Voluntary Retirement · Honorary Retirement
Voluntary Retirement Program
What is voluntary retirement?
- Not a dismissal, but a mutual termination formed by application and approval
- Spell out the approval criteria and who can decline applications in the announcement
- Pressure meetings can be treated as a dismissal in effect
Many people see voluntary retirement as a 'soft dismissal,' but its legal nature is the opposite. Dismissal is the company ending the employment relationship unilaterally, whereas voluntary retirement is a mutual termination formed when an employee’s application meets the company’s approval. Because no statute specifically governs it, the company designs the terms and procedures. Generally, honorary retirement refers to a standing program for long-service employees, while voluntary retirement refers to a time-limited program opened when business needs require it, but the legal effect is the same. Because it is an agreement, the dismissal restrictions do not apply, provided the application is truly voluntary.
There are five items to design: eligible group, application period, severance bonus formula, company approval criteria, and post-departure support. The company should state in the announcement that it has the right to review applications and decline them, which reduces the risk of key people leaving first. As a rule, employees can withdraw an application until the company’s approval reaches them, so the time approval is notified should be documented. Selecting eligible employees by gender, age, or union activity raises separate discrimination or unfair labor practice issues.
The difference from recommended resignation is who makes the first move. In recommended resignation, the company proposes retirement to specific individuals; in voluntary retirement, the company publishes the terms and accepts applications. It also helps to understand how it relates to redundancy dismissal. Offering voluntary retirement counts as one of the efforts to avoid dismissal, but that alone does not justify a later dismissal. A severance bonus, whatever it is called, is money paid because of retirement, so it is usually taxed as retirement income, and eligibility for unemployment benefits depends on how the reason for separation is reported.
The biggest point of failure in practice is the interview. If you repeatedly call in people who did not apply to press them to leave, or warn them of standby orders or removal from their duties, the arrangement may be judged a dismissal in substance, even if it is a voluntary retirement in form. In that case the resignation letter loses its effect, and the company bears the burden of reinstatement and back pay. Conversely, if the terms are too generous, the people you wanted to keep leave first. Set the number of interviews and the scope of what may be said in advance, and direct questions about tax and unemployment benefits to the National Tax Service and the Employment Center.
Inwoo LeeExpert in leadership, communication and performance management
Hwi KimCEO of HRDIST & Talent Development Systems Consultant| Category | Voluntary Retirement · Honorary Retirement | Recommended Resignation | Redundancy dismissal |
|---|---|---|---|
| Legal nature | Mutual termination (announcement, then application and approval) | Mutual termination (company proposes to individuals) | Unilateral termination by the employer |
| How it starts | Terms disclosed, volunteers invited | Retirement offered to specific individuals | Select employees who meet the requirements and notify them |
| Key issues | Voluntary application, approval criteria | Genuine consent | Urgent business need, efforts to avoid dismissal, fair selection, prior consultation |
| Monetary compensation | Severance bonus set by the company | Subject to individual agreement | No obligation beyond statutory severance pay |
It is not defined by statute; it is a practice that grew out of corporate HR operations. Courts treat it as a mutual termination of the employment contract, formed when the employee expresses intent to resign and the employer accepts. Where the intent to resign was coerced, courts have judged it a dismissal in substance.
Consider a hypothetical case. Company A makes display components and has 620 employees. Sales of its main product fell 30% in two years, and it needed to cut about 80 production jobs. Before turning to redundancy dismissals, HR prepared a voluntary retirement program for the 310 employees with 10 or more years of service.
- The HR manager stated in the announcement that the severance bonus would be 8 to 18 months of monthly pay depending on years of service, and included the sentence "The company may decline applications based on business needs."
- An advisory labor attorney gathered 22 managers and trained them on interview standards. They received a guiding principle, “Explain the program once per person, and don’t call back anyone who declines,” along with 7 prohibited statements.
- During the three-week application window, 96 people applied. When 12 equipment maintenance staff were among them, the head of production said, "If these people leave, the line stops," and the company rejected 9 applications.
- Four applicants said they wished to withdraw before receiving approval notice, and their withdrawals were accepted. HR kept electronic records of the send and receipt times for all 83 approval notices.
- We held two sessions for 83 employees leaving the company, explaining how the severance bonus is taxed and how to apply for unemployment benefits, and 61 of them joined outplacement counseling.
- In the end, 83 employees left, meeting the target of 80, and no redundancy dismissals were carried out. Over the following year there were zero relief petitions filed with the Labor Relations Commission, and 44 of those who left found new jobs within six months.