Court Reverses Retirement Age Reduction

The Supreme Court reversed a retirement age reduction ordinance for the Human Resources Development Service of Korea (HRDS) that was implemented amid structural reforms in the public sector during the 1998 financial crisis.

With this decision, additional legal action by retirees from other government-affiliated organizations could cause quite a stir.

Background-.

When the Korean economy was bailed out by the IMF at the end of 1997, Korean society implemented a host of structural reforms. In 1998, the Ministry of Planning and Budget, newly separated from the Ministry of Finance and Economy, led sweeping restructuring reforms in the public sector.

Public corporations were privatized, and ministries and government agencies pushed ahead with management innovation plans such as the merger and abolition of divisions, improvements in the payroll system, the reduction of the retirement age to the public official level, and a downward revision of retirement grants.

At that time, the Ministry of Government Affairs and Home Affairs confirmed a management plan to cut 8,103 or 22.8 percent of 35,514 staff members in 80 local public corporations.

After the ministries of labor and planning and budget ordered layoffs in August 1998, the HRDS revised its personnel management regulations and reduced the retirement age of each position by up to five years.

Those who were forced to retire according to the revised regulations filed a lawsuit. After losing the suit at the first trial, the HRDS changed its representative to Kim & Chang, the biggest law firm in Korea, to reverse the decision, but to no avail.

Court Decision-.

The Labor Standards Act of Korea stipulates that any revision of workplace regulations requires consent from a labor union comprising more than half of the workplace’s employees or from a majority of employees.

The point at issue was the scope of employees. The HRDS argued that employees excluded not only executives, but also management staff who were denied admission to the labor union by a collective agreement. However, the court decided managing staff should be regarded employees in matters related to the owner or managing executives, and their intention should be reflected when office regulations are revised at their disadvantage.

The court also said the HRDS shortened the retirement age by more than what the government recommended (60 years for classes 1-5 public officials, 57 years for class 6 or lower), and thus the revised retirement ages cannot be deemed as at socially acceptable levels.

Expected Repercussions-.

Most government-affiliated organizations have regulations that restrict labor union admission for employees of a certain position or higher.

Some organizations that reduced their retirement age with the consent of their labor union comprising the majority of employees could be faced with a similar situation with the HRDS if their managing staff were classified as employees, and this is why similar lawsuits are expected to follow.

The decision of the Supreme Court spells trouble for the government as well. In addition to soaring labor costs, personnel management systems could be seriously impeded by reinstated employees.

Worst of all, if the retirement ages of employees at affiliated organizations are extended, the government is sure to be confronted by criticism that public sector reforms are going backward.

Keuk-In Bae bae2150@donga.com