"Predict Future Management Crises"... The Elastic Standard of the 'Principle of Good Faith'

Rising Corporate Concerns Over Unpredictable Shinui Principle Standards
"Guidelines Must Be Clearly Reorganized," Voices Say

[Asia Economy Reporter Kiho Sung] The most crucial aspect of the ordinary wage lawsuit is the "principle of good faith" (Shinui Principle). The Shinui Principle refers to the fundamental civil law principle that members must act sincerely so as not to betray the trust of the other party. Until now, in ordinary wage lawsuits, the Shinui Principle has been applied in the sense that even if workers claim legitimate rights, they must consider the company's management situation when making demands. However, recently, the Supreme Court ruled that "the defense of good faith cannot be accepted solely because the company is in difficulty," raising concerns about the uncertainty of the ever-changing standards of the Shinui Principle. Legal circles and the business community are calling for clear reestablishment of guidelines.

So far, the Supreme Court has continuously narrowed the scope of the Shinui Principle's application. A representative case is the Hyundai Heavy Industries ordinary wage lawsuit, which concluded last December after nine years of conflict. Legal and industry experts have analyzed that through this ruling, the Supreme Court may have effectively expressed its intention to exclude the defense of good faith.

In the Hyundai Heavy Industries lawsuit, the Supreme Court judged that "if there is a possibility of overcoming future management difficulties, the Shinui Principle should not be used to easily reject workers' claims for additional statutory wages." Essentially, this means that companies must predict even the possibility of future deterioration in management conditions to apply the Shinui Principle. Companies criticize this court judgment as an "impossible demand." It is nearly impossible for companies to accurately foresee future risks in advance, especially considering sudden variables such as the COVID-19 situation and Russia's invasion of Ukraine.

There are also criticisms that the court's judgment on a company's "management difficulties" lacks clear standards and is excessive. In the Supreme Court ruling on the Kumho Tire ordinary wage case, the court judged it as a "temporary management downturn," overturned the lower court's decision, and sent the case back to the Gwangju High Court. The Supreme Court stated, "Paying additional wages to workers cannot be seen as causing significant difficulties to the company." However, Kumho Tire is still suffering losses, and if it loses in the retrial, contingent liabilities could threaten the company's very existence.

The unclear criteria regarding the timing of the ruling is also problematic. Depending on when the Supreme Court sets the ruling date, the judgment on management difficulties is likely to vary. Under civil law, the company should be judged based on the conclusion of the second trial's arguments. However, the fact that circumstances during the trial are not considered is a limitation.

Professor Heesung Kim of Kangwon National University Law School said, "It is practically an impossible demand for companies to accurately foresee the possibility of management deterioration and diagnose the possibility of overcoming it every time," adding, "If the labor and management have agreed in advance, the court should also base its judgment on that."

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