Hyundai Strike Accord Opens New Debate

The first test of South Korea’s new labor laws has ended with a compromise that averted a potentially violent strike against Hyundai Motor Co. but raises questions about the country’s commitment to its much-heralded economic reforms.

Under the agreement reached early Monday, Hyundai sharply reduced the number of layoffs it had proposed and granted other concessions to unions. Business groups attacked the settlement as undermining the credibility of South Korea’s recent labor reforms, which are supposed to make it easier to lay off workers.

The troubled South Korean auto maker--which is struggling to overcome a 50% drop in sales because of the slump in the domestic economy--reluctantly agreed to pare back the number of people it had pink-slipped in July from 1,538 to 277.

The remainder of those targeted for firing will be put on unpaid leave for 18 months, six months of which will be spent in retraining.

Hyundai also agreed to give severance pay to the fired workers, contribute to a workers’ welfare fund and drop legal actions against union leaders involved in the illegal walkout.

In exchange, South Korea’s most powerful unions consented for the first time to allow a major company to lay off workers for economic reasons.

Though that is an important symbolic step in a country with a tradition of lifetime employment, critics said Hyundai’s concessions will simply lead to more illegal strikes, slow the reform process and scare away foreign investors hoping for a more flexible labor environment.

But representatives of Hyundai, the unions and the government called it a victory because it averted violence in Ulsan, where more than 5,000 angry workers and their families had barricaded themselves in Hyundai’s main plants to protest the layoffs.

And others called it an innovative, face-saving compromise that bore little resemblance to the bloody labor confrontations that South Korea has come to expect.

“Korea seems to have shown it can deal in this issue without resorting to violence,” said James Rooney, president and chief executive of Ssangyong Templeton Investment Trust Management Co. in Seoul.

The coming year is seen as pivotal for South Korea’s powerful unions. The slowdown in the economy--which has already pushed the jobless rate to 1.65 million--will hit labor unions particularly hard because the initial reforms are targeted at heavily unionized areas such as big industrial companies, the financial sector and government.

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Unlike previous South Korean leaders who have relied on riot police to quell labor uprisings, President Kim Dae Jung sent in government negotiators last week to find middle ground.

Hyundai, which claims the strike cost it and its subcontractors $1.3 billion in lost business, hopes to restart its operation soon.

Hyundai spokesman Shin Hyun Kyu said the company felt the layoffs, however small, were a “step in the right direction.”

Prior to the strike, South Korea’s largest auto maker--whose work force now numbers around 36,000--succeeded in persuading 8,000 employees to resign or take early retirement.

Most union workers also appeared to support Monday’s agreement, although a few frustrated members went on a rampage at the union’s headquarters in Ulsan.

“Overall, I think it’s favorable,” said Park Kyong Soo, 30, an engine-parts processor for Hyundai. “The company preserved its principle [of economic layoffs] and the workers got the practical benefits.”

The Hyundai case is expected to have a significant effect on labor-management relations in South Korea, since it was the first major test of a controversial law passed last spring to address concerns of foreign investors and the International Monetary Fund.

The law was designed to make it easier for firms to legally lay off employees during times of economic stress.

South Korea’s five largest employer groups--including the Federation of Korean Industries and the Korean Employers Federation--attacked Monday’s agreement on the grounds that Hyundai was not allowed to implement its layoffs according to the new law.

They claim the government’s intervention was politically motivated and ill-advised and will increase the likelihood of illegal strikes during future layoffs.

Analysts expect the Hyundai case will make it more difficult for other South Korean conglomerates, union or nonunion, to push through restructuring efforts that are designed to reduce debts and increase efficiency but will inevitably lead to job cutbacks.

Samsung, which is not unionized, is reportedly considering a reduction of as many as 15,000 jobs.

“Relative to what needed to be done in order for [Hyundai] to recover reasonable levels of profit, this agreement falls short,” said Richard Samuelson, head of research at SBC Warburg Dillon Read in Seoul.

He said Hyundai needs the flexibility to slash any fat from its budget--particularly its excess payroll costs--to remain competitive given the global auto glut and the dismal domestic market.

But union officials said South Korea’s business environment should be more stable now that Hyundai and the unions have demonstrated that they can work together to avoid violent confrontations and reduce layoffs.

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Yoon Young Mo, international secretary for the Korean Confederation of Trade Unions, one of the nation’s two largest trade unions, said the Hyundai agreement was simply a reminder to corporate Korea that there are limits to the new labor law.

“Just because the law opens up the possibility for large companies to go ahead and fire employees does not mean they can go ahead any time they like,” he said.

Lee Byoung Hoon, a research fellow at the Korea Labor Institute, said the union penetration of the Korean work force will drop from 12% to less than 10% by the end of this year.

Increasingly, militance will lose its effectiveness, he said.

Unless the unions learn to succeed at the bargaining table instead of on the streets, “they will not survive,” he said.

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Chi Jung Nam of The Times’ Seoul bureau contributed to this report.