Supreme Court Rules "Agreement to Deduct Unpaid Amounts Based on Taxi Daily Quota System Is Invalid"

The Supreme Court has ruled that an agreement to deduct from wages the shortfall in the minimum daily transportation income based on the taxi quota system, which is prohibited by law, is invalid.

The quota system is a system where taxi drivers pay the company a fixed daily amount from their earnings and keep the excess. If the fare revenue does not meet the quota, the taxi driver must cover the shortfall. This system is prohibited by related laws because it can result in situations where the minimum living expenses necessary for taxi drivers' livelihoods are not guaranteed.

Supreme Court, Seocho-dong, Seoul.

According to the legal community on the 29th, the Supreme Court's Second Division (Presiding Justice Min Yu-sook) overturned part of the lower court's ruling that acquitted taxi company CEO Jeong Mo in an appeal trial for violating the Employee Retirement Benefit Security Act (Retirement Benefit Act) and remanded the case to the Seoul Southern District Court with a guilty verdict.

The court stated, "The lower court's judgment contained an error in the legal interpretation regarding the intent of violating the Retirement Benefit Act, which affected the verdict."

Jeong was prosecuted for failing to pay retirement benefits totaling about 7.6 million won on time to four taxi drivers without any agreement to extend the payment deadline.

The Retirement Benefit Act stipulates that employers must pay retirement benefits within 14 days from the date the payment obligation arises when an employee retires.

In court, Jeong gave two reasons for not paying the retirement benefits.

First, he argued that failing to pay retirement benefits on time to three drivers, A, B, and C, was not a problem because the unpaid quota shortfall they had not covered was offset against the retirement benefits. He cited provisions in the company's collective agreement and employment rules stating that "advances, fines, and transportation receivables can be deducted from wages."

Regarding driver D, Jeong claimed that since D had been absent without leave more than three times within a month, the employment relationship was automatically terminated according to the employment rules, and because the employment period was less than one year, there was no obligation to pay retirement benefits.

The first trial court found Jeong guilty of some charges and sentenced him to a fine of 1.3 million won.

The court cited the Supreme Court ruling, stating, "Since the Labor Standards Act requires wages to be paid in full directly to the worker in cash, the employer cannot offset debts, and retirement benefits, which are also a form of wages, are not subject to offset."

It continued, "Therefore, even if the defendant holds claims such as unpaid debts as he claims, unless there are special circumstances such as an agreement to offset with the workers, those claims cannot be offset against the retirement benefit claims."

Regarding D, the court rejected Jeong's claim, noting that D disputed the fact of unauthorized absences and that it was unclear whether the amendment to the employment rules, which Jeong cited as grounds for automatic termination of the employment contract, had the collective consent of the drivers.

On the other hand, the second trial court acquitted Jeong of all charges. The appellate court found it difficult to recognize Jeong's intent to deliberately withhold retirement benefits despite knowing the obligation to pay.

The court stated, "In the case of the corporate taxi operated by the defendant, the so-called 'quota system' is maintained as a kind of practice," and "since the company’s collective agreement and employment rules stipulate that unpaid quotas can be deducted from wages, it is highly likely that the defendant believed it was possible to deduct already incurred transportation receivables from retirement benefits."

Regarding D, the Seoul Regional Employment and Labor Office initially calculated Jeong's unpaid retirement benefits at about 7 million won, but after the prosecutor's reinvestigation directive, the period with less than 15 hours per week was excluded from the retirement benefit calculation, reducing the unpaid amount to 85,180 won.

The court pointed out these facts and stated, "There were some errors in the specific calculation of retirement benefits, and it cannot be concluded that the defendant had intent to violate the Employee Retirement Benefit Security Act due to these calculation errors."

However, the Supreme Court reversed the conclusion again.

The Supreme Court held that since the quota system itself is not permitted under current law, any deduction agreement based on it is also invalid. It judged that Jeong's intent to withhold retirement benefits could not be denied due to the invalidity of the agreement under civil law.

The court stated, "The so-called quota system, where a fixed amount is deposited to the transportation operator and the excess transportation income is the income of the driver, causes significant fluctuations in drivers' wages because transportation income is not fixed, and since fixed wages are not large, drivers may find it difficult to secure even basic living wages when transportation income is low. Due to these problems, the Passenger Transport Act was amended in 1997 to stipulate the so-called full management system, but many cases circumvented this and effectively operated the quota system."

It added, "Subsequently, the Passenger Transport Act was amended in 2019 to explicitly stipulate that 'transport operators shall not collect a fixed amount of transportation income, and drivers shall not pay such amounts,' which came into effect on January 1, 2020."

The court further stated, "Considering the purpose and background of this provision, which clearly prohibits collecting a fixed amount of transportation income to rectify the defects of the quota system, it is reasonable to regard this provision as a mandatory rule. Therefore, even if there was an agreement between the employer and the labor union contrary to this, such an agreement must be considered invalid."

While acknowledging that the employment rules and collective agreement of Jeong's company contain provisions allowing deduction of transportation receivables from wages, the court concluded, "In light of the above legal principles, this is invalid as it violates the mandatory provisions of the Passenger Transport Act," and "Ultimately, the employer defendant cannot refuse to pay retirement benefits by relying on employment rules or collective agreements that have no legal effect."

Meanwhile, the Supreme Court also overturned the second trial ruling regarding Jeong's charges related to D, whose employment contract termination due to unauthorized absences was disputed.

The court stated, "Even if the employment rules stipulate automatic termination for unauthorized absences of three days or more per month and the procedure differs from ordinary dismissal or disciplinary dismissal, if the employer unilaterally terminates the employment relationship regardless of the employee's intention, it should be regarded as dismissal subject to restrictions under the Labor Standards Act."

It also stated, "If the automatic termination reason is also stipulated as a disciplinary cause, the employer must follow the general disciplinary procedures when imposing automatic termination."

Since Jeong's company separately designates unauthorized absences of three days or more per month as grounds for disciplinary dismissal in addition to the employment rules, disciplinary procedures should have been followed. The Supreme Court found it difficult to recognize a justifiable reason for Jeong's belief that the employment relationship was automatically terminated and for withholding retirement benefits without any evidence of such procedures.

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