The Supreme Court on Thursday ruled that the fixed amount of performance-based bonus paid on a regular basis should be considered part of workers‘ regular wages, in a landmark ruling that effectively handed a victory to 1,025 employees of GM Korea in their legal dispute against the company.

South Korea’s top court upheld a ruling by a lower court that said GM Korea should include its monthly paid bonus and family allowance as part of the regular wages, which forms the basis for calculating each employees‘ additional allowances.

The ruling marked the first time the Supreme Court reached a decision specifically on the performance-based salaries in relation to regular wages. The court had ruled in December 2013 that regularly paid bonuses should be regarded as regular wages.

Korean law stipulates that regular wages are hourly, daily, weekly, monthly or contracted fees paid to a worker routinely, but there has been consistent dispute over whether it should also include regularly paid bonuses and allowances.

Debate over the scope of regular pay was ignited in 2013 when GM chief Daniel Akerson requested President Park Geun-hye address the regular wages issue before the company invested an additional $8 billion into the country.

The ruling Saenuri Party has been revising the labor law as part of labor reforms. The revised version excludes additional payments based on each employee‘s circumstance or performance.

The Federation of Korea Trade Unions welcomed the court’s decision and called on the government and the ruling party to “immediately stop their push to expand the scope of excluded categories from the regular wages.”

Thursday’s ruling is likely to have rippling effects throughout the industry, which has complained over possible surges in personnel expenses if the regular wages encompass the bonuses and allowances.

The 2013 ruling, meanwhile, had said that an employee’s right to receive the unpaid wages may be restricted if the company’s operations would be greatly disrupted by the payment, leaving room for different interpretations over how to measure a company‘s anticipated hardship.

Since 2006, GM Korea has been paying what is referred to in Korea as “accomplishment salaries,” a form of bonus based on the respective workers’ performance evaluation the year before. The bonus is set as high as seven times the amount of each employee‘s monthly base pay, and is handed out on a monthly basis.

But when GM Korea excluded the accomplishment salary and other allowances when setting regular wages, employees filed a lawsuit against the company in 2007. GM Korea has said the bonus should be excluded, as it differs for each employee, but the workers said it is regularly paid and has a fixed rate.

“Since the amount of accomplishment salary is already fixed in the year that they are paid, it should be included in the regular wages,” the court said in its ruling. It stipulated the criteria for regular wages as regularity, fixed rate and uniformity, and pointed out the bonus is paid to even first-year workers with no previous performance record.

But the court remanded the case of including other allowances ― such as for insurance fees and vacations ― as part of the regular salary to the Seoul High Court.

In a separate case on Nov. 2, Seoul High Court turned down five GM Korea workers’ lawsuit against the company to pay them extra fees that would have incurred if their past regular wages included regularly paid bonuses.

It pointed out that paying the extra wages would cause great difficulties to the company, which had already suffered from an annual loss of 60 billion won ($52.3 million) from 2008 to 2010.

But the court handed victory to 933 workers of Korea Southern Power Co. Ltd. on a similar request, pointing out that paying the additional wages would not force the company into hardships.


By Yoon Min-sik
(minsikyoon@heraldcorp.com)