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For whose sake?

Shopowners could see their retirement money disappear and workers could lose jobs.
Sept 29,2017
I haven’t been to a Paris Baguette store for a long time. I refused to buy their breads and cakes out of loyalty to my wife, who opened a bakery nine years ago, and also out of resentment after her shop shut down five years ago. It lost business after a Paris Baguette opened just next door.

I had pushed my wife to start a bakery out of concern for our post-retirement livelihood. My wife ran it for four years but finally had to throw in the apron when the rent went up 20 percent and the Paris Baguette moved in. I felt she could have somehow managed if not for the competition from Paris Baguette. I feel bitter every time I see its name.

But even I can feel some pity for the bakery franchiser. The Ministry of Employment and Labor last week ordered SPC Group, which runs the chain, to directly hire bakers and shop staff instead of the 5,378 agency workers they depend on. As a result, SPC Group has to make the replacement within the next 25 days or pay penalties of up to 53 billion won ($47 million).

The correction order was issued because Paris Baguette uses agency workers to bake and serve as all other bakery chains do. Under the labor law, franchisers are not authorized to give orders to agency workers. The government cannot make such a nonsensical order if it is not out to clamp down on a certain corporate entity. The ramifications cannot be small.

The changes would affect many parties involved — the SPC Group franchise headquarters for Paris Baguette; agencies that supply bakers and other staff; owners of franchised stores; and bakers. However, the toll would be heaviest on the agencies. They can no longer run their businesses if they lose their primary customer.

The headquarters also would face a spike in labor costs and difficulty in managing thousands of staff scattered in stores across the country. The cost would naturally translate onto the franchisees. The minimum wage goes up by nearly 17 percent next year. Shop owners could earn less than the bakers they hire. They may have to close down when they cannot afford to pay bakers and staff.

Bakers will have less to worry about for the time being. But their jobs are not secure if their shops go bust. All 5,378 staff may not be able to keep their jobs. The less trained will be first to go. More will follow suit if more and more stores go out of business. The government has raised an issue that will be damaging to the industry as well as the labor market.

Moreover, the government has overlooked the fundamental mechanism of a franchise business. The business serves to benefit franchisees. It provides a business model for unskilled workers to start their own business and earn an income. It also generates sustainable jobs that make products and offer services.

Many are attracted to franchises because they can safely start their own business without a particular skill if they have the seed money. Retirees jump into the business with their retirement funds. But they could lose their entire post-retirement savings if they get into an unprofitable business. Paris Baguette is deemed one of the safest. The closure rate is just 1 percent, which is among the lowest in the bakery industry as well as the franchise industry. In addition, revenue per shop is among the highest in the franchise industry. Their bakers are the best paid thanks to the economies of scale from commanding over 3,000 franchise stores across the nation.

The economies of scale have been possible thanks to a reliable outsourcing system. The agencies make sure the staff is well trained and managed. As soon as over 5,000 workers directly go under the payroll of the headquarters, that may not be possible. The shop owners then could see their retirement money disappear, and part-time workers would lose their jobs. Bakers may also have to find other means to make a living.

The government belatedly learned of the mess it had created. Senior ministry officials said they will reexamine if there are better options. There could be better ideas if all the involved parities put their heads together. Paris Baguette proposed that it create a cooperative so that shop owners, agencies and headquarters discuss hiring and working terms. The Ministry of Employment and Labor turned the offer down and told the company to discuss it with the union.

A union was hastily formed under the militant umbrella group Korean Confederation of Trade Unions (KCTU) last month. A shop owner would hardly want to hire a baker who may have to join a walkout led by the KCTU. How can the government say it has done its duty when it pushes a franchiser and franchisees to talk with a hard-line union? It is no wonder the ministry is sneered at as a government office for labor, not employment.

JoongAng Ilbo, Sept. 28, Page 34

*The author is a columnist of the JoongAng Ilbo.

Yi Jung-jae