Balancing Corporate Reality and Labor Protection
China Times editorial (Taipei, Taiwan, ROC)
November 5, 2011
Summary: Huga Optotech and Everlight Electronics fired the first shot, Over mere days, the tech industry suffered an unexpected economic downturn, The Council of Labor Affairs finally admitted that "unpaid leaves are on the rise." President Ma participated in a business forum at the Hsinchu Science Park. The downturn affects both labor rights and corporate survival, The government must balance business reality and labor rights. Being biased towards either party could lead to a lose/lose/lose scenario in which labor, business, and society are all losers.
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Huga Optotech and Everlight Electronics fired the first shot, Over mere days, the tech industry suffered an unexpected economic downturn, The Council of Labor Affairs finally admitted that "unpaid leaves are on the rise." President Ma participated in a business forum at the Hsinchu Science Park. The downturn affects both labor rights and corporate survival, The government must balance business reality and labor rights. Being biased towards either party could lead to a lose/lose/lose scenario in which labor, business, and society are all losers.
Unpaid leaves are a response to reduced orders. When utilization falls below capacity, businesses give unpaid leave to reduce costs and reduce losses. For businesses more flexible manpower usage enables companies to immediately lower costs. Immediately giving employees unpaid leave reduces capital costs. Businesses do not have to bear huge severance costs. The immediate reduction in income often impacts the lives of workers whose salaries were not high to begin with. But on the other hand, the alternative to unpaid leave may well be lay offs. Unpaid leave means workers still have some work, They still have some income. They are at least not completely unemployed.
During the financial tsunami, over 800 domestic companies gave over 200,000 unpaid leaves. The government had a laissez-faire policy. It imposed no legal standards. Once the economic recovery gradually reduced the number of workers on unpaid leave, no one gave it any more thought. But the recent wave of economic decline was unexpectedly rapid. We experience a new downturn even before we experienced a recovery. Unpaid leaves returned, with a vengeance. The government hardly wants to see an increase in the number of unpaid leaves, especially before a general election. Officials resorted to moral suasion. They also imposed legal constraints. Everlight Electronics announced the cancellation of unpaid leaves. It even added that it was "cooperating with government policy." Its statement had unspoken implications.
But based on their statements, government officials have yet to get the point. They remain out of touch with reality. For example, CLA Chairman Jennifer Wang told the Legislative Yuan that the Council of Labor Affairs will draft amendments "enabling employers and employees to reduce working hours." The labor agreement would include provisions for a "corporate commitment to profit sharing." Workers meanwhile would agree to unpaid leave. Employers might "be required to use future profits to make up for lost salaries."
This policy is riddled with problems. Should corporations issue dividends? Different industries have different business practices. They are internal standards. Most companies include them in their articles of incorporation. They are established by the shareholders, They have no relationship to whether employees are given unpaid leave, Businesses which show a profit may issue bonuses to employees. They may offer stock dividends. But these benefits need to be based on long-term growth. Corporations may need to re-invest their profits rather than issue dividends. On the other hand, even businesses which have not turned a profit may wish to encourage employees and boost morale by issuing year-end bonuses or dividends. The circumstances are often different. For the Council of Labor Affairs to artificially link unpaid leave to dividends and profit sharing is unreasonable and difficult to implement. It interferes with sound corporate governance.
Using future profits to "make up" income lost during unpaid leave is obviously infeasible. Unpaid leave represents time the employee did not work. One should not be paid for it in the first place, The Council of Labor Affairs argument about "making up" lost income attempts to look after labor. But it is obviously unreasonable. Businesses would find it unacceptable.
The solutions proposed by the recent forum in Hsinchu Science Park is probably more reasonable and more acceptable to both parties. Business leaders proposed greater flexibility in working hours. But employers and employees disagreed on how. Current law stipulates 48 standard working hours every two weeks. The business community proposed capping standard working hours on a yearly basis. Labor groups voiced strong opposition, They said it had too negative an impact on labor rights. But the standards could be capped on a monthly or bimonthly basis. They could take into consideration the general economic slowdown and reduced orders. More often than not one or two months is enough for a company to recover. This slight relaxation is probably acceptable to business leaders.
Corporations want employees to take unpaid leave only because they have no choice. If the economy is not in decline, if orders are not greatly reduced, businesses will naturally want to run at full capacity. When businesses give unpaid leave instead of laying workers off, it means the expected reduced orders is merely cyclical. But if orders fail to increase, if the long term remains negative, then businesses will lay people off without hesitation. To wit, Quanta and Inventec. If companies cannot survive the transition period via unpaid leave, or if the legal requirements for unpaid leave are too harsh, they will be forced to lay people off immediately. For workers, this is not necessarily a good thing.
On the othe hand, if conditions for unpaid leave are too lenient, workers will become even more vulnerable. If unpaid leave is made a legal requirement, but the conditions are too lenient, the result will be "moral hazard." In the past, when the number of orders fell, companies were still willing to give employees the same salary. But after the unpaid leave system is implemented, and the number of orders fall, businesses may force employees to take unpaid leave in order to save on costs. Labor rights may be even less secure. Therefore one must balance three factors: the protection of labor rights, the maintenance of labor market flexibility, and the requirements of business. One must seek a balance. This will test the government's wisdom and ability.