Government Says Profit-Linked Bonuses Are Not Subject to Labor Disputes, Drawing Union Anger

South Korea’s government has told unions that demanding a fixed share of a company’s operating profit as a performance bonus does not, in itself, qualify as a subject for a labor dispute.

The Ministry of Employment and Labor issued detailed guidance on performance bonuses and business-management decisions on Sept. 3. The move followed President Lee Jae-myung’s request for clearer standards after Samsung Electronics’ union said it would seek talks over a southwestern semiconductor megaproject and unions at some large companies demanded bonuses linked to operating profit.

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Demands for management performance bonuses linked to company profits can be discussed voluntarily by labor and management, but they are difficult to view as mandatory bargaining subjects or matters for mediation and labor disputes under the Trade Union Act.

The guidance says bonuses tied to sales, operating profit or net profit may affect the rights of third parties, including the state and investors, and therefore are difficult to treat as mandatory bargaining subjects. Because operating profit is calculated before interest, corporate taxes and dividends are deducted, the ministry said requiring a portion of it to be allocated first for bonuses could restrict a company’s freedom to conduct business. It said employers and unions may still discuss such arrangements voluntarily, but recommended negotiating bonuses as a fixed amount or as a share of salary or base pay instead.

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The government has created a basis for employers to refuse bargaining, which will instead block dialogue between labor and management and lead to extreme struggles.

The ministry also drew a line around business decisions. Factory construction or relocation, business sales or acquisitions, and the introduction of artificial intelligence or other new technology would not themselves require bargaining. Talks could begin when specific plans for layoffs, restructuring or reassignment create objectively foreseeable changes in working conditions. Those talks could cover employment security, work patterns, hours and health and safety measures.

The guidance has no legal force, but the ministry expects labor relations commissions to use it when assessing bargaining and dispute matters. It said unions could be advised to change demands that fall outside mandatory bargaining, and that strikes over profit-linked bonus demands could be deemed illegal. Employers that refuse to bargain in such cases might also avoid a finding of unfair labor practice.

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This is an unlawful administrative action that narrows the right to strike through guidance without legal delegation. We will demand that the implementation guidance be withdrawn.

Unions sharply rejected the policy. KCTU legal office head Jeong Ki-ho said bonus demands are fundamentally based on company profits and that bargaining rights should not depend on how a demand is formatted. Korea Employers Federation welcomed the guidance, saying it could reduce confusion caused by what it called excessive demands from some unions.

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The implementation guidance is meaningful as a guideline that can reduce such confusion in the future.