Interest Rates, Exchange Rates, and Inflation Are Headaches... 'Performance Bonus Ordinary Wage Ruling' as a Management Variable

Supreme Court Rulings Becoming Stricter
Corporate Labor Cost Burden May Increase

Hyundai Heavy Industries Labor Union is on strike at the Ulsan headquarters on the 27th due to difficulties in wage negotiations. (Image source=Yonhap News)

[Asia Economy Reporter Moon Chaeseok] As companies face management pressure due to external variables such as interest rates, exchange rates, and inflation, they are also closely monitoring rulings on performance bonuses as part of ordinary wages. This is because, judging from the trend of court rulings, the possibility of including management performance bonuses as ordinary wages cannot be ruled out.

According to the industry on the 8th, companies are concerned that a repeat of the 2013 lawsuit incident, where the court included regular bonuses as ordinary wages, may occur. Although some lower courts have ruled that such bonuses should not be considered ordinary wages, the Supreme Court has previously ruled that performance bonuses in public institutions are included in average wages, making it difficult to be complacent.

For example, on the 28th of last month, the Supreme Court ruled in a lawsuit between Hyundai Steel’s in-house subcontractors and workers that bonuses must be paid even to workers who retired before the bonus payment. Even if there is a condition that bonuses are paid only during employment, the collective agreement stipulates that bonuses must be paid "proportionally" upon joining, reinstatement, or leave, which can apply after retirement. If the ruling is followed, companies may face increased labor costs.

Accordingly, at the online briefing session on "Labor rulings to watch this year and corporate HR strategies" held by the Korea Chamber of Commerce and Industry and the law firm Sejong on the 3rd, attorney Kim Jongsu advised that recent legal disputes over the average wage nature of management performance bonuses resemble the 2013 lawsuit incident, urging companies to be cautious.

Attorney Kim Jongsu pointed out that regarding management performance bonuses, which were previously not considered wages, "Since the Supreme Court ruled that performance bonuses in public institutions are included in average wages, many lawsuits have been filed concerning management performance bonuses in private companies," adding, "Especially since lower courts have issued differing rulings, caution is necessary." He continued, "If the Supreme Court recognizes management performance bonuses as average wages, a 'second ordinary wage lawsuit' will unfold," emphasizing, "Individual companies need to recognize and prepare for such management performance bonus risks in advance."

Additionally, legal experts advised paying attention to domestic rulings on issues such as "the possibility of dismissing low performers," "the obligation of the primary contractor to engage in collective bargaining with subcontractor labor unions," "the court's limited recognition of the comprehensive wage system," "the principle of indefinite contract employment when directly employing dispatched workers contrary to Ministry of Employment and Labor guidelines," and "precedents on the introduction of wage peak systems for workers under annual salary contracts."

Jeon Insik, Director of Industrial Policy at the Korea Chamber of Commerce and Industry, said, "Due to significant legislative changes such as the implementation of the 52-hour workweek system, amendments to the Labor Union Act, and the enactment of the Serious Accident Punishment Act, companies have focused more on legislation and somewhat neglected changes in rulings," adding, "Since recent rulings that have a significant impact on companies are emerging alongside legislation, companies need to be cautious."

This content was produced with the assistance of AI translation services.