Supreme Court: "Doctors and Medical Corporations Are Not Merchants"... Doctors' Wage Claims Are Civil Claims

Civil Law Delay Interest Rate of 5% Per Annum Should Apply Instead of Commercial Law Delay Interest Rate of 6% Per Annum

Supreme Court, Seocho-dong, Seoul.

[Asia Economy Reporter Choi Seok-jin, Legal Affairs Specialist] The Supreme Court has made its first ruling that doctors or medical institutions cannot be regarded as 'merchants,' and therefore, wage claims that doctors have against medical institutions are civil claims.

The Supreme Court's 3rd Division (Presiding Justice Lee Heung-gu) announced on the 13th that it partially overturned the lower court's ruling in the wage claim lawsuit filed by doctors B and C, who retired from Hospital A, against Medical Foundation A, specifically the part where the defendant was held liable for delayed damages, and issued a self-judgment (judgment by reversal).

The court stated, "The first clause of the lower court's order is amended as follows," and ruled, "The defendant shall pay plaintiff B KRW 112,485,212, plaintiff C KRW 57,953,322, and interest calculated at an annual rate of 5% from March 15, 2018, to December 8, 2021, and at an annual rate of 20% from the following day until full payment is made."

Previously, the second-instance court ordered, "The defendant shall pay plaintiff B KRW 112,485,212, plaintiff C KRW 57,953,322, and interest calculated at an annual rate of 6% from March 15, 2018, to December 8, 2021, and at an annual rate of 20% from the following day until full payment is made." However, the Supreme Court lowered the interest rate applied to delayed interest from the commercial law's 6% to the civil law's 5%.

The court explained, "Considering various provisions of the Medical Service Act and other circumstances, doctors or medical institutions cannot be regarded as merchants as defined in Articles 4 or 5, Paragraph 1 of the Commercial Act, and claims such as wages, allowances, and retirement pay that doctors have against medical institutions cannot be considered commercial claims." It added, "Therefore, the lower court's application of the commercial law's delayed damage interest rate to the plaintiffs' claims for allowances against the defendant was a misinterpretation of the law on commercial claims that affected the judgment."

Article 4 of the Commercial Act (Merchants - Natural Merchants) defines a merchant as "a person who conducts commercial activities in their own name," and Article 5 (Quasi-Merchants) states in Paragraph 1 that "a person who operates a business in a merchant-like manner through a store or similar facilities is considered a merchant even if they do not engage in commercial activities," and in Paragraph 2 that "a company is considered the same as in the previous paragraph even if it does not engage in commercial activities."

Through this ruling, the Supreme Court clearly stated that doctors or medical institutions, whose profit-seeking activities are restricted under the Medical Service Act and whose duties emphasize high public interest and ethics, do not qualify as merchants under the Commercial Act. Therefore, wage claims doctors have against medical institutions are essentially civil claims, not commercial claims.

Doctors B and C, who retired from Hospital A in 2018, filed lawsuits claiming unpaid overtime wages, unused vacation pay, unpaid retirement benefits, and other amounts totaling approximately KRW 164 million and KRW 113 million, respectively.

In the first trial, the hospital did not contest the claims, and the amounts claimed by the two were recognized as is through a default judgment.

In the second trial, following the hospital's appeal, B and C increased their claims to approximately KRW 223 million and KRW 159 million, respectively.

The second-instance court dismissed their claims for overtime pay on Saturdays but partially accepted claims for unused vacation pay and unpaid retirement benefits, ordering the hospital to pay B KRW 112,485,212, C KRW 57,953,322, and interest thereon.

Regarding interest, the court applied the commercial law's delayed interest rate of 6% per annum from the 14th day after the day following the retirement date until the date of the second-instance judgment, and the Labor Standards Act's delayed interest rate of 20% per annum from the following day until repayment.

The court rejected the claim for Saturday overtime pay, citing the wage contract with the hospital stating that "outpatient duty is performed every other Saturday, and the monthly contract wage includes an average Saturday work allowance equivalent to 2.17 times 50% of annual Saturdays," and that the two did not raise objections during their long-term employment.

The Supreme Court found an issue with the second-instance court's judgment regarding the interest rate applied to unpaid retirement benefits and other amounts not paid on time.

The two initially claimed interest at 5% per annum from the day after retirement to the 14th day, and 20% per annum thereafter until full payment.

However, the second-instance court, based on Article 36 (Settlement of Money) of the Labor Standards Act, which requires employers to pay wages, compensation, and other money within 14 days after the payment reason arises in cases of employee death or retirement, and Article 9, Paragraph 1 of the Employee Retirement Benefit Security Act, which requires payment of retirement benefits within 14 days after the payment reason arises, ruled that there is no obligation to pay delayed interest for the first 14 days after retirement and dismissed the claim.

Meanwhile, Article 37, Paragraph 1 of the Labor Standards Act stipulates that if unpaid wages are not paid within 14 days from the payment reason occurrence, delayed interest must be paid from the next day until payment, at a rate determined by presidential decree considering economic conditions, within 40% per annum.

Under this legal delegation, Enforcement Decree Article 17 of the Labor Standards Act defines the "rate determined by presidential decree" in Article 37, Paragraph 1 as 20% per annum.

Additionally, Article 18, Paragraph 3 of the Enforcement Decree excludes cases where "it is deemed appropriate for courts or labor committees to dispute the existence or non-existence of all or part of the delayed wages or retirement benefits" from the application of the 20% delayed interest rate.

Based on these provisions, the second-instance court ruled that since only part of the plaintiffs' claims were accepted, the defendant's dispute over all or part of the plaintiffs' claims from the start date of delayed damages to the date of this judgment is appropriate, and therefore, the 20% interest rate under the Labor Standards Act would not apply during this period, but the 6% rate under the Commercial Act would.

Thus, the court ordered payment of delayed damages calculated at 6% per annum from March 15, 2018 (14 days after the plaintiffs' retirement on February 28, 2018) to December 8, 2021 (the date of the second-instance judgment), and 20% per annum thereafter until full payment.

However, the Supreme Court ruled that the second-instance court's application of the 6% commercial law delayed interest rate from March 15, 2018, to December 8, 2021, was incorrect.

The court stated, "Considering the Medical Service Act's various provisions that restrict doctors' profit-seeking activities and emphasize high public interest and ethics in their duties, and protect medical practice, the activities of doctors who perform medical treatment using specialized medical knowledge in individual cases fundamentally differ from merchants' business activities, which are characterized by simple, rapid, and appearance-focused standardized business, promotion of business through free advertising and publicity, and free expansion of human and material business bases for maximum efficient profit-seeking."

It added, "Furthermore, there is no special socio-economic necessity or demand to apply the Commercial Act to legal relationships formed in connection with doctors' medical activities in the same way as to merchants' business activities and related legal relationships."

Based on these grounds, the Supreme Court finally stated, "Therefore, considering various provisions of the Medical Service Act and other circumstances, doctors or medical institutions cannot be regarded as merchants as defined in Articles 4 or 5, Paragraph 1 of the Commercial Act, and claims such as wages, allowances, and retirement pay that doctors have against medical institutions cannot be considered commercial claims."

It continued, "Nevertheless, the lower court's application of the commercial law's delayed damage interest rate to the plaintiffs' claims for allowances against the defendant was a misinterpretation of the law on commercial claims that affected the judgment," and ruled that "the grounds for appeal pointing this out are valid," explaining the reason for reversal and self-judgment.

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