[NEWS IN FOCUS] Court rules that bossy smart system means Posco has to make amends

Industry

Published: 02 Aug. 2022, 15:32

[NEWS IN FOCUS] Court rules that bossy smart system means Posco has to make amends

Members of the Korean Metal Workers’ Union celebrate the Supreme Court's decision that ordered Posco to hire its 55 subcontracted workers as regular employees in front of the court in Seocho District, southern Seoul, on July 28. The banner says it welcomes the court's ruling. [KOREAN METAL WORKERS' UNION]

Korea's manufacturing industry is in a panic over the Supreme Court's latest ruling against Posco. The court ordered the steelmaker to hire its subcontracted workers as regular employees, which could cost the company some 2 trillion won ($1.5 billion) per year.

The July 28 ruling ended an 11-year legal battle between Posco and its 59 subcontracted workers, who filed suits against the steelmaker in 2011 and 2016, arguing that they should be recognized as regular employees because they worked under the direction of the company.

Their argument lies in the difference between "dispatched workers," who are dispatched from licensed manpower companies and "subcontractors," who work under a subcontracting agreement under a service provider company. The primary difference between the two lies in who supervises and controls them.

The Posco workers argued that the work they did was the same as dispatched workers despite Korean law specifying that manufacturing companies cannot have dispatched workers. The Supreme Court acknowledged the act as an "illegal dispatch of workers" and ordered Posco to hire the 55 workers as their regular employees. It rejected the suits by the four people who already passed retirement age.

The 59 workers were employed at Posco’s Gwangyang steel mill in South Jeolla.

The lower court dismissed the suits in 2013 but an appeals court reversed the ruling in 2016.

Posco issued a statement saying that it immediately "sent the 55 workers letters of employment” and will shortly offer them “job training and assign them to suitable positions.”

“We will thoroughly review the ruling to come up with follow-up measures,” Posco said.

The decision is likely to have a major financial impact on Posco which currently employs around 15,000 subcontracted workers.

Hyundai Motor and Kia are also in legal battles with some of their workers regarding the same issue.

In Korea, manufacturing industries, especially steelmakers and automakers, traditionally use workforce by making deals with subcontractors for flexibility and reduction of labor costs.

The simulation of smart factory at Posco using the manufacturing execution system [JOONGANG PHOTO]

A major factor in the court’s ruling was the Manufacturing Execution System (MES) the subcontractors used during their work. They argued they were ordered to use the system, which they said was equal to them receiving direction from the company.

“In the case of subcontracted workers, they cannot be told any directions or orders from the company,” said Park Su-bin, head labor attorney at Jae IL Labor and HR Consulting Firm. “That distinguishes them from dispatched workers, who are allowed to get directions and commands.”

MES, which is also referred to as the smart manufacturing process, is a computerized system to optimize the manufacturing process by connecting, monitoring, documenting, and controlling the entire production lifecycle from raw materials to finished goods. MES helps improve quality and reduce inventory and cost, and is an essential tool in order for a factory to become a smart factory.

A smart factory is defined as a factory where production processes are combined with digital technology, smart computing and big data and advanced networks to create an agile, automated manufacturing environment.

The MES shows workers what to do, so all workers must look at the system while working. The subcontracted workers argued that the act of looking at the monitor and being told by it what work to do is the same as getting directions from the company.

And the Supreme Court agreed.

“The plaintiffs performed tasks after being told by the computer system,” the Supreme Court said. “The act can be recognized as a binding work-related order.”

But it's not only major manufacturing companies that are worried about what the ruling will mean for their future. The Korean government has been pushing hard for the expansion of smart factories, with the Ministries of Employment and Labor and SMEs and Startups consistently raising their budgets for the development of such factories.

Korean companies started to adopt smart systems in the early 2000s following the global trend.

A Posco employee working in a steel mill in Pohang [YONHAP]

Many business lobbying groups and civic groups also spoke out in opposition of the Supreme Court's decision, arguing that the ruling was made “not considering the situations of workers in the fields” and will have a “negative impact on national competitiveness.”

“Subcontracts are a universal method that is being used globally for production efficiency including in competing countries in the sector of steel like Germany and Japan,” the Korean Enterprises Federations (KEF) said in a statement.

“And MES is just a system that helps to raise efficiency and strengthens safety. Foreign countries do not consider using MES as illegal.”

“If the Supreme Court continuously makes decisions like this on similar cases, it will drop our companies’ competitiveness and will eventually lead to a huge job loss.”

The Korea Iron and Steel Association also issued a statement agreeing with the KEF, adding that the ruling will “inevitably come at the expense of steelmakers,” which will leave Korea “behind in the competitive global steelmaking industry.”

Experts are in agreement.

“MES is just a system that details worksheets, it cannot be seen as ordering or commanding workers,” Kim Young-mun, an honorary professor at Jeonbuk National University’s law school, said. “This is a ruling that goes against the global movement toward digitalization.”

The tremendous labor cost is another problem, they argue.

Posco currently has around 15,000 subcontracted workers working in its Gwangyang and Pohang plants, making it the country’s largest employer of subcontracted workers. If the company has to hire them all as regular employees, it will have to spend around 2 trillion won per year on labor costs.

Some 800 subcontracted workers have filed similar suits against Posco.

The Posco ruling is expected to impact similar lawsuits against Hyundai Steel and Hyundai Motor.

Hyundai Steel currently has some 7,000 subcontracted workers, according to data from the Korean Confederation of Trade Unions, which would cost the company some 665 billion won if it had to hire them as regular employees. Hyundai Motor has around 3,000 workers, which would cost it some 240 billion won to hire as regular employees, while Kia would have to pay up 86 billion won to hire its 900 workers as regular employees.

“The latest ruling against Posco will have a huge effect in future lawsuits as the court is likely to make similar decisions,” said Attorney Park from Jae IL Labor and HR Consulting Firm.

BY SARAH CHEA [chea.sarah@joongang.co.kr]