"Year-End Bonuses Qualify as Ordinary Wages, Performance-Based Pay Does Not"

The Supreme Court has ruled that year-end bonuses qualify as ordinary wages in a wage lawsuit filed by employees of the Korean Red Cross. The court reaffirmed that the existence of requirements such as being employed at a certain time or working a minimum number of days does not automatically negate the classification of ordinary wages. However, the court determined that performance-based pay does not constitute ordinary wages. The Supreme Court’s Civil Division 3 (Presiding Justice Lee Heungku) partially overturned the lower court's ruling, which had partially ruled in favor of the 35 plaintiffs, including employee A, and remanded the case to the Seoul High Court (2020Da219454).

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[Facts]

Employees of the Korean Red Cross, including A, filed a lawsuit demanding that year-end bonuses, performance-based pay, and transportation allowances be included in ordinary wages, and that they be paid the difference in statutory allowances and severance pay recalculated on this basis.

In the first trial, the court recognized transportation allowances, welfare improvement allowances, and performance-based pay as ordinary wages. However, it excluded year-end bonuses, filial piety bonuses, and household support allowances, stating that these were only paid to current employees or required a certain number of working days, thus lacking the fixed nature required for ordinary wages.

The appellate court also held that year-end bonuses were not ordinary wages. However, it partially changed the first trial’s decision regarding performance-based pay, stating, "It is difficult to consider the entire amount as ordinary wages, but the minimum payment, which is given even to those who receive the lowest grade, qualifies as ordinary wages." Transportation allowances, welfare improvement allowances, and position allowances were recognized as ordinary wages.

[Key Issue]

The key issue was whether year-end bonuses and performance-based pay qualify as ordinary wages.

[Supreme Court Decision]

The Supreme Court found that year-end bonuses do qualify as ordinary wages. The bench stated, "The condition for payment of year-end bonuses, namely '15 salary payment days during the calculation period,' refers to a number of working days that can be fulfilled by employees who provide the prescribed work in full." The court further explained, "The mere existence of such a condition does not negate the nature of ordinary wages, which are to be paid regularly and uniformly as compensation for prescribed work," finding a legal error in the lower court’s reasoning.

The Supreme Court also reached a different conclusion from the appellate court regarding performance-based pay. The bench stated, "Performance-based pay is compensation for work performed in the previous year, with the payment timing set in the current year. For any portion to be considered ordinary wages, the minimum payment must be fixed based on the previous year. However, since the regulations do not specify a minimum payment rate and the rate changes every year, it is difficult to recognize it as ordinary wages."

The Supreme Court upheld the appellate court’s decision to recognize transportation allowances, welfare improvement allowances, and position allowances as ordinary wages.

An Jaemyung, Legal Times Reporter

※This article is based on content supplied by Law Times.

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