Constitutionality of Article 4 of the Act on the Protection, etc. of Fixed Term and Part Time Workers

[25-2(B) KCCR 248, 2010Hun-Ma219·265(consolidated), October 24, 2013]

Question Presented

Whether Article 4 Section 1 of the Act on the Protection, etc. of Fixed Term and Part-Time Workers, which prohibits employers from hiring a fixed term worker for a period exceeding two years(hereinafter the ‘Provision’), infringes upon the complainants’ right to contract (negative)

Summary of the Decision

If a fixed term employment contract is allowed to run without limit, general workers may not be able to refuse the one-sided offer of short term employment contract even against their will, which could result in increasing temporary, insecure employment and widening the gap between permanent and temporary workers. Therefore, in order to prevent such problems, it is necessary to encourage transfer the employment contract to open ended ones by curbing the use of fixed term employment contracts.

The Provision which prohibits employers from hiring a fixed term worker for a period exceeding two years may, in some cases, cause workers to be temporarily unemployed. However, such limitation is inevitable to induce employers to transfer fixed term workers’ status into open ended term basis. And it cannot be denied that the Provision generally has a positive influence on reducing job insecurity or improving working conditions. Therefore, the Provision does not infringe on the complainants’ freedom of contract.

Dissenting Opinion of Justice Lee Jung-Mi and Justice Cho Yong-Ho

As it is impossible to transfer all fixed term contracts to open ended ones after the expiration of initial fixed term of two years in the current situation where employability is low, employers may well deny the renewal of employment contracts with the fixed term employees. As a result of the Provision, fixed term employees, who expect to continue their work at the current workplaces after the expiration of the employment contracts even though on a fixed term basis, may end up being dismissed and unemployed against their will. As such, the Provision fails to stabilize job insecurity or improve working conditions. Rather, it deprives the employees engaged on fixed term contracts of the right to hold fixed term contracts exceeding two years, thereby excessively infringing on the fixed term workers’ freedom of contract.

Provision at Issue

The main text of Article 4 Section 1 of the Act on the Protection, etc. of Fixed Term and Part-Time Workers

Related Provisions

Intentionally omitted

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Parties

Complainants

1. Woo O-Tae(2010Hun-Ma219)

2. Choi O-Soon(2010Hun-Ma265)

3. Sohn O-Soon(2010Hun-Ma265)

Representative of the Complainants: Eun Chang-Yong and three others

Holding

The constitutional complaint is rejected.

Reasoning

I. Introduction of the Case and Subject Matter of Review

A. Introduction of the Case

(1) 2010Hun-Ma219

Complainant had worked for OO Tech. since March 1, 2008 as a factory worker based on short term employment contract. Upon the denial to renew his employment contract by the company on February 28, 2010, he filed this constitutional complaint on April 8, 2010, arguing that Article 4 of the Act on the Protection, etc. of Fixed Term and Part-Time Workers infringes on his fundamental rights.

(2) 2010Hun-Ma265

Complainant Choi O-Soon had worked for OO Trade Co. Ltd for seven years and two months from December 3, 2002 to January 31, 2010 and complainant Sohn O-Soon had worked for the company for nine years and two months from December 20, 2000 to January 31, 2010 as contract based workers. Upon the denial to renew their employment contracts by the company on April 27, 2010, they filed this constitutional complainton April 8, 2010, arguing that Article 4 of the Act on the Protection,etc. of Fixed Term and Part-Time Workers infringes on their fundamental rights.

B. Subject matter of Review

The complainants filed the constitutional complaint on Article 4 of the Act on the Protection, etc. of Fixed Term and Part-Time Workers as a

whole. But the employer’s refusal to renew employment contract in this case is based on the main part of Article 4 Section 1 of the aforementioned Act that prohibits employers from hiring fixed term workers for a period of exceeding two years. Therefore, the subject matter of review in this case should be confined to the main text of Article 4 Section 1 of the aforementioned Act.

The subject matter of review in this case is whether the main text of Article 4 Section 1 of the Act on the Protection, etc. of Fixed Term and Part-Time Workers (revised as Act No. 8074 on December 21, 2006; hereinafter the ‘Fixed Term Act’) (hereinafter the ‘Provision’) infringes on the complainants’ fundamental rights. The provision at issue in this case is as follows:

Provision at Issue

Act on the Protection, etc. of Fixed Term and Part-Time Workers (revised as Act No. 8074 on December 21, 2006)

Article 4 (Employment of Fixed Term Employee) (1) Any employer may hire a fixed-term contract worker for a period not exceeding two years (where his/her fixed-term employment contract is repetitively renewed, the total period of his/her continuous employment shall not exceed two years).

Related Provisions

Intentionally Omitted

II. Arguments of complainants and opinion of related bodies

(Intentionally Omitted)

III. Review on Justiciability

Article 68 Article 1 of the Constitutional Court Act stipulates that any

person who claims that his/her fundamental right has been infringed bythe exercise or non exercise of governmental power may file a constitutional complaint, and ‘governmental power’ in this provision includeslegislation. As for constitutional complaints against a statute, however, the alleged violation must be caused directly and presently by the statute itself of which he/she complains, not by any specific executive action taken to implement it (4 KCCR 813, 823, 91Hun-Ma192, November 12, 1992; 12-2 KCCR 361, 367, 2000Hun-Ma79, November 30, 2000).

In this case, the complainants who had been working as fixed term employers became unable to renew their employment contracts with current employers due to the enactment of the Provision. Therefore, the complaint against the Provision satisfies the requirement of directness as it directly restricts the complainants’ fundamental right. Also, we find that the complaint satisfies other elements of justiciability, too.

Therefore, the constitutional complaint is justiciable.

IV.Legislation of the Fixed Term Act and limit on the term of employment

A. Legislation of the Act

Before enactment of the Fixed Term Act, Article 23 of the former Labor Standard Act regulated the term of employment contract. It limited the term of contract for fixed term to one year in principle by stipulating that “the term of a labor contract shall not exceed one year, except in case where there is no fixed term or where a fixed term is necessary for the completion of a certain project.” The reason for the limitation was that an employment contract should be open ended in principle, and even when a fixed term contract is made as an exception, the provision, by stipulating one year for the fixed term contract, prevented employees from being forced to work for a long time. But since there was no

provision that prohibited the repeated renewal of contract, of course, the total term of contract was not limited.

In spite of the above provision of the former Labor Standard Act, however, in reality, the term for fixed term employment contract often exceeded one year. The courts affirmatively recognized the effect of fixed term contract. The courts ruled that the term of contract did not fall under the conditions of employment stipulated in Article 21 of the Labor Standard Act but simply showed the duration of contract, and therefore, could be determined by the parties to the contract. So, even though the term of employment contract exceeded one year, the term or duration of contract itself was considered to be effective. Employers could not argue that the contract had expired for passing one year within the duration of contract (employees could cancel the contract at any time after the lapse of one year), and when the term expired, the contract was also considered to be terminated unless there was special circumstance to be considered (Supreme Court Decision 95Da5783 Decided August 29, 1996). Due to the court decision, Article 23 of the former Labor Standard Act practically lost its effect and any labor contract exceeding one year could not be considered invalid.

Meanwhile, employers could evade the prohibition of dismissal under the Labor Standard Act by repeatedly renewing limited term employment contract less than one year. After the Asian financial crisis of 1997, fixed term employment contracts rapidly increased throughout all sectors of economy. As length of service of fixed term workers increased they were even misused by being assigned to regular work duties. Thereby the problem of irregular workers including fixed term employment became serious problem of our society. In this situation, the need to reorganize the system to correct unreasonable discrimination against irregular workers and to protect their working conditions became urgent. The Fixed Term Act was legislated on December 21, 2006 as Act No. 8074 and came into effect on July 1, 2007.

The main purpose of the Fixed Term Act, a bill submitted by the government, is to reduce unreasonable discrimination against irregular workers and curb abuse of such workforce while at the same time promoting flexibility and harmony in the labor market. The Act was expected to remedy the evil of repeated renewal of one year contracts brought on by the former Labor Standard Act which set the term of fixed term employment contract at one year. Also it was expected to prevent abuses by employers who evaded application of provisions in the former Labor Standard Act protecting workers such as salary or severance pay, by signing a less than one year contract. While the former Labor Standard Act was unable to restrict repeated renewal of fixed term employment contracts, the Act, by extending the term of fixed term employment contract to two years, showed the possibility to settle the abuse problem.

B. Limitation of Employment Period of Fixed Term Employees

Article 4 Section 1 of the Fixed Term Act which stipulates that “any employer may hire a fixed-term contract worker for a period not exceeding two years” allows an employer to hire a fixed term employee without proving a legitimate reason for up to two years. Therefore, employers can hire fixed term employees up to two years without limit. At the same time, the problem related to the legal effect of employment contract exceeding one year was naturally resolved.

However, under the proviso of Article 4 Section 1 of the Fixed Term Act which enumerates exceptions to the two year rule, an employer may hire a fixed term employee for a period in excess of two years where: (1) the task itself is temporary such as when the period needed to complete a project or a particular task has been set; when there is a vacancy arising from a worker’s leave of absence or dispatch and it is necessary to fill in until the worker returns to work; when the period needed for a worker to complete schoolwork or vocational training has

been set; (2) there is no possibility for deteriorating the worker’s status even without limitation on the period of service such as when labor contract is made with the aged or when the job requires professional knowledge and skills; and (3) limitation of employment period is not reasonable such as when the job is offered as part of the government’s welfare or unemployment measures as prescribed by the Presidential Decree and there is a rational reason prescribed by the Presidential Decree.

Meanwhile, Article 4 Section 2 of the Fixed Term Act prohibits repeated renewal of fixed term employment contract exceeding two years by stipulating that “where any employer hires a fixed term worker for more than two years although those grounds under the proviso to Section 1 do not exist or cease to exist, such fixed term worker shall be deemed as a worker subject to open ended employment contract.” Therefore, if an employer hires a fixed term employee for more than two years, the fixed term employee shall be considered as a worker who has made a labor contract with no fixed term. Moreover, if an employer who hires an employee for a period exceeding two years wants to terminate the employment for the reason that the term of labor contract has expired, it is considered as a dismissal which requires legitimate reasons under Article 23 of the Labor Standard Act.

V. Whether the Provision Infringes on the Fundamental Right

A. Issue of the Case

The complainants argue that the Provision violates their freedom to choose occupation and the right to work, as it makes it impossible for fixed term employees to continue their current jobs for more than two years unless being converted into regular employees. The complainants are trying to argue that even a fixed term worker should be guaranteed to enjoy the freedom to continuously work in the same workplace

(continuation of employment relation). The freedom of occupation under Article 15 of the Constitution and the right to work under Article 32, however, simply impose the duty of the state to provide minimum protection for the loss of job due to the disposition of employer, and cannot be the basis of a right on which an employee may claim protection from the loss of job (14-2 KCCR 668, 678, 2001Hun-Ba50, November 28, 2002). Therefore, this case has no issues on infringement on the freedom of occupation or the right to work.

Rather the complainants’ argument rests on the fact that due the Provision, as long as they have worked for more than two years, they are not able to enter into a labor contract exceeding two years with the same employer in the same company. As labor relations between employer and employee are formed by a bilateral labor contract, we conclude that the Provision restricts the freedom to make a fixed term employment contract exceeding two years, or in other words, the freedom of contract derived from Article 10 of the Constitution.

B. Whether the complainants’ freedom of contract is infringed

(1) Standard of Review

The right to pursue happiness guaranteed under Article 10 of the Constitution includes the general freedom of action from which the freedom of contract to decide whether, with whom and how a contract should be entered is derived. But as freedom of contract is not absolute, it can be limited by law for the purposes of such as protecting the minority and vulnerable populations, preventing monopoly, realizing substantive equality or promoting economic justice, but only in compliance with the principle of proportionality under Article 37 Section2 of the Constitution (20-2(A) KCCR 462, 475, 2005Hun-Ba81,September 25, 2008; 175 KCCG 690, 694, 2009Hun-Ba37, April 28, 2001, etc.).

Meanwhile, the ban on a fixed term employment contract exceeding

two years under the Provision is to mediate conflicting private interests between employers and employees. This is more related to regulating economic activities in social relationship, rather than to the domain of intrinsic and fundamental freedom. Therefore, the Provision should be scrutinized under a less stringent standard of review.

(2) Whether the Freedom of Contract is Infringed

(A) The purpose of the Provision, prohibiting any employer from hiring an employee on fixed term contract for a period exceeding two years, is to relieve the fixed term workers’ job insecurity and improve their working conditions through curbing the misuse arising from the successive use of fixed term contract workers exceeding a maximum of two years. Therefore, the legislative purpose of the Provision is legitimate. When the term of service is limited to two years, it compels employers to convert fixed term employees into regular employees in order to continue employment contract with them. This is a proper means to achieve the legislative purpose of relieving the fixed term workers’ job insecurity and improving their working conditions.

(B) If a fixed term employment contract is allowed to run without limit, general workers may not be able to refuse the one-sided offer of short term employment contract even against their will, which could result in increasing temporary, insecure employment and widening the gap between permanent and temporary workers. Therefore, in order to prevent such problems, it is necessary to encourage transferring the employment contract to open ended ones by curbing the use of fixed term employment contract. This could lead to job candidates having difficulties in finding a position. But as long as the limitation on the employment period of fixed term workers results in the overall conversion of fixed term employees into regular employees, exerting a positive effect on the improvement of job insecurity and working conditions, such a legislative decision should be respected.

Despite worries in the labor market that the enactment of the Fixed

Term Act would bring massive layoffs due to the impossibility to renew an employment contract, conversion into regular position or non-fixed term contract has gradually expanded, especially in public institutions, public sector or financial institutions, thereby successfully stabilizing employment in some parts. And meaningful evidence that the system causes instability in the employment of fixed term employees has yet to be detected. Rather, according to the analysis on the trend of irregular employment from 2003 to 2012 conducted by the Statistics Korea, the percentage of fixed term employees among salaried workers has gradually decreased from 17% before the enactment of the Fixed Term Act to 14% after the enactment. Also, the data of the Ministry of Labor collected by the nine panel surveys targeted to fixed term employees from April 2010 to December 2012 shows that most fixed term employees who work for more than two years tend to be guaranteed stable and continuous employment (approximately 87.7%. Among them, those who are considered to be non-fixed term employees is 392,000, accounting for 79.3% and the number of employees who are converted into regular positions is 42,000 or 8.5%). Based on these statistics, we can conclude that the Provision substantially contributes to employment stability by inducing conversion into non fixed employment contract.

However, it is undeniable that after the enactment of the Provision, employers might be burdened by converting fixed term employees into non fixed term workers, so that in reality, there are cases where employers replace existing fixed term employees with new ones rather than continuously hiring them or even further, try to outsource. But since the court’s decision that the term of service decided by both employer and employee is effective under the Former Labor Standard Act, job insecurity had worsened and disparity in working conditions had widened. Temporary and myopic measures to solve the immediate unemployment problem at hand such as allowing repeated renewal of fixed term employment contract may not able to provide fundamental solution to stability in employment in the long term. Some people argue

that for the job security of fixed term employees, it would be more effective to lead employers to convert fixed term employees into non fixed term staffs through imposing heavier cost on the use of fixed term employees. But imposing a burden solely on employers in the labor relationship which requires mutual understanding and modification is inherently not a fundamental solution.

In the employer-employee relationship which is basically a private one, legislative measures aiming to maintain fixed term worker’s job security can only be limited. In such a situation, limitation imposed by the Provision on the term of fixed term employment could result in some undesirable situation such as temporary unemployment. However, such limitation is inevitable in order to reduce job insecurity and improve working conditions by inducing employers to transfer fixed term workers’ status into open ended term basis. Therefore, it is difficult to conclude that the Provision imposes excessive restriction on the fixed term employees’ freedom of contract.

(3) Further, while the public interests pursued by the Provision such as job security and improvement in working conditions through inducing employers to transfer fixed term workers’ status into open ended term position are undeniably important, restriction on the freedom of contract by the Provision cannot be considered to be unacceptably serious. Therefore, we conclude that the restriction is not excessive.

(4) For the above reasons, the Provision does not excessively infringe on the complainants’ freedom of contract in violation of the principle against excessive restriction.

VI. Conclusion

For the stated reasons, it is so ordered that the constitutional complaint is rejected as set forth in the holding. This decision is based on the

unanimous opinion of the participating Justices, with the exception of the dissenting opinion of Justice Lee Jung-Mi and Justice Cho Yong-Ho as stated in paragraph 7 below.

VII. Dissenting Opinion by Justice Lee Jung-Mi, Justice Cho Yong-Ho

Unlike the majority opinion, we think the Provision imposes serious restriction on the complainants’ freedom of contract. Accordingly, we set forth below our dissenting opinion.

A. We basically agree with the majority opinion on the rationale of legislative purpose. As the proverb goes “the road to hell is paved with good intentions.” However, despite good intentions(legislative purpose) of the Provision, we have to point out the unconstitutionality of the Provision in that it failed to provide better status to the fixed term employees regarding employment contracts: rather it paved way for the inferior status (like “hell” in the proverb).

As the Provision prevents employers from entering fixed term employment contract exceeding two years, fixed term employees would be left unemployed if they fail to be converted into open ended contract or find another job. It seems impossible, however, to convert all the workers employed under fixed term contracts into open ended positions after the expiration of their initial fixed term contracts of two years in the current situation where employability is low. Therefore, employers may well deny renewal of employment contracts with the fixed term employees and replace existing fixed term employees with new ones rather than continuously hiring them or renewing contract, or even further, try to outsource in order to escape from the burden(see‘Guideline to the Irregular Employment Act’ published by the Ministry of Labor in August 2009). Therefore, in spite of the good intention of the legislative purpose (job security and improvement of working conditions), the Provision drives fixed term employees into far worse

positions by worsening job security as it makes them lose their jobs if they fail to be converted into regular positions.

B. As fixed term employees are always threatened by unemployment and in many cases and work under inferior working conditions, effective system and measures to improve their status are required: for example, 1) in a situation where overall conversion of fixed term contract into open ended contract is impossible, it is possible to give employers who convert fixed term employees into regular positions tax or social insurance incentives while maintaining two year contract term without restriction on the number of renewal, thereby gradually inducing conversion into open ended contract. In this case, the negative effect would be the routinization of contract renewal. But if employees choose to work for fixed term instead of being unemployed, at least the legislative purpose of stabilization of employment may be achieved; 2) it is also possible to increase the shares of unemployment benefits borne by employers as the resignation of fixed term employee is one cause of payment of unemployment benefits and employers who terminate fixed term contract are providers of the cause. There could be other measures to indirectly compel employers to convert fixed term contracts into open ended appointments through setting a fixed mandatory conversion rate into open ended contract. Or it is possible to impose burden on employers to pay considerable discharge allowance when employers fail to convert fixed term employees into open ended term employees after two years, thereby making the expense of using fixed term employees including discharge cost higher than that of using regular employees; 3) further, reflecting the current situation, while maintaining the existing restriction on the use of fixed term employees, it is possible to extend the maximum period of contract term so that fixed term employees get enough time to achieve more skills for the same duty (the government has submitted a bill to prolong the maximum period of fixed term employment contract by four years to the 18th National Assembly). In this case, employees can accumulate work experience and skills which

can be assets for finding a stable job and employers can be expected to convert skilled fixed term employees into open ended term employees while maintaining employment flexibility; 4) meanwhile, hiring fixed term employees for a regular and permanent duty can be prohibited from the outset. In order to effective realize this option, fixed term employment contract for a regular and permanent duty should be deemed to be open ended term employment contract. This may achieve the two purposes of stabilization of employment and improvement of working conditions.

As reviewed above, even though there are many options and systems to guarantee fixed term employees’ job security and improve their working conditions, the Provision fails to consider these options and corners fixed term employees who has been working for two years into fear of dismissal and unemployment. Therefore the Provision excessively infringes on fixed term employees’ right to contract.

C. Before the enactment of the Provision, fixed term employees used to have at least three options at the expiration of fixed term employment contract. These were being converted into regular positions; continuously working at the current company as fixed term employees; or leaving the company to find another job. Due to the Provision, however, the second option has disappeared contrary to the intention of both employees and employers. The Provision only provides two alternatives without considering specific situations or private autonomy of labor management, which is taking the unilateral offer of employer of converting into open ended employment or leaving the job. As a result, many employees who want to maintain their employment contract even on a fixed term basis[according to data presented during the oral proceedings, 64%(based on the survey of the Federation of Korea Trade Union) or 46%(based on the survey of the Korean Confederation of Trade Union) of fixed term employees want to continue to work even as irregular employees] are compelled to quit their jobs, leaving them unemployed and their

livelihood threatened. The government’s intervention into the labor market through enacting the Provision has brought about rigidity of employment and the undesirable result of most fixed term employees losing their jobs with the exception of a few cases where fixed term contracts are transferred to open ended appointments.

D. The Provision thoroughly deprives fixed term employees of the right to enter into a labor contract exceeding two years and the effect of restriction on their fundamental rights is grave. In contrast, in terms of achieving the legislative purpose of eliminating job insecurity and improving working conditions, the Provision is hardly considered effective. We also think that the examples of stabilization of employment in some parts or the statistics related to the trend of irregular employment mentioned in the Court Opinion fail to reflect the reality or simply pose as a statistical illusion.

We learned from the oral proceedings that conversion into open ended term positions is mostly found only in limited institutions such as public companies, public sectors or financial institutions. But for most small and medium sized companies including the companies where the complainants worked, it is a totally different story (according to the Ministry of Employment and Labor, the data published on July 2009 showed that 36% of fixed term employees were converted into open ended term positions and 37% of them became unemployed due to the expiration of fixed term contract but the data on January 2011 showed that 32% of fixed term employees were converted into open ended term positions and 48% of them became unemployed due to the expiration of fixed term contract). As such, the Provision excessively and unacceptably restricts the fixed term employee’s freedom of contract while the public interest achieved through it cannot be deemed significant.

E. Therefore, the Provision infringes on the complainants’ freedom of employment contract. It is also meaningful to mention that the Ministry

of Employment and Labor initially presented an opinion that the Provision can be considered unconstitutional on the basis of the rationale we have pointed out.

Justice Park Han-Chul (Presiding Justice), Lee Jung-Mi, Kim Yi-Su, Lee Jin-Sung, Kim Chang-Jong, Ahn Chang-Ho, Kang Il-Won, Seo Ki-Seog, Cho Yong-Ho(unable to sign and seal due to business trip)