotiate bonuses based on business results. France operates a statutory profit-sharing system, while in Germany, employee participation is decided through the works council and workplace agreements.

KEF called for an amendment to the definition of labor disputes under the Trade Union and Labor Relations Adjustment Act, so as to exclude high-level management decisions such as profit sharing from the scope of labor disputes. The federation also urged the Ministry of Employment and Labor to clarify through enforcement ordinances and regulations that bonuses linked to operating profit are not a subject of collective bargaining.

KEF expressed concern that, should demands for profit-based bonus payments spread across industries, it would shrink investments and research and development (R&D) efforts, intensify labor-management conflict, and erode global competitiveness.

The Establishment of Factories is a High-Level Management Decision... Not Subject to Collective Bargaining

The federation also emphasized that major management decisions such as the construction of new factories should be clearly excluded from the subject matter of collective bargaining. This argument specifically addresses the labor union’s attempts to bring up the construction of semiconductor factories—part of the government’s recently announced southwestern semiconductor mega project—as an agenda for collective bargaining.

Based on Supreme Court precedents and Ministry of Employment and Labor guidelines, KEF stated that high-level management decisions by corporate management—including the establishment of new factories—are, in principle, not subject to collective bargaining.

According to a 2002 Supreme Court decision, corporate restructuring is deemed a high-level management decision by management and, as such, is not subject to collective bargaining. The Ministry of Employment and Labor also set a standard in its guidelines for interpreting the revised Trade Union and Labor Relations Adjustment Act, stating that “business management decisions affecting working conditions” do not include decisions that merely have the potential to affect working conditions, but only those that lead to actual and substantial changes.

However, KEF pointed out that the Ministry’s interpretative guidelines are not legally binding, which could result in ongoing confusion at industrial sites. Therefore, KEF argued that enforcement ordinances and regulations should specifically clarify that high-level management decisions such as establishing new factories are not subject to collective bargaining, and that in the long term, even the definition of labor disputes in the Trade Union and Labor Relations Adjustment Act itself should be amended.

On the 29th, when the government announced it would invest 800 trillion won in the southwestern region and 81 trillion won in the Chungcheong region as part of three major mega projects, the Samsung Display Asan Campus in Asan, Chungnam was seen. Photo by Yonhap News Agency

Struggling Amid Rigid Labor Laws... Labor Flexibility Must Be Strengthened

Additionally, KEF proposed that measures to enhance labor flexibility be included in the “Special Mega Cluster Act” aimed at fostering national strategic industries.

KEF indicated that major competitors like the United States, Japan, and China are simultaneously pursuing labor flexibility and heavy government funding to enhance the competitiveness of their domestic firms, while Korean companies are forced to compete under comparatively rigid labor regulations.

According to KEF, other major countries operate flexible systems regarding working hours and employment types in diverse ways. The United States imposes no statutory limits on working hours and operates a white-collar exemption system that excludes R&D personnel, professionals, and key startup staff from working hour regulations.

Japan operates a flexible working hour system for up to one year and implements a high-level professional system for high-income professionals. Germany and the United Kingdom secure flexibility in working hours and staffing through collective workplace agreements, while China uses a comprehensive calculation disclosure system that combines working hours on a weekly, monthly, quarterly, or annual basis.

In this context, KEF proposed expanding the unit for managing overtime at companies within mega clusters from the current 12 hours per week to monthly, quarterly, semi-annual, or annual units; and introducing a white-collar exemption system exempting R&D personnel, professionals, and key startup staff from working hour regulations.

KEF also suggested extending the maximum period for implementing a flexible working hour system and the settlement period for selective working hour arrangements up to one year each, and either extending or waiving the two-year limit on the use of fixed-term workers within mega clusters. KEF further asserted that the current scope of dispatched work—currently limited to 32 types of work—should be expanded to additional sectors, with only a few exceptions.

Lee Donggeun, Executive Vice Chairman of KEF, commented, “In the era of AI and semiconductor-driven transformation, competition for technological supremacy ultimately comes down to how quickly and flexibly talent can be deployed. High-level management decisions such as profit-based distribution and factory establishment should not be matters of labor-management conflict.”

This content was produced with the assistance of AI translation services.