Requirements for Unfavorable Changes to Employee Working Conditions to be Considered Reasonable according to Social Acceptability
1. The concept of “reasonable according to social acceptability”
The reason employers should obtain the consent of the employee group in changing the rules of employment unfavorably is to protect employee working conditions and prevent the employer from unilaterally revising the rules of employment disadvantageously. In cases where the employer changes the working conditions unfavorably without the consent of the related employees, the changed rules are invalid in principle. However, this may not be the case 1) in situations where the employer deems it inevitable to change the rules of employment due to business necessity or other logical reasons, 2) in situations where the changes will not be unreasonable for the employees, and 3) in situations where the employer cannot run the business well due to severely restricted managerial rights. If the employer cannot adjust working conditions due to constant employee rejection of such changes, the company’s competitiveness will deteriorate, as will employee job security.
In this case, judicial rulings explain that even though the rules of employment are changed unfavorably for the employees, if there is sufficient socially acceptable reason behind the need to make changes deemed justifiable, revision of employment rules without employee consent will not be invalidated (Supreme Court ruling on July 22, 2004, 200d da 57362). However, such determination should be done on a strictly limited basis due to the fact that this may circumvent the requirement, under the Labor Standards Act, to have employee consent when making unfavorable changes to working conditions (Supreme Court ruling on August 13, 2015, 2012 da 43522).
Related rulings
1. Supreme Court ruling on July 22, 2004, 200d da 57362 (part of a larger judicial ruling): In cases where there is sufficient socially acceptable reason to recognize justifiability in terms of both necessity and the details of establishment or revision, even when considering the degree of employee disadvantage, the effectiveness cannot be denied simply because there was no collective consent obtained from the employees to whom the previous working conditions or Rules of Employment applied. Whether there is socially acceptable reason or not shall be determined by collectively considering several items such as ① the degree of disadvantage the employees suffer under the changed Rules of Employment (ROE), ② the degree of employer necessity to change the ROE, ③ Acceptability of the ROE revisions, ④ efforts to replace or compensate for the changes to the ROE, ⑤ negotiating situation with the Labor Union, and ⑥ other general conditions in a domestic business.
2. Supreme Court ruling on August 13, 2015, 2012 da 43522 (part of a larger judicial ruling): Provided, in consideration of the purpose of legislation that making changes to the Rules of Employment that are disadvantageous for employees requires the process of receiving the consent of the employees to whom those rules apply, in accordance with Article 94, Paragraph (1) of the Labor Standards Act, if it is evident that the rules of employment were changed in a way unfavorable to the employees in terms of the stipulations in the previous ROE, application of “reasonable according to social acceptability” should be interpreted as necessary only on a limited basis and under stringent conditions.
2. Key items in recognizing changes as reasonable according to social acceptability
(1) Basic principles
In order to consider disadvantageous revision of employment rules as socially acceptable, the content shall not violate the purpose of the Labor Standards Act. Whether there exists socially acceptable reason or not shall be determined by collectively considering several items: ① the degree of disadvantage the employees suffer under the changed rules of employment, ② the degree of employer necessity to change the ROE, ③ acceptability of the ROE revisions, ④ efforts to replace or compensate for the changes to the ROE, ⑤ negotiating situation with the Labor Union, and ⑥ other general conditions in a domestic business. On the other hand, judicial precedent explains that changes shall be deemed reasonable according to social acceptability only on a limited basis under stringent conditions, and shall not be accepted automatically as done for socially acceptable reasons simply because it is necessary to revise the rules of employment.
(2) Criteria (6 items)
1) The degree of disadvantage the employees suffer under the changed rules of employment
In adjusting salary, severance pay and other such items, if such conditions do not seem remarkably disadvantageous for employees to accept, changes may be deemed reasonable according to social acceptability in collective consideration of the other five criteria.
2) The degree of employer necessity to change the ROE
In cases where the rules of employment revisions are unfavorable to employees, the revisions need to be necessary in terms of the company’s business conditions or organizational operations. If the rules of employment are changed in order to unify the working conditions due to organizational changes in the company, such as merger or acquisition, necessity to revise the rules of employment may be recognized.
3) Acceptability of the ROE revisions
In collectively considering the sequence or content of the rules of employment revisions, it should, from a legal standpoint, be deemed necessary enough to adopt such revisions. When the company introduces interim measures before full implementation or can change the provisions in a reasonable manner in the light of changing circumstances, acceptability of the changes may be recognized.
4) Efforts to replace or compensate for the changes to the ROE
In cases where the company introduces supplementary measures to improve other working conditions as a reasonable balance to the unfavorable changes for the employees (i.e., employees are not simply disadvantaged), this is regarded as reasonable according to social acceptability.
5) Negotiating situation with the Labor Union
The employer shall sufficiently explain the necessity and details of the unfavorable changes to working conditions, and shall make every effort to obtain the consent of the labor union representing the majority of employees, or if there is no such labor union, consent from the majority of employees. It is difficult for the courts to accept that changes are necessary and reasonable according to social acceptability without the employer engaging in sincere negotiation with the labor force. If the revised rules of employment apply to all employees, an employer receiving consent from only part of the work force shall not be considered reasonable according to social acceptability.
6) Other general conditions in a domestic business.
Under the situation where the revised working conditions are not determined as particularly disadvantageous in comparison with those of a company’s competitors, in cases where the employer cannot avoid changing working conditions unfavorably to overcome managerial difficulties, such changes should be deemed reasonable according to social acceptability upon consideration of other criteria collectively.
3. Application of the legal principle for “reasonable according to social acceptability”: Introduction of peak wage systems
(1) Introduction of peak wage systems
As extending retirement age in accordance with the law and introducing a peak wage system will not be considered as a mutually-beneficial exchange or closely connected, the peak wage system shall be regarded as unfavorable if the employees’ wages in the extended years of employment before retirement are less than their wages in the last ye
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