Report in which the committee requests to be kept informed of development - Report No 403, June 2023

1. 438. The Complaint is contained in a communication dated 15 June 2022 from the Korean Public Service and Transport Workers’ Union (KPTU), the Korean Confederation of Trade Unions (KCTU), and Public Services International (PSI).
2. 439. The Government provided its observations in a communication dated 3 February 2023.
3. 440. 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 complainants’ allegations

1. 441. In their communication dated 15 June 2022, the complainants allege that through the unilateral issuance of “guidelines” concerning matters covered by collective bargaining between public employers and unions, and by penalizing public employers that fail to comply with those guidelines through reducing their points in management performance evaluations, the Government of Korea has been compelling public sector employers and workers to enter and enforce only collective agreements that meet the standards set in the guidelines.
2. 442. The complainants recall that similar allegations were raised in Case No. 2829 concerning the Republic of Korea [see 365th Report, paras 430–582] and that on that occasion, the Committee had requested the Government to ensure that trade unions were consulted prior to adopting measures such as the issuance of budgetary guidelines regarding public institutions and the assessment of the soundness of their financial situation through performance management evaluation reports, audits or inspections. The complainants allege that despite this recommendation, the Government has steadfastly precluded unions from decision-making on various governmental directives and management performance evaluations. According to the complainants, the Government has used these unilateral measures to forbid collective agreements on wage increases beyond the ceilings set, to introduce job-based pay and wage peaks, to reduce in-company loans for employees and to alter eligibility criteria for certain types of wages. The Government has also used these measures to prevent the implementation of signed collective agreements.
3. 443. Regarding the structure of governance over public institutions in the Republic of Korea, the complainants indicate that pursuant to the Act on the Management of Public Institutions (AMPI), the Ministry of Economy and Finance (MOEF) designates the public institutions subject to its management oversight within one month following the commencement of each fiscal year and that in 2022, the number of such institutions amounted to 350, including 36 public corporations, 94 quasi-governmental institutions, and 220 “other” institutions.
4. 444. These institutions are subject to regulation and control by the MOEF and the Committee on the Management of Public Institutions (CMPI). The CMPI is the apex of the hierarchy of governance over public institutions in Korea. It is chaired by the Minister of Economy and Finance and has about 20 members, including officials from the Prime Minister’s Office and deputy-ministers or similarly ranked civil servants from various ministries and administrative and other major governmental agencies. The CMPI deliberates over matters such as the designation and un-designation of public institutions, review of proposed creation of new public institutions, appointment and dismissal of directors to boards of public institutions, management performance evaluations and management guidelines.
5. 445. The complainants state that together, the MOEF and the CMPI establish three sets of guidelines:
6. 446. The complainants allege that the 2022 Budget Guidelines limit the increase in each public institution’s total labour cost to 1.4 per cent of the corresponding figure in 2021. Also, article 10 of the latest Management Guidelines (revised on 9 April 2021) require all public institutions to adopt wage peaks, while the latest Innovation Guidelines (revised on 29 July 2021) require public institutions to exert tighter control over in-company loans for employees by providing for stricter eligibility criteria, reduce the amount of money available for loans and raise interest rates.
7. 447. Concerning management performance evaluations, the complainants indicate that every year, the MOEF evaluates the management performance of public institutions for a total score of 100 points, and that institutions are divided into six classes or grades depending on how they fare on evaluation, including superior (S), excellent (A), good (B), average (C), poor (D) and very poor (E). According to the complainants it is not uncommon for as little as a half point to determine the grade an institution obtains. This grade has an impact on the amount of bonus to which the workers are entitled, namely, workers of the institutions scoring a D or an E would not receive any bonus. Furthermore, the MOEF has the authority to dismiss or propose the dismissal of the directors of poorly performing institutions. The enforcement decree of the AMPI requires the MOEF to prepare a manual for the management performance evaluation before the beginning of every fiscal year. According to the 2022 manual, the six evaluation indicators are: (1) management strategy and leadership; (2) social values; (3) efficiency; (4) organizational, human resource, and financial management; (5) remuneration and benefits management; and (6) major projects, activities and achievements. Under the fifth indicator, there are “control of total labour costs” with 3 points, and “labour relations” with 2 points.
8. 448. The complainants further denounce the absence of channels of direct negotiation and communication between the unions and the Government. They allege that although the Korean Government is the de facto employer of public sector workers, it neglects its duty to engage in collective bargaining by hiding behind the nominal heads and boards of public institutions. According to the complainants, while the governmental guidelines and management performance evaluations largely determine the working conditions of public sector workers, the Government claims that the guidelines are simply recommendations and that it leaves individual public institutions free to negotiate and bargain with their respective unions on matters of wages and working conditions.
9. 449. To illustrate their allegations, the complainants provide further details with regard to the impact of government guidelines and management performance evaluation on free and voluntary collective bargaining between individual public institutions and their unions concerning the following subjects: (1) total labour costs and rates of wage increases; (2) payment of performance incentives (bonuses); (3) replacement of seniority-based pay system by a skill-based wage system; (4) introduction of wage peaks and; (5) allocation of in company loans to employees.
10. 450. The complainants state that the annual Budget Guidelines indicate the percentage by which the total labour costs of all public institutions may be increased. This percentage has been fixed at 0.9 for 2021 and 1.4 for 2022. The Guidelines also indicate that an institution that is found to have exceeded the maximum rate of increase in the total labour cost in management performance evaluation, is to limit their budget for the total labour cost of the current year by the same amount by which they had exceeded it the previous year. The complainants indicate that individual public institutions organize collective bargaining annually after the release of the year’s Budget Guidelines. These negotiations only cover the allocation of the total labour cost budget that is given in the Guidelines, which are established without any consultation with unions. The complainants allege that unions of public institutions cannot bargain wage agreements that don’t comply with the government Guidelines, because if an institution and their union agree on a wage increase beyond the maximum increase in total labour costs indicated in the annual Budget Guideline, the institution will have to reduce its total labour cost by as much the following year, which will cancel the effect of the agreed increase. Furthermore, going beyond the maximum increase rate permitted in the Budget Guidelines will result in the loss of the three points given for “total labour cost control” in management performance evaluation. This might entail the reduction or even suppression of the workers’ bonuses as well as the dismissal of the executives of the institution.
11. 451. The complainants further refer to the case of the unimplemented agreement concerning wage increase in KORAIL Networks, a subsidiary of Korea Railroad Corporation (KORAIL), whose activities range from handling of station tasks, ticketing, phone customer services, parking, and special cargo freight by KTX trains on behalf of KORAIL. According to the complainants, KORAIL holds 98.98 per cent of the equity at KORAIL Networks and effectively determines the wages and working conditions of the latter’s employees by assigning and providing consignments for those workers’ wages. Therefore, the complainants hold that KORAIL is the real employer of KORAIL Network’s workers.
12. 452. The complainants indicate that nearly 1,600 out of 1,800 workers at the company are temporary and contract-based workers who receive minimum and near-minimum wage and on average earn only 44.8 per cent of regular KORAIL workers’ earnings. In 2019, the parent company convened a council composed of labour and employer representatives and external experts with a view to discussing ways of improving wages and working conditions for workers affiliated with its subsidiaries. The council mediated an agreement dated 25 November 2019 between KORAIL and the Korean Railway Workers’ Union (KRWU) which represents workers of both KORAIL and KORAIL Networks, according to which KORAIL raised its consignment for wages of KORAIL Networks to reflect 100 per cent of the market rate for comparable jobs. Pursuant to the agreement, the 2020 basic wages of KORAIL Network employees were to be determined by multiplying the market rate for comparable jobs at the time of the signature of the agreement by the rate of increase set out in the annual governmental Guidelines. This entailed a 13.2 per cent increase in KORAIL Network’s total labour cost as compared to 2019, while the 2020 Budget Guidelines only allowed for raises of up to 4.3 per cent only for workers whose average wage in 2018 was 90 per cent or less of the industrywide average or 60 per cent or less of the average wage at all public institutions. Therefore, despite having obtained a significantly greater budget for wages from the parent company, KORAIL Networks ended up raising its workers’ wages by 4.3 per cent only, citing the 2020 Budget Guidelines as the ground for this decision. The complainant alleges that in this instance, governmental Guidelines and management performance evaluations effectively neutralized an agreement freely reached between the parties, obstructing the wage increase needed for chronically underpaid workers.
13. 453. Further, on the control of “total labour costs” and its impact on the right to free collective bargaining on various wage components, the complainants allege that most employers in Korea, in both private and public sectors, have been paying their workers less than required by the law for overtime, night-time and holiday work, as well as for other statutory and holiday allowances. A watershed Supreme Court decision dated 18 December 2013 changed the situation by providing that any agreement reached between a particular employer and its workers about paying less than what the law requires for extended, night-time or holiday work is null and void, and workers must be paid the proper amounts of overtime pay they are owed according to the law. The complainants allege that the majority of private sector employers have paid the amounts of statutory and other allowances as required by the Supreme Court decision, whereas the majority of public sector employers have not done so. According to the complainants, since 2013, public sector workers have repeated similar lawsuits to force their employers to pay past withheld wages, benefits and allowances. Until 2021, Public employers who lost these lawsuits, were paying the court-ordered damages from their reserve funds rather than their labour cost budgets, over which the MOEF exerts tight control, and this was in accordance with the Budget Guidelines which provided that public institutions could pay the actual increases in the cost of wages as a result of payment of court-ordered damages out of their reserve funds, regardless of the limit on the annual increase in the total labour cost. However, the MOEF subsequently changed the Budget Guidelines in this regard and announced that it intends to induce public employers to reform their remuneration systems by revising the list of labour-related costs and expenses payable from accounts other than the total labour cost account, and that as of 2022, public employers were to include the additional wages they pay following court decisions over ordinary wage lawsuits in their total labour cost account. The institutions whose total labour costs would exceed the limit set out in the Guidelines will lose points on management performance evaluation, regardless of their paying or not court-ordered damages.
14. 454. The complainants allege that the new policy weakens the bargaining power of unions by pitting the workers who work overtime and those who don’t against each other. Meanwhile, the pressure that this new policy exerts on the total labour cost budget, induces public institutions to reduce the amount of ordinary wages at stake, and to do this they have to enter new collective agreements that are more disadvantageous to workers, and/or obtain the consent of unions representing the majority of their workers, or the consent of the majority of workers directly if there is no such union at the workplace, to alter the rules of employment. In other words, through the new Guidelines, in the making of which unions did not participate in any way, the Government is pressuring both public employers and unions to change their wage policies in ways more detrimental to workers.
15. 455. The complainants indicate that performance incentives or bonuses may represent up to 250 per cent and 100 per cent of the monthly wages of workers in public corporations and quasi-governmental institutions respectively. The Budget Guidelines recommend that institutions pay performance incentives out of their reserve funds. Pursuant to the Guidelines, the amount of the performance incentives paid depends both on the result of the management performance evaluation of the institution concerned, and the performance of the individual workers or their department. The complainants add that in its decision dated 13 December 2018, the Supreme Court of Korea ruled that performance incentives dependent on the results of management performance constitute part of the workers’ ordinary wages.
16. 456. The complainants indicate that the Budget Guidelines require the public corporations and quasi-governmental institutions to establish criteria for the differentiation of performance incentives to be paid to individual workers or their departments, dividing workers and departments into at least six grades according to their performance records. The highest grade should cover at least 10 per cent of the employees; and the two lowest grades together should also include at least 10 per cent of all employees. No single grade may contain more than 50 per cent of all employees. The Guidelines further provide that the workers obtaining the lowest grade should not be paid performance incentives, while the workers and departments garnering the highest grade should receive at least double the amount of performance incentives of those in the second-lowest grade.
17. 457. Concerning the impact of management performance evaluations on the performance incentives allocated to each institution’s workers, the complainants indicate that the 2022 Management Performance Evaluation Manual, performance incentives are to be allocated to each institution’s workers according to the final grade that the institution garners, within the amount of the budget set in the Budget Guidelines. According to the MOEF recommendation in the Reform Measures for Management Performance Evaluations of Public Institutions dated 31 August 2021, the workers of public corporations scoring S should receive up to 250 per cent of their basic monthly wages; those scoring A up to 200; B up to 150 and C up to 100 per cent, while the workers of corporations scoring D or E will not be paid any performance incentives. For workers of quasi-governmental institutions these percentages range between 100 and 40 for institutions scoring S to C respectively.
18. 458. The complainants state that public institutions in Korea indeed decide how to calculate the amounts of performance incentives as well as when and to whom they are to be paid in accordance with collective agreements with unions, or rules of employment established in consultation with the unions. Nevertheless, governmental guidelines determine much of the rules and the amounts of performance incentives to be paid to public sector workers in Korea. As an example of public sector workers having expressed their opposition to the rule of differentiation of performance incentives dictated by the Budget Guidelines, the complainants refer to the case of the Land and Geospatial Informatrix Corporation (LX), which paid significantly different amounts of performance incentives to its individual employees in 2016 as had been recommended by the Guidelines. The union in the company re-collected and re-distributed the performance incentives with some of the better paid workers’ voluntary contribution. The company reacted by forcing the president of the union to step down, however, the Supreme Court found this decision unlawful and ordered his reinstatement, arguing that the fact that he had led the redistribution of the 2015 performance incentives can be construed as his fulfilling the role he had as the head of the union and as an action to raise an issue with the company’s decision and there are no grounds to conclude that it was unlawful or unfair to raise and register his complaint about the company decision is such a way.
19. 459. The complainants state that in the past, seniority-based pay was the norm in the vast majority of public institutions in Korea. However, the Government decided to transform the remuneration system in the public sector to prioritize performance and skills. In this framework, the Government’s 2020 Economic Policy Direction which was published on 19 December 2019 provided for reviewing incremental measures to support transition from seniority-based pay to job and competence-based pay, for example through mitigating the impact of seniority by introducing performance review and strengthening the connection between productivity and wages, and building public support through social dialogue, for instance by assembling labour relations committees. In May 2020, the Government convened a meeting for remuneration reforms in public institutions, officially encouraging the heads of those institutions to adopt a performance-based and job-centred wage system.
20. 460. The complainants further indicate that on 19 May 2020, the Joint Action Committee for Public Sector Unions, a joint initiative of the KCTU and the Federation of Korean Trade Unions (FKTU) released a joint statement, demanding, among other things, that the MOEF refrain from pushing for the revision of management performance evaluation indicators with a view to promoting wage reforms that were included without consulting labour. The statement also emphasized that discussions on wage reforms ought to proceed through dialogue between the representatives of workers, including those representing the five industry level trade unions and federations from the KCTU and the FKTU and the Government and that the Government/MOEF, as the de facto employer of public sector workers, should not introduce a new wage system that utterly disrespects the concerns and wishes of workers. The complainants add that despite the foregoing statement, on 24 September 2020 the MOEF released the Revised Manual of Management Performance Evaluations for Public Institutions without ever having consulted labour representatives and in this revised version, it had included a new criterion within the “Remuneration and Benefits” indicator, namely “efforts and outcomes for transitioning into a more rational, job-based remuneration system”, which was assigned two points. Points were also assigned for “revising the remuneration policy on the basis of consent from labour”, which, according to the complainants, effectively meant disadvantaging public institutions that failed to garner the workers’ consent and therefore ultimately prevented unions form registering their complaints in any way. The complainants stress that it is essential for the Government to have sufficient dialogue with public employers and workers before introducing such a paradigm shift, because even if all the parties agreed to its introduction, it would be necessary to invest some time in reviewing and preparing for potential issues.
21. 461. The complainants state that wage peaks allow the employer to keep reducing the employee’s wage at a predefined rate year to year, once it has reached the peak, so that the employee can keep working in the same workplace for a longer time. The Government based wage peaks on section 19(2) of the Act on Prohibition of Age Discrimination in Employment and Elderly Employment Promotion (EEPA), which provided that the employer and the union in a workplace extending its retirement age to 60 years shall take the necessary measures, including the restructuring of its wage system. The complainants affirm however that the statute does not mention wage peaks. On 7 May 2015, the MOEF distributed the Recommendations Concerning Wage Peaks in Public Institutions, which were finalized after deliberation in the CMPI and the adoption of a resolution by this body. The Recommendations required all public institutions in Korea to adopt wage peaks. Wage peaks were also included as an indicator of management performance evaluation in the Manual released by the CMPI in September 2015. The complainants allege that by the end of 2015 all 313 subject institutions had adopted the policy. They indicate that in March 2018, the Government revoked the 2015 Recommendation, nevertheless, wage peaks remained part of the Management Guidelines, which in their revised 2021 edition provide that public corporations and quasi-governmental institutions are to adopt wage peaks in relation to every employee but may decide not to apply them to very low wage earners, such as those earning 150 per cent or less of the minimum wage. The 2021 Manual on Management Performance Evaluation also retained the application of wage peaks as an indicator of public corporations’ performance.
22. 462. The complainants cite the Financial Analysis of Public Institutions for the financial year 2018 according to which between mid-2015 when wage peaks were introduced and 2018, the wages of workers to whom the wage peaks applied were cut by 23 per cent a year on average, with the cumulative rate of wage loss amounting to 56.7 per cent during the 2.5 years wage adjustment period, while wage peaks served to extend the average retirement age only marginally, from 59.4 years to 60.2. They conclude that as the wage peaks clearly disadvantage workers, pursuant to section 94 of the Korean Labour Standards Act (LSA), before introducing them the employer must gain consent from the unions representing the majority of workers or the majority of workers themselves in the absence of such unions. However, unions at most public institutions in Korea feel pressured to accept wage peaks so that their respective employers can fare well on management performance evaluations to avoid other unwanted consequences. According to the complainants this amounts to interference by the Government in the free negotiation between unions and employers in public institutions, where both parties are compelled to consent because of the pressure to conform with Guidelines and management performance evaluation indicators.
23. 463. The complainants state that the Employee Welfare Fund Act allows the public sector employer to use the Employee Welfare Fund, to which both the employer and the employees contribute, to provide loans and financial aid for employees at low interest rates. According to the complainants, as of 2021, in-company loan programmes were in place in 66 Korean public institutions. On 29 July 2021 after deliberation and resolution of the CMPI, the MOEF released an amended edition of the Innovation Guidelines which instructed all public institutions to tighten their in-company loan programmes by imposing stricter eligibility conditions, reducing the amount of money available for loans and raising interest rates. The MOEF also reflected this change in the revised edition of the Management Performance Evaluation Manual released 1 October 2021, by including two new qualitative criteria, which were worth 1.5 points together, reflecting the new restriction on in-company loans. The complainants allege that these changes were introduced into performance management evaluation criteria despite strong criticism on the part of the Korean labour community, condemning this as an intervention in free negotiation between employers and unions, to which the MOEF responded by claiming that this is merely a non-binding guideline. However, according to the complainants, because of the risk of losing points on management performance evaluations, public institutions and their unions entered collective agreements downsizing the availability of in-company loans, while throughout this process, the Government refused to consult or engage with the labour community as a whole or with the unions of individual public institutions.
24. 464. In conclusion, the complainants state that the Korean Government unilaterally determines the wages and working conditions of public sector workers by employing the Budget, Management and Innovation Guidelines as well as management performance evaluations to pressure public institutions and their unions to agree to conditions disadvantageous to workers, such as the limit by which total labour costs may be increased, the amounts of performance incentives that may be paid and the rules governing their distribution, job-based pay and wage peaks and reduction of in-company loans for employees. More importantly, workers in Korea have no opportunity or channel through which to participate in decision making on these subjects. The complainants conclude that the Government’s practice violates the principle of free negotiation set out in Article 4 of Convention No. 98 and also goes against the principle of worker’s participation in decision-making on their working conditions.

B. The Government’s reply

1. 465. In its communication of 3 February 2023, the Government indicates that when establishing the Budget Guidelines, it had resorted to tripartite consultations through the Economic, Social and Labour Council (ESLC), which was previously called the Economic and Social Development Tripartite Council. The Government indicates that a body called “Public Sector Development Committee” (PSDC), which was intended to come up with future-oriented reform measures for the public sector was created under the ESLC. This body was composed of 15 members including a chairperson and five public interest commissioners and labour, employers and government were each represented by three commissioners. The PSDC held several meetings between September 2014 and April 2015. According to the Government, issues related to the 2015 Budget Guidelines were on the agenda of the ESLC meetings and two working-level meetings between the MOEF and worker representatives concerning labour proposals on the Budget Guidelines were held in November 2014. The outcome of these meetings was some progress on the issue of rate of contribution to Employee Welfare Funds, which although did not lead to an agreement, was finally considered by the Government in the partial revision of the 2015 Budget Guidelines.
2. 466. The Government further indicates that in November 2020 the ESLC, created the Public Institution Council, consisting of ten members from labour, Government and public interest groups with a view to revamping the wage system of public institutions, to reflect the objective value of the job in the wage system. An agreement was reached on the principle that the restructuring of the wage system will be implemented autonomously and gradually, through the agreement of labour and management in each public institution, rather than in a unilateral and standardized way. The Government adds that the ESLC decided to continue the labour-government dialogue for the follow-up concerning sustainable wage system in public institutions and finalized a detailed agenda on those matters. This decision entailed the holding of the second Public Institution Council on 25 June 2021, which facilitated a survey on public institutions’ wage system and wage peak. The Report on the Outcome of the Survey Onsite Public Institutions was issued by the public interest commissioners and the mission was completed on 24 March 2022.
3. 467. Regarding the applicable domestic law, the Government refers to the constitutional and legislative provisions guaranteeing the right to collective bargaining and indicates that even though Budget and Innovation Guidelines are informed, public institutions should first engage in their own decision-making process – by resolution of the executive board or otherwise – and propose revision frameworks, such as employment rules or collective agreements related to wages, welfare, contribution to employee welfare fund and in-company loans programmes. The Government concludes that therefore the Guidelines do not violate the right to collective bargaining under the Korean law. Public institutions may decide not to amend their employment rules or collective agreements in line with the Guidelines due to opposition from workers or labour unions. Even in such cases, the institutions are merely evaluated as insufficient in management performance evaluation regarding matters such as wages and welfare expenses.
4. 468. Regarding the alleged violation of the right of public sector workers to collective bargaining through the Budget Guidelines, the Government indicates that these are a type of management guideline under section 50 of the AMPI and their enactment and notification is a matter of internal supervision between the Government and public institutions. The MOEF finalizes the Budget Guidelines after deliberation and resolution made by the Public Institution Steering Committee, which also examines and evaluates whether they have been followed, including regarding the increased rate of the total labour cost, by assessing management performance. According to the Government, as the Supreme Court has ruled in a decision concerning the 2001 Budget Guidelines, the Guidelines do not have the force of legal regulations mandating specific rights or obligations. Their content concerning wages, welfare benefits and Employee Welfare Fund are merely internal recommendations to the investee (the institution concerned), and do not force or intervene in collective bargaining. The Government concludes that therefore the Budget Guidelines do not affect the public institution workers’ right to collective bargaining.
5. 469. Concerning the alleged violation of public sector workers’ right to collective bargaining through management performance evaluations, the Government indicates that while it ensures that the management of public institutions is autonomous and responsible, it also 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 “Management Evaluation Manual of Public Institutions” which does not have binding force and if public institutions do not comply, they will only be evaluated as insufficient in the management improvement concerning the relevant indicators. For example, three institutions had total labour costs greater than the ceiling indicated in the 2021 Budget Guidelines and reflected as an indicator in the Management Evaluation Manual, and many applied criteria different from those set forth in the Innovation Guidelines and the Manual concerning in-company loans. Therefore, the Government concludes that management performance evaluation or the Manual related to it do not violate the right of public institutions’ unions to engage in collective bargaining and to conclude collective agreements. It affirms that as management performance evaluation only concerns internal supervision by the Government, they do not need to be the object of prior consultation with the union.
6. 470. Concerning the alleged absence of channels of communication and participation for public sector unions, the Government reiterates its indications concerning the consultations in the PSDC in 2014 and the activities of the Public Institution Council in 2020 and 2021–2. It further adds that the parties to collective bargaining are employers’ and workers’ organizations, not the Government.
7. 471. More particularly, concerning the alleged unilateral decision of the Government on total labour costs, rates of increase and performance incentives, the Government indicates that the system of regulation of total labour cost aims at preventing excessive expansion and lax management of the public sector. Most public institutions receive government budget support and are legally granted exclusive business rights, and therefore strict management of their labour cost is essential. The Government operates the system in a flexible manner, for example by managing the rate of increase in labour cost according to the level of remuneration of institutions, with a view to reducing the wage gap between institutions. The Government adds that the Budget Guidelines only set the rate of increase in total labour cost commonly applied to all public institutions, while each institution can freely and autonomously decide on specific payment methods and amounts within the ceiling of the total labour cost based on labour-management agreements. The Guidelines do not invalidate collective agreements that have already taken effect, and Government agencies do not block or restrict the effectiveness of the concluded collective agreements. The Budget Guidelines are not binding standards for collective agreements and do not require Government approval for collective agreements.
8. 472. Concerning the allegations relating to the neutralization of the collective agreement on wage increase in KORAIL Network, the Government reiterates that the operation of the total labour cost system is flexible and takes into consideration the level of remuneration and the wage gap between institutions. It further indicates that the company has been gradually raising the increase rate (+1.0%–1.5%) of its total labour cost over eight years since 2015, in accordance with the Government’s differential management of public institutions’ total labour cost. It concludes that the complainants’ allegation that it has neutralized the collective agreement on wage increase at KORAIL Networks is unfounded.
9. 473. Concerning the new policy requiring inclusion of the amounts paid in implementation of court decisions concerning ordinary wage lawsuits in the total labour cost account, the Government indicates that most public institutions have not experienced such lawsuits or prevented them by reforming their wage system, encouraging the use of annual leave and reducing overtime work immediately after the lawsuit. However, several public institutions continued to be targeted by lawsuits because they had not amended their remuneration regulations. Therefore, in 2022, the exception to the total labour cost limit was abolished after eight years with a view to restore equity and fairness between institutions and after collecting opinions from related agencies. The exception was allowed because the payment of these amounts required preparation processes, such as amendment of regulations of each institution, but considering that it had been in place for quite a long time, as of 2022 additional wages paid according to the results of ordinary wage lawsuits were included in the total labour cost limit as well. The Government further reiterates that the Budget Guidelines are not binding and do not invalidate collective agreements that have already taken effect and that therefore the complainants’ allegation concerning the forced payment of additional wages following ordinary wage lawsuits from the total labour cost budget is invalid.
10. 474. Concerning performance-based pay, the Government indicates that it is proposed in the Budget Guidelines as an ideal model, as an action of management and supervision of the Government over public institutions, but as such does not infringe or have a direct impact on the right to collective bargaining.
11. 475. Concerning the wage peak system, the Government indicates that it was first introduced in 2016 with the agreement of tripartite groups and with the aim of reconciling the extension of the retirement age with robust youth employment. The Government emphasizes that wage peaks should be maintained for restructuring the retirement system in an employment-friendly manner. Therefore, the Government provides guidelines to public institutions stating that the labour cost of the newly employed is to be compensated by the reduction of costs resulting from the wage peak system. Nevertheless, the details of the wage peak system, such as the payment rate and the adjustment period can be designed reasonably considering the age distribution and wage system of each institution and decided by agreement between their workers and employers. The Government thereby rejects the allegation that it has forced labour and management consent in this regard.
12. 476. Regarding the tightening of requirements for obtention of in-company loans through the revision of the 2021 Innovation Guidelines and the alleged forcing of public institutions to accept collective agreements along these lines, the Government indicates that like the Budget Guidelines, Innovation Guidelines don’t bind public institutions but are proposed by the MOEF for innovation in their management. Their enactment and notification are part of the internal supervisory operations between the Government and public institutions. The Government affirms that pursuant to sections 4 and 94 of the LSA, public institutions that amend their internal regulations concerning in-company loans to bring them into conformity with Innovation Guidelines must obtain the agreement of their trade unions, and they may decide not to follow the Guidelines in their regulation of limits and interest rates of in-company loans. Unions can freely practice their right to collective bargaining guaranteed by the LSA or the Trade Union and Labour Relations Adjustment Act (TULRAA) despite the provisions of the Guidelines. The Government indicates that public institutions benefit from a series of business and financial advantages compared to similar private entities and as an investor, the Government makes recommendations regarding welfare benefits and in-company loans to their employers considering these special characteristics of public service, which do not interfere with collective agreements in public institutions.
13. 477. In conclusion, the Government rejects the complainants’ allegation that it sets the wages and working conditions of public institution workers unilaterally through Guidelines, indicating that it has enforced social dialogue on relevant Guidelines through the PSDC and other committees under the ESLC. The Government emphasizes that because most public institutions operate with its budget support and enjoy exclusive business rights, it is essential for the Government/investor to establish and publish Guidelines concerning their operation and this is in conformity with ILO standards. It further reiterates that the Guidelines only concern internal supervisory operations between the Government and public institutions and do not have a binding legal character. Public institution workers can freely exercise their right to collective bargaining through unions in accordance with domestic law and constitution. Therefore, Guidelines do not infringe the right to collective bargaining, nor do they have a direct impact on it.

C. The Committee’s conclusions

1. 478. The Committee notes that this case concerns the part of social dialogue in the elaboration of Budget, Management and Innovation Guidelines concerning public institutions established by the Government of the Republic of Korea, as well as the impact of those Guidelines, as enforced through the management performance evaluation, on the exercise of the right to free and voluntary collective bargaining by workers and employers of Korean public institutions, in particular with regard to wage and benefit related issues.
2. 479. The Committee notes that the complainants allege that by setting the Guidelines without consulting workers’ organizations, the Government unilaterally defines the ceiling of total labour costs and wage increases in public institutions; determines how performance incentives should be distributed; changes the structure and principles governing the wage system through the introduction of wage peaks and replacement of seniority-based wage system by a skill and performance-based one; requires changes to the wage system with regard to overtime and holiday work and, tightens the conditions of allocation of in-company loans to employees. The complainants allege that the Guideline recommendations regarding these matters have a great force in practice, as they are reflected in management performance evaluation indicators and scoring poorly in those evaluations can entail concrete consequences for workers and employers of public institutions concerned, in terms of budget allocation and possible dismissal of executives. The Committee notes that according to the complainants, this system puts a great deal of pressure on collective bargaining which takes place at each public institution, whereby employers and workers/unions feel compelled to validate in their agreements the measures recommended in the Guidelines, so as to avoid the unwanted consequences of a poor score at management performance evaluation. Therefore, the complainants allege that the Government practice violates the principle of free collective bargaining set out in Article 4 of Convention No. 98 as well as the principle of participation of workers in the determination of terms and conditions of employment.
3. 480. The Committee notes that the Government rejects these allegations by indicating that: (i) social dialogue has taken place under the ESLC, in 2014 concerning the 2015 Budget Guidelines through the Public Service Development Committee and, since November 2020 through the Public Institution Council concerning wage system restructuring with a view to reflecting the objective value of the job to the wage system; (ii) management performance evaluation and the related manuals concern only internal supervision by the Government and do not violate the right to collective bargaining, therefore they do not require prior consultation with unions; (iii) the enactment and notification of Guidelines is only a matter of internal supervision between the Government and public institutions. Guidelines have no legal force, do not invalidate effective collective agreements, and do not require Government approval of concluded collective agreements; and (iv) the right to collective bargaining is guaranteed under the Korean law and public institutions should obtain consent from unions, or in their absence, from the majority of workers, regarding matters related to wages and welfare. Public institutions may refrain from following the Guidelines’ recommendations due to opposition from workers, and in this case their decisions will be valid, and they would only be evaluated as insufficient in the management performance evaluation in relevant matters.
4. 481. The Committee notes that the Government agrees that the issues raised in the complaint are within the scope of collective bargaining in the public sector and affirms that the right to collective bargaining can be, and is, freely exercised in Korean public institutions. The Committee also notes 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, it notes that 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.
5. 482. Observing that workers and employers of Korean public institutions should have the right to determine terms and conditions of employment, including wage and welfare-related issues, by means of collective bargaining, the Committee recalls that, in its examination of a previous case concerning Korea, it has acknowledged that collective bargaining in the public sector called for verification of the available resources in the various public bodies or undertakings, that such resources were dependent on state budgets and that the period of duration of collective agreements in the public sector did not always coincide with the duration of the budgetary laws – a situation which could give rise to difficulties. The Committee considered at the time that the financial authorities could formulate in this regard recommendations in line with government economic policy [see Case No. 2829, 365th Report, para. 572]. As regards the matters in the case at hand, the Committee considers that in view of the special characteristics of most public institutions which the Government has underlined, such as their receiving Government budget support and their 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, the Committee also considers that, as in previous cases, to be compatible with the right to free and voluntary collective bargaining, this framework should “leave a significant role to collective bargaining” and that “it is essential that workers and their organizations 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” [see Cases Nos 3026 and 2941, 374th Report, para. 666].
6. 483. In view of the above considerations, the Committee notes that the present case raises two main questions: (i) whether the Government Guidelines, as upheld through management performance evaluations, still leave a significant role to collective bargaining in public institutions with regard to the issues raised in the complaint, and (ii) whether the workers and their organizations have been able to participate fully and meaningfully in designing the framework put in place through the Guidelines’ recommendations.
7. 484. Regarding total labour cost control and the ceiling on wage increases provided in the Budget Guidelines, the Committee notes that according to the complainants’ indication, which the Government does not challenge, the Budget Guidelines are established and notified annually. The Committee notes however that the Government refers to social dialogue in a tripartite body concerning them only on one occasion, in 2014, at which occasion, according to the Government no agreement was reached. The Committee notes therefore, that every year the workers in public institutions subject to the Guidelines and their organizations have been denied participation in designing the framework governing collective bargaining on wage increase and total labour cost control. As to the significance of the role left to collective bargaining concerning these matters, the Committee notes that, while the Government indicates that the Budget Guidelines set the rate of increase in total labour cost commonly applied to all public institutions, and each public institution can freely decide payment methods and the amount of the wage based on labour-management agreements, considering its characteristics and the total labour cost limit, the complainants state that individual public institutions do organize collective bargaining annually, but only after each year’s Budget Guidelines are released, determining the maximum rate of increase in the total labour cost. Collective bargaining is then used to decide how to allocate the total labour cost budget that has been established without consulting unions. It also notes the complainants’ indication, that the agreement concerning wage increases in KORAIL Networks which was concluded in November 2019, was finally not fully implemented on the grounds that it provided for an increase rate that went beyond the limit set in the 2020 Budget Guidelines. The Committee further notes the Government’s indication that in 2021 three – out of more than 300 – institutions went beyond the total labour cost limit provided in the Budget Guidelines.
8. 485. Concerning the inclusion of the amount of court-ordered damages paid to workers following ordinary wage lawsuits in total labour costs, which the Government confirms is intended to induce public institutions that have not already done so to amend their wage system, for example by encouraging the use of annual leave and reducing overtime work to prevent lawsuits, the Committee notes that this was introduced through the removal of the relevant exception from the 2022 Budget Guidelines. The Committee notes that the Government indicates in this regard that considering equity and fairness towards other institutions that had already revised their remuneration regulations, the eight years exception was abolished in 2022 after “collecting opinions from related agencies”, but it does not indicate if workers’ organizations were also consulted in this regard. It notes that the complainants allege that there was not a single opportunity by which unions could voice their opinions or participate in the making of the 2022 Budget Guidelines. As to the significance of role left to collective bargaining concerning this matter, the Committee notes that the Government indicates that in the case of “other” lawsuits related to wages and labour cost, individual institutions take measures after an autonomous agreement between labour and management; while additional wages paid according to the results of ordinary wage lawsuits from 2022, are included in total labour cost limit. The Committee thus observes that, as from 2022, there would appear to be no role for autonomous management labour agreements in relation to the source of payment of the second category and the impact that may have more globally on working conditions.
9. 486. Regarding the amount and differential distribution of the variable component of wages, namely performance incentives/bonuses – which the Committee notes constitute a significant part of the total wage – the Committee notes that the Budget Guidelines, which the Government confirms are drawn up without participation of workers’ organizations, set the general rule of differential distribution. As to the link between management performance evaluation score and the amount of bonus paid to the workers of the evaluated institutions, the Committee notes the complainants’ allegation, which is not challenged by the Government, that the relevant standard was formulated in the document entitled “Reform Measures for Management Performance Evaluations of Public Institutions”, without the participation of unions. Regarding the role left to collective bargaining on this matter, the Committee notes the complainants’ indication that public institutions indeed decide how to calculate the amounts of performance incentives as well as when and to whom they are to be paid in accordance with the collective agreements with unions or the rules of employment devised in consultation with unions, however, the complainants emphasize that the framework set by the Government Guidelines determines much of the rules.
10. 487. Concerning wage peaks, the Committee notes that according to the Government, they were first introduced in 2016 with the agreement of tripartite groups aiming at harmonizing the extension of the retirement age with the amendment of the “Prohibition of Age Discrimination in Employment and Elderly Employment Promotion Act” (EEPA). The Government further adds that in 2021 the Second Public Institution Council facilitated a survey on public institutions’ wage system and wage peak system. The Committee notes however that the complainants present the situation differently in this regard alleging that: the MOEF first finalized and distributed the Recommendations Concerning Wage Peaks in Public Institutions on 7 May 2015 requiring all public institutions to adopt wage peaks. This was also integrated as an indicator into the Management Performance Evaluation Manual as revised and published in September 2015, and by the end of that year all 313 subject institutions had adopted the new policy. The complainants state that the EEPA requires the employers and the unions of the enterprises that extend their retirement age to take necessary measures, including the “restructuring of their wage system”, without making any reference to wage peaks. The complainants add that the 2015 Recommendation was revoked in 2018, but the wage peaks remained as a recommendation in the Management Guidelines released that year and are also maintained in the management performance evaluation manuals released since then. As to the role left to collective bargaining in introduction of wage peaks, the complainants indicate that as a change in the conditions of employment that clearly disadvantages workers, the law requires the union/workers’ consent for its application within an enterprise, but unions at most public institutions in Korea feel pressured into accepting wage peaks so that their respective employers can fare well on management performance evaluations. The Committee also notes the Government’s indication that the details of the wage peak system, including payment rate and the period for adjustment can be designed reasonably by considering the age distribution and wage system of each institution and is decided upon the agreement of workers and employers of each institution.
11. 488. Regarding the replacement of seniority-based wage system by performance-based wage system, the Committee notes the complainant’s indication that the Government announced its decision to transform the remuneration system in the public sector to prioritize performance and skills more and declared its plans to support and incentivize job analysis to prepare for the shift to job-based pay in public institutions in the 2020 Economic Policy Direction published in December 2019. The Committee further notes that according to the complainants, the Joint Action Committee for Public Sector Unions, an initiative of the KCTU and the FKTU, released a statement in May 2020 urging the Government to stop unilateral efforts for wage reforms and to refrain from pushing for the revision of relevant management performance evaluation indicators, affirming that any discussion on wage reforms should proceed through dialogue between the representatives of workers, including those representing the five industry level trade unions and federations (the KCTU and the FKTU), and the Government. The complainants add that despite this call for dialogue, in September 2020 the MOEF released a revised edition of the Management Performance Evaluations Manual which contained a new criterion in wage management indicators concerning “efforts and outcomes for transitioning into a more rational, job-based remuneration system” without having consulted labour representatives. The Committee notes that the Government indicates that in November 2020 the ESLC established the Public Institution Council, a tripartite body, with a view to making efforts to revamp the wage system of public institutions to reflect the objective value of the job to it. It also refers to the survey facilitated by this tripartite body concerning the public institutions’ wage system and the report produced on that basis in March 2022. As to the role left to collective bargaining in regulating the transition, the Committee notes that the complainants indicate that the revised Management Performance Evaluation Manual also assigned points to the revision of remuneration policy “on the basis of consent from labour”, which, according to the complainants, would ultimately prevent unions from voicing their complaints on this topic so as not to compromise the management performance evaluation score. The Committee also notes that the Government indicates that in November 2020, the ESLC agreed on the principle that restructuring of the wage system will be implemented autonomously and gradually through the agreement of labour and management in each public institution, rather than in a unilateral and standardized way. The Committee recalls that in Cases Nos 3237 and 3238 that were lodged in 2016, it had examined allegations concerning the introduction of the performance-based wage system by certain public institutions without the employees’ consent, after the Government had issued unilaterally drafted recommendations in January 2016, providing for incentives and penalties in relation to this matter and the addition of a management performance evaluation indicator in this regard. The Government had replied that to address the situation it had removed the deadline for the introduction of the performance-based pay system; abolished the penalties (such as freezing total labour costs budget); and removed the criteria of the implementation of the new system from the assessment of public institutions index. The Committee had welcomed “the Government’s removal of intrusive penalties and incentives with a view to allowing the parties to restructure their wage systems autonomously on the basis of freely reached agreements between labour and management” [Case No. 3237, 386th Report, para. 200 and Case No. 3238, para. 290].
12. 489. Finally, concerning the tightening of conditions of allocation of in-company loans, the Committee notes that the standards initiating change in this regard were introduced in the 2021 Innovation Guidelines and were also reflected in the indicators of the Management Performance Evaluation in the Manual released the same year. As to the role left to collective bargaining regarding this matter, the Committee notes that the complainants indicate that the labour community strongly criticized this intervention as a violation of free negotiation between employers and unions, but the MOEF rejected the criticism responding that the Guidelines are non-binding. According to the complainants, public institutions and their unions had to enter collective agreements downsizing the availability of in-company loans, because they sought to avoid losing management performance evaluation points. The Committee notes however, that the Government indicates that modification of the internal regulations of public institutions on conditions of allocation of in-company loans requires the consent of unions and they can freely practice their right to collective bargaining in this regard despite the Innovation Guidelines. The Government further affirms that in 2021, many public institutions applied criteria on inter-company loans that did not comply with the Guidelines.
13. 490. In view of the foregoing, the Committee notes that the standards set in Government Guidelines in relation to the issues raised in the complaint, indeed constitute a framework that in several respects limits the content of collective bargaining at the individual institution level, although collective bargaining maintains a role in many aspects relating to the determination of the modalities of implementation of the general principles formulated in centrally issued recommendations. The Committee expresses its concern that the combined effect of many of the recent recommendations limits the effective space for collective bargaining and does so on the basis of guidelines over which there has been no recent consultation or workers’ participation.
14. 491. The Committee recalls that Case No. 2829 concerning the Republic of Korea, which was lodged in 2011, contained similar allegations relating to the restriction of collective bargaining in public institutions by means of “management directives” and “management evaluation”. On that occasion, the Committee, while being mindful of the fact that collective bargaining in the public sector calls for verification of the available resources in the various public bodies or undertakings, requested the Government to ensure that trade unions are consulted prior to adopting measures such as the issuance of budgetary guidelines regarding public institutions and the assessment of the soundness of their financial situation though performance management evaluation reports, audits or inspections [365th Report, para. 582(a)]. Furthermore, in Case No. 3237, the Committee recalled that tripartite discussions for the preparation, on a voluntary basis, of guidelines for collective bargaining were a particularly appropriate method for resolving the difficulties raised in the allegations and invited the Government to take the necessary measures so that reviews of the pay system may take place through collective bargaining [386th Report, para. 201]. Finally, the Committee recalls that measures should be taken to encourage and promote the full development and utilization of machinery for voluntary negotiation between employers or employers’ and workers’ organizations, with a view to the regulation of terms and conditions of employment by means of collective agreements [see Compilation of Decisions of the Committee on Freedom of Association, sixth edition, 2018, para. 1231].
15. 492. The Committee notes that in the present case, the complainants refer to the absence of channels of participation and communication for unions and indicate that the Government rejects the request of public sector unions to participate in discussions on these matters at the central level. In particular in relation to the ongoing replacement of seniority-based wage system by performance-based wage system, the complainants refer to the 19 May 2020 statement of the Joint Action Committee for Public Sector Unions affiliated to the KCTU and the FKTU, which urges the Government, as the de facto employer of public sector workers in public institutions, to engage in a centralized dialogue with representatives of workers, including the five industry level unions and federations. The Committee notes the Government’s reply indicating that the parties to collective bargaining are workers’ and employers’ organizations, not the Government.
16. 493. The Committee recalls in this regard that it has always emphasized the importance it attaches to the promotion of dialogue and consultation on matters of mutual interest between the public authorities and the most representative occupational organizations of the sector involved; and in the case concerning the public corporate sector, it highlighted the importance of making changes to working conditions such as cuts to wages and other allowances and benefits the subject of in depth consultation with the most representative organizations in the sector [see Compilation, paras 1523 and 1528]. The Committee therefore considers that the Government should refrain from formulating “recommendations” enforced through management performance evaluation indicators concerning terms and conditions of employment in public institutions without the workers’ participation. In the Committee’s view, to ensure the meaningful participation of workers’ organizations in designing the overall bargaining framework that is formulated at the central level, the Government should establish a regular consultation mechanism that would allow full and meaningful participation of workers’ organizations on the matters raised in the complaint so as to ensure that guidelines issued at central level do not effectively interfere with collective bargaining on the terms and conditions of employment in public institutions. The Committee requests the Government to keep it informed of the measures taken in this regard.
17. 494. The Committee notes the complainants’ allegations related to Case No. 1865 and the Government replies thereto, which it will consider in the framework of its examination of that case.

The Committee’s recommendation

1. 495. In the light of its foregoing conclusions, the Committee invites the Governing Body to approve the following recommendation:
   • The Committee requests 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 on the matters raised in the complaint, so as to ensure that the guidelines issued at central level do not effectively interfere with collective bargaining in public institutions. The Committee requests the Government to keep it informed of the measures taken in this regard.