Supreme Court: "More Favorable Employment Conditions Must Be Specified in Contract to Apply Over Work Rules"

Supreme Court Grand Bench.
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[Asia Economy Reporter Choi Seok-jin, Legal Affairs Specialist] The Supreme Court has ruled that when employment rules are changed to the detriment of workers, the previously favorable working conditions will continue to apply only if those conditions are explicitly stated in the individual employment contract.

Interpreting Article 97 of the Labor Standards Act, which states that "an employment contract that sets working conditions below the standards set by the employment rules shall be invalid in that part," in reverse, the part of an individual employment contract that sets working conditions more favorable than the standards set by the employment rules is valid. However, this applies only when the worker and employer have separately agreed on working conditions exceeding the standards set by the employment rules in the individual employment contract.

The Supreme Court's Third Division (Presiding Justice Ahn Cheol-sang) announced on the 8th that it overturned the lower court's ruling in part, which had ruled against defendant C School Corporation operating B University, in a wage claim lawsuit filed by Professor A of a private university, and remanded the case to the Gwangju District Court.

The court stated, "The lower court's judgment contains errors that affected the ruling by misunderstanding the hierarchical relationship between employment rules and individual employment contracts, as well as the legal principles regarding disadvantageous changes to employment rules," and added, "The grounds for appeal pointing out this issue are valid."

Mr. A was newly appointed as an assistant professor at B University in March 1994 and was continuously reappointed, eventually promoted to full professor in April 2005.

C Corporation maintained a "step system" until 1998, paying salaries based on seniority steps plus various allowances, but changed the pay system to an "annual salary system" reflecting the previous year's performance of faculty members, which was implemented from 2000.

Mr. A filed successive lawsuits claiming the wage difference for 2007?2016, arguing that the change in the pay system was made without board resolution and without obtaining the consent of the majority of workers, despite the employment rules being changed to the detriment of workers, and won the cases.

The reason was that the repeated renewal of Mr. A's employment contract with C Corporation recognized a continuous employment relationship, and it could not be considered that Mr. A accepted the change to the annual salary system during the reappointment process. After his initial appointment in 1994, Mr. A did not separately draft employment contracts or agreements related to working conditions upon renewal.

After losing consecutive lawsuits with other professors, C Corporation conducted a vote among 145 full-time faculty members regarding the change to the annual salary system in 2017, which passed with 100 out of 107 participants voting in favor.

Nevertheless, Mr. A did not back down and filed a lawsuit claiming the wage difference for the 2017 academic year (about 35 million KRW plus delayed interest).

Both the first and second trials ruled in favor of Mr. A, finding that the step system employment contract between Mr. A and C Corporation was still valid.

Although wage-related matters can be stipulated in employment rules, if the working conditions in the employment contract are more favorable to the worker than those in the employment rules, the employment contract naturally takes precedence.

The second trial court largely adopted the reasoning of the first trial court's ruling with some modifications.

The first trial court stated, "The continuous employment relationship between the plaintiff and defendant has been ongoing and repeatedly renewed since March 1, 1994, and since the plaintiff's salary calculated under the step system employment contract is more favorable than the salary calculated under the annual salary system according to the employment rules, even if the plaintiff's consent to the change to the annual salary system on August 16, 2017, is deemed lawful as the defendant claims, the disadvantageous change in the employment rules does not apply over the favorable employment contract."

The second trial court modified the part of the first trial court's reasoning, "The continuous employment relationship between the plaintiff and defendant has been ongoing and repeatedly renewed since March 1, 1994," to "Since the plaintiff was newly appointed as an assistant professor of the defendant on March 1, 1994, when the existing step system was in effect, and the employment relationship between the plaintiff and defendant has continued since then, it can be recognized that an employment contract was established between the plaintiff and defendant to determine wages according to the existing step system (even if no explicit employment contract stating this was drafted between the plaintiff and defendant, it should not be viewed otherwise)." In other words, even if a separate contract explicitly applying the step system was not drafted upon renewal, the more favorable step system applies over the changed employment rules.

However, the Supreme Court overturned this conclusion of the second trial.

The court concluded that since Mr. A did not explicitly state the application of the step system in the contract with C Corporation, the annual salary system stipulated in the employment rules, which was changed with the consent of the faculty in 2017, should be applied.

The court premised its decision by stating, "The principle of free determination of working conditions under Article 4 of the Labor Standards Act, which states that 'working conditions shall be determined by the free will of the worker and employer on an equal footing,' must be observed even when employment rules are changed to the detriment of workers through collective consent."

It continued, "Therefore, even if the employment rules changed to the detriment of workers have been approved through collective consent, they cannot take precedence over the existing individual employment contract parts that set more favorable working conditions. However, this legal principle applies only when the worker and employer have separately agreed on working conditions exceeding the standards set by the employment rules in the individual employment contract. If the individual employment contract does not specifically stipulate working conditions, the working conditions set forth in the employment rules and other regulations should be applied to the worker."

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